Debt Consolidation

Overwhelming credit card debt often afflicts young consumers, but federal bankruptcy judges are trying to provide a cure.

"Many of the debtors who come into bankruptcy court admit that if someone had warned them about the pitfalls, they would not be in that predicament," said Chief Bankruptcy Judge John Ninfo of the U.S. Bankruptcy Court for the Western District of New York.

"We live in a competitive society. Many young people grow up thinking they can afford something if they can just charge it on their credit card," he said. "Often they spend because everyone else is spending."

Bankruptcy Judge R. Thomas Stinnett, who chairs the Public Education Committee of the National Conference of Bankruptcy Judges (NCBJ), agrees, and notes that college students often are solicited by credit card companies during registration.

More than half of today's college freshmen owe over $1,500 in credit card debt. A survey by an educational lending company also indicates that the balance will more than double by the time those students are seniors. And the interest charged for credit card debt typically is far higher than that for student loans.

"We can complain about the marketing tactics of credit card companies. However, people ultimately have to be responsible for their decisions," Stinnett said.

To help foster such responsibility, the NCBJ sponsors an outreach project to inform high school and college students about the consequences of excessive debt and irresponsible credit card use.

The project, funded by the judges' group's Endowment for Education, gets technical support from students at Chattanooga State Technical Community College in Tennessee. The project has developed an interactive, 10-minute video, "Bankruptcy: Don't Let It Happen to You," available at webctdev.chatta-noogastate.edu/bankruptcy/index800.htm. There are links to other educational sites.

Jean Dunn, a family and consumer science teacher at a Chattanooga middle school, uses the NCBJ video in her Teen Living course for eighth-graders.

"Typically, very few of the students are savvy about credit-related issues coming into the class. The NCBJ program issues a cautionary word about credit cards," she said.

Students who have seen the program apparently take it to heart during in-class budget-management exercises. "I've noticed that students avoid opening a credit card account even when that is one of the options presented," Dunn said.

Ninfo partnered with a county bar association's bankruptcy committee to launch a Credit Abuse Resistance Education (CARE) program that encourages middle school, high school and college students to have a budget, differentiate between needs and wants, own only one credit card, and be committed to paying off the balance each month.

"Although we're not teachers, we do the best we can when we meet students in the classroom," Ninfo said.

The effort's success caused Chief Judge John Walker of the U.S. Court of Appeals for the Second Circuit to encourage other courts in the circuit to start CARE programs.

"Many young people are caught up in our consumptive society and have poor financial role models. As a result, they easily blur the lines between ‘needs' and ‘wants,'" Walker said.

"It is especially troubling that more and more young people are falling victim to credit card abuse and turning to bankruptcy as a means to relieve their oppressive debts," he added.

In Connecticut, Chief Bankruptcy Judge Albert Dabrowski has adopted the CARE program with help from county and city bar associations. He hopes to have the program in high schools around the state by spring.

"We have been encouraged by our initial contacts with education leaders in our communities, and expect to receive a formal endorsement from the Connecticut Association of Public School Superintendents," Dabrowski said. "There is a great need for this type of education program for young people in Connecticut before they leave home for college, or enter the work force."

Judge Marjorie Rendell (3rd Cir.), chair of the Judicial Conference's Committee on the Administration of the Bankruptcy System, said, "It is admirable that bankruptcy judges who see the ruinous effects of credit misuse are educating the public and are responding to the needs of young people. It is important to reach this next generation of consumers early."

James McKenna, a teacher at Monroe Community College in Rochester, N.Y., said he decided to invite Ninfo to speak to his students after his own 14-year-old son received a pre-approved offer of a $100,000 line of credit.

McKenna, who lectures on addictions, said, "Because the school is concerned about students' overall development, warning them of the addictive potential of compulsive spending is an important part of my course."

Shelly Palmer, one of McKenna's students, said Ninfo's presentation inspired her to pay off two credit cards and cancel three others. "Now, if I don't have money to pay cash for an item," Palmer said, "I don't buy it."

Article Source: www.uscourts.gov

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Debt Adjustment Companies

Personal debt can easily get out of hand, and sometimes outside help seems the only answer. The services of debt adjustment companies exist to fill this need. One of the ways they help you manage your debt is through credit counseling: giving practical and legal financial advice regarding the use of credit. They can also renegotiate the terms of your credit agreements and arrange to pay off your debts.

Recent federal legislation, effective as of October 2005, requires that individuals considering filing for bankruptcy protection first undergo some form of credit counseling so that they will be aware of all their options. Sometimes, however, it’s difficult to know which are the good and truly “nonprofit” counseling agencies and which are just out to collect fees from as many people as they can sign up to their debt-repayment plans. The latter may give poor advice, charge excessive fees or steer you to loans or other financial services that are very profitable for them.

Fortunately, Georgia law regulates the activities of debt adjustment companies. (The federal bankruptcy law also assigns some oversight of their qualifications to the U.S. Trustee Program of the United States Department of Justice.) Under Georgia’s Debt Adjustment Act (O.C.G.A. Section 18-5-1 et seq.), a debt adjuster may not charge you a fee of more than 7.5 percent of the amount you pay monthly for distribution to your creditors. In addition, this law requires that:

All funds received from a debtor, minus authorized fees, are disbursed to creditors within 30 days of receiving them. A separate trust account is maintained for your funds, along with certain insurance coverage, and audited annually. Copies of these audits and insurance policies are filed annually with the Governor’s Office of Consumer Affairs. Severe monetary penalties can result if a company does not comply with these requirements, which is a misdemeanor as well as a violation of the Georgia Fair Business Practices Act. Please report any violations to the Governor’s Office of Consumer Affairs.

You, the consumer, also have the right to file a private legal action against a debt adjustment company that has overcharged you or mishandled your account in violation of the above provisions [O.C.G.A. Sections 18-5-2 and 18-5-3.2(a)]. Not only is the company obligated to refund all fees, charges or contributions you have paid, but through this action you may seek an additional restitution of $5,000 (O.C.G.A. Section 18-5-4). A private attorney can assist in filing the action on your behalf.

Note that there are certain circumstances where the Debt Adjustment Act does not apply. These include services offered by institutions such as the Federal National Mortgage Association, banks, trust companies, savings and loan associations, credit unions, the Federal Reserve and the Federal Deposit Insurance Corporation. Also exempt are the practice of law, industrial loans and individuals seeking debt recovery in personal situations.

Article Source: www.georgia.gov