Bankruptcy Rise Fuels Demand for Counseling

Never did that old saying "Knowledge is power" ring truer than now when borrowers and lenders alike are reviewing past mistakes and future opportunities.

The mortgage crisis is in full swing. In March 2008 alone, Consolidated Credit Counseling Services Inc. reported the number of personal bankruptcies, or Chapter 7 bankruptcies where all debt is liquidated, increased by 36% compared to March 2007. It also means higher consumer debt levels "since they are consistent with the number of bankruptcy filings, CCCS said. The total non-business filings for the 12-month period ending March 31, 2008 reached 871,186 with Alabama, Georgia and Indiana topping the chart as the highest bankruptcy states.

According to CCCS debt analyst Howard Dvorkin, who founded the nonprofit, "The unprecedented level of debt poses a serious risk to the financial health of Americans. A high level of indebtedness could lead to increased delinquencies and even more bankruptcies in our already shaky economy."

The infamous culprit at the root of the bigger adjustable-rate mortgage loan reset problem, which will continue to contribute to new personal bankruptcies, adds to "the simple fact that people are extended more credit than they can handle," he said. "Many American's are living on the financial edge, then something happens: divorce, accident, job loss, and the trouble starts."

The obvious response for borrowers - and responsible lenders willing to help their clients - is to ensure those facing financial distress sign up with debt counselors, sooner rather than later. For example, CCCS counselors suggest borrowers call their creditors before it is too late for creditors to be able to help since, as a rule, most are willing to take into consideration special circumstances such as a job loss, divorce, or illness - all of which qualify as temporary, reversible distress. Borrowers can be encouraged to budget their expenses and use only cash and stop incurring new credit card debt. Cutting on not-so-indispensable expenses such as dining out and office coffee instead of daily lattes, will add up and help them pay off their debt.

Other CCCS borrower tips include tracking your spending and carefully preparing a budget and cutting back on certain expenses based on reviews of actual expenses. These reviews, CCCS notes, should ensure borrowers know whether they are "adequately covered by insurance including medical, homeowner and auto."

Debt management programs are available by phone (800-728-3632) through counselors who can give advice on how to channel debts into one low monthly payment, reduce or eliminate interest charges, and help restore customer credit scores. A free budgeting guide and other data are available at ConsolidatedCredit.org.

While CCCS's mission is to help people solve their financial problems through education and professional counseling or debt management services, Fannie Mae's expanded mission includes free financial education as well. Fannie is just one of thousands of financial institutions across the country that are engaged in innovative programs.

In one such effort, Freddie joined forces with Virginia Gov. Timothy M. Kaine and the Virginia Foreclosure Prevention Task Force to offer what they called "Mortgage Clinics."

On June 14 and June 21, the clinics opened with general foreclosure prevention information seminars followed by individual sessions with certified housing counselors in five locations in Virginia. VHDA executive director Susan Dewey said attendees learned "about the importance of contacting their lender at the first sign of trouble, working with a housing counselor, knowing their foreclosure prevention options, prioritizing spending plans and avoiding foreclosure scams." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/