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Monday, March 12, 2012

Decline in bankruptcy filings tied to less availability of credit

Consumers exercising other options to manage debt
From Jeffrey Freedman Attorneys

With less credit available and consumers continuing to demonstrate fiscal conservancy regarding the use of credit, bankruptcy filings continued their slow decline in February. Filings for the U.S. Bankruptcy Court Western District of New York, which covers the counties surrounding Buffalo and Rochester, were down 4.8 percent for the month of February 2012 compared to the same month in 2011.

"A look at the other statistics related to credit card behaviors shows how credit card use is connected to bankruptcy filings," said Jeffrey Freedman, owner, Jeffrey Freedman Attorneys, PLLC. "According to the Federal Reserve's data, credit card charge-offs were down 13.35 percent during the last quarter of 2011, and delinquencies on credit card payments declined 5.7 percent during that same period."

Credit card issuers have contributed significantly to the decline in credit card use. Since the Credit Card Reform Act of 2009 (CARD), which restricted the fees and interest rates charged by creditors, these lenders have tightened credit policies and are not extending as many credit offers, according to Creditcard.com.

"An additional factor to lower bankruptcy rates is that consumers have other options for managing debt," Freedman said. "Enforcement of debtor's rights legislation has stepped up, making it more difficult for collectors to harass debtors. Also, home foreclosures are taking longer to process."

Under the Fair Debt Collectio Practices Act (FDCPA), more debtors who have been harassed by abusive collectors are suing collection agencies. Settlements vary but often a minimum in statutory damages of $1,000 is awarded. In some cases the settlement covers the resolution of the entire debt. Additionally, home foreclosures now take two to three years, so families that can no longer make their mortgage payments can typically live in the house without having to pay the mortgage payment or taxes for almost 36 months before being evicted.

"We advise clients to pay bills such as the electric, heat, water, and home insurance while the foreclosure is being processed," said Kevin Bambury, an attorney with Jeffrey Freedman Attorneys, PLLC.

Debtors can also seek debt reduction outside of bankruptcy, offering to pay a small amount -- perhaps 10 or 20 cents -- on the dollar to satisfy the debt, Freedman said.

"We have always said that bankruptcy is a last resort for people who need a fresh start and have no other options. Now, other options have become more accessible, and since bankruptcy became more expensive after the Bankruptcy Reform Act of 2005, debtors are exercising these other options," he said.





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