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Bankruptcy compliance waiver ends with March 10 deadline

People filing for bankruptcy in the Southern District of Mississippi, which goes north into the Jackson area covering a good portion of the state’s population, need to be aware that a waiver on compliance with the new national bankruptcy laws is ending March 10.

A stay has been in effect as a result of the hurricanes of 2005. People filing for bankruptcy haven’t had to comply with provisions of the law that require them to receive credit counseling before filing, and complete a two-hour course on personal financial management before the bankruptcy is discharged. In March, the stay is going to be lifted.

Doug Erickson, vice president of partner relations, CCCS of Greater Atlanta, said the new provisions include a means test at the start of the bankruptcy process to verify if you have the ability to repay any of your debt. That is used, in part, to determine if you qualify for Chapter 7 relief or if you must file a Chapter 13 repayment plan.

“The second major change requires any debtor considering bankruptcy to obtain credit counseling and a Certificate of Counseling from a trustee-approved credit counseling agency,” Erickson said. “The third change is that once a bankruptcy case is filed, the debtor must take a personal financial management course from a trustee-approved agency and obtain a Certificate of Debtor Education before the bankruptcy can be discharged. This course is a two-hour personal financial management course. The fourth major change is that the U.S. Trustees now perform random and targeted audits to verify the accuracy of filings.”

Erickson said there could be a problem with people who filed cases before the March 10 deadline not being aware that they need to complete the two-hour debtor education course in order to have their bankruptcy discharged.

“Many consumers don’t keep up with this kind of news,” Erickson said. “Unless they get notified by their attorney, I foresee that is going to be a problem. The consumer will expect the case to be discharged and will, instead, receive a letter in the mail saying the case has been closed without benefit of discharge. They will probably have to pay hundreds to get the case reopened, and complete the two-hour course, in order to obtain a discharge.”

Chris Burford, program director, Consumer Credit Counseling Service (CCCS), Jackson, said he expects his organization to get even busier after the March 10 deadline.

Burford said that people can benefit greatly from the pre-filing credit counseling and post-filing debtor education. On the front end, the credit counseling can help an individual decide whether or not bankruptcy is the best option.

“The counseling might be positive for them, and help them identify alternatives to bankruptcy,” said Burford, who is also co-host of the Mississippi Public Broadcasting radio program “Money Talks,” which airs from 9 a.m.-10 a.m. Tuesday. “If not, if they are in an unsolvable financial crisis, they can get a Certificate of Counseling from a counseling agency like CCCS, go back to their attorney and file bankruptcy.”

Consumers can receive the counseling and financial education face-to-face (there will be bankruptcy counselors and debtor education classes at CCCS in the metro Jackson area), on the telephone or via the Internet.

‘Unanticipated life events’

Contrary to what many people may believe, bankruptcy is more likely to be caused by major life events like losing a job, divorce or serious medical illness, which result in massive bills more than by overspending.

“Consumers are affected by job losses and major medical expenses,” Burford said. “There is some overspending but, basically, unanticipated life events happen. That is most of what we see. Compared to several years ago, we are seeing more job losses, under-employment and high medical bills affecting people’s finances. Divorce and medical expenses probably lead the pack.”

While bankruptcy is never anyone’s first choice, it is necessary in some circumstances.

“People need relief,” Burford said. “If they qualify and go through the process, we’re there to help them get back on their feet and make good decisions for their future. Where we come into play is providing needed financial education and effective counseling tools.”

Bankruptcy may become even more common in the future. Salary increases aren’t keeping up with inflation. In 2007, consumer prices rose 4.1% — the highest rate in 17 years. Prices were up for energy, groceries, housing, healthcare and education. But the average weekly wages, after adjusting for inflation, only went up .9%.

“The bottom line is, as time goes by, it costs more for basic needs and the dollar continues to buy less,” Burford said. “As consumers, we have to sacrifice more each year. Our expenses might go up 10% but our income only 2%. The spread continues to get worse. Often the last thing we spend money on is healthcare. Everyone’s first priority is food, the light bill and the mortgage or rent. For a lot of consumers in Mississippi and other states, health insurance isn’t even affordable. Then, when a serious illness or accident occurs, families face major financial problems. Some of these situations are only avoidable through bankruptcy.

“The challenge in today’s society is that people have to live tighter. They have to count their pennies and make sacrifices. They have to keep their car for 10 years when they used to flip it every four years. People are realizing they can’t afford things. The corner is turning a little. People need to learn to live on less than what they bring home. It’s as simple as that.”

Consumers must be realistic

Consumers have to be realistic about what they can afford. They can’t worry about what everyone else is doing around them. There are fewer Jones to keep up with. It might mean downsizing the house and cutting expenses like vacations.

“Otherwise, if you load up on credit and you have unexpected major medical expenses or a job loss what you wind up with is a lot of pressure, stress and frustration,” Burford said.

Scott Scredon, public relations director, CCCS of Greater Atlanta, said due to the subprime mortgage problems, the volume of calls received by CCCS is going up tremendously. This past year set records for nearly every type of counseling done by CCCS, which provides services around the country. Housing sessions went from under 10,000 in 2006 to 31,000 last year.

“We specialize in three areas — foreclosure prevention, budget and debt counseling and bankruptcy counseling and education,” Scredon said. “Bankruptcy counseling went from 124,000 sessions in 2006 to 165,000 in 2007, an increase of about 32%.”

Can foreclosure counseling help someone prevent the loss of their home? Scredon says, “Yes,” especially when people don’t wait until it is too late.

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that went into effect in 2005 appears to be accomplishing a goal that consumers with the ability to repay their debt be required to repay it. “One primary result is that more people across the country are entering into repayment plans through Chapter 13,” Erickson said. “People who can afford to repay their debts should repay their debts. In that regard, it was good.”

Across the country when the new bankruptcy laws went into affect, people rushed to file bankruptcy before the deadline. Now that Mississippi is facing a deadline to come under the same law, Erickson said it will be interesting to see if the Southern District of Mississippi and other districts in the Gulf Coast area affected by the waiver experience the same artificial rush to file before the March 10 deadline.

Contact MBJ contributing writer Becky Gillette at 4becky@cox.net.

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