A study published in the American Bankruptcy Institute Law Review found that the cost of filing for personal bankruptcy has gone up since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, as discussed in a recent article in the Wall Street Journal.

Here’s a look at some highlights from the study and what they might mean for you, other bankruptcy filers and the nation’s bankruptcy system.

• More expensive to file: One of the changes made by BAPCPA was that the fees required to simply file bankruptcy paperwork increased. This means that, on the most basic level, filing for bankruptcy got more expensive for struggling consumers. But the cost increases don’t stop there.
• More requirements to pay for: In addition to the increased cost of filing, BAPCPA introduced new requirements that filers have to complete in order to obtain a bankruptcy discharge from the court. These requirements include two courses filers must complete (credit counseling and debtor education), and both cost money, bringing the overall cost of bankruptcy up even more.
• More lawyer hours required to file: Because BAPCPA introduced more stringent qualification standards for Chapter 7 bankruptcy, the study reportedly found, bankruptcy lawyers often had to invest more hours in individual cases to determine which type of bankruptcy protection (Chapter 13 or Chapter 7) would work best for their clients. In some cases, this could mean more money spent on attorney fees for clients.
• More trustee hours required in cases: And the increased costs didn’t stop at the attorney level. It seems that bankruptcy trustees (who oversee bankruptcy cases) have also seen their hourly investment rise since the passage of the 2005 law.

So what do all these cost increases come to for the individual consumer? According to the WSJ, the average bankruptcy filer today pays 55 percent more to get financial protection than the average consumer paid in 2003 and 2004. And, perhaps ironically, the increased expenses have had an unanticipated effect: less money going to creditors.

Credit card companies were among the most vocal supporters of BAPCPA in the years before it passed. Because the new law would make Chapter 7 bankruptcy more difficult to qualify for, logic suggested that fewer consumers would be able to discharge their credit card debt in bankruptcy.

But, as data from this study suggest, the increased expenditures mean that bankruptcy filers actually have less money left over to repay their debts, meaning that creditors get less money because there’s less available to distribute.

The study was apparently a preliminary effort and will be expanded in coming months.

Additional Resources

Evaluative Study of BAPCPA

Fortune magazine asks an interesting question in a recent article: what’s up with the growing trend of Americans moving away from big banks as their source of funding?

According to the article, a growing group of Americans are disenchanted with large financial institutions after watching the financial crisis unfold. While many are still comfortable with traditional banks, this new group is looking for new ways to find financing.

Here are some of the ways that Americans are, as Forbes puts it, “de-banking”:

Taking out loans against retirement funds

While it’s not necessarily what a financial adviser would recommend, there has been a rise in 35 to 55-year-olds borrowing against their retirement savings.

A study done by Fidelity Investments found that of 11 million people surveyed, almost 22 percent have an outstanding loan against their retirements in April, May and June of 2010. That’s a rise from the 18.1 percent measured in early 2001.

Fidelity also registered a 2.2 percent increase in those who withdrew from there 401(k) as a result of financial hard times during 2010’s latest quarter.

Forty-five percent of those people took out another loan against their retirement a year after their first one.

Going directly to investors

Some big corporations are going directly to investors for loans and financing, according to the Financial Times.

In the first half of 2010, companies borrowed directly from investors to the tune of $27.4 billion, nearly matching the $28.5 billion raised directly in the entire 2009 year.

Mid-market groups typically like private investment placements, because it helps them to build relationships with investors. It’s not only smaller markets, though. Big companies like Heineken and Millennium Pipeline have done the same.

The friends and neighbors approach

Peer to peer lending is increasingly an option as online networking empowers people and investors to connect with one another.

Social lending sites are often powered by those who work for themselves and who might not be as appealing to a traditional banking investor.

Sites like Prosper.com and Lending Club put investors in contact with borrowers. Depending on the site, loans from $7,000 to $25,000 can change hands, for everything from tuition to business start-up funds.

A recent posting on the bankruptcy blog Credit Slips asks this intriguing question: why, when delinquent consumer debts are at historical highs, are we not seeing more personal bankruptcy filings? To contextualize this question a little, here’s some background:

• In 2005, a new bankruptcy law (the Bankruptcy Abuse Prevention and Consumer Protection Act, or BAPCPA) took effect and made qualifying for bankruptcy protection slightly more difficult for individuals.
• In the months preceding the changes, record numbers of people filed for bankruptcy, many of whom might have ordinarily waited, but who feared they might not qualify under the new standards.
• Directly after BAPCPA took effect, filings dropped off significantly (because so many people filed right before the new law hit), but in the years after, filings climbed upward steadily.
• Now, as we’re working through the worst economic downturn since the Great Depression, bankruptcy filings are topping the one-million-per-year mark, but are perhaps not nearly as high as they could be.

The point made on Credit Slips is that, while an estimated 1.6 million homeowners are 90 days or more delinquent on their mortgage payments, only about 400,000 Chapter 13 bankruptcy cases will be filed this year. This is surprising in part because Chapter 13 bankruptcy is known for helping homeowners avoid foreclosure because:

• The automatic stay takes effect as soon as a petitioner files her bankruptcy case with the court, may remain effective for the duration of the bankruptcy case (usually three to five years) and can prevent all collection actions from creditors, including foreclosure.
• The debt reorganization and repayment plan that Chapter 13 filers agree to typically includes a reshuffling of some debts and a discharge of others, which often frees up the money necessary for filers to catch up on their mortgage payments.

In other words, bankruptcy protection has the potential to help more struggling homeowners than are currently taking advantage of it.

The Dangers of Not Considering Bankruptcy

While filing for bankruptcy is not the solution in every debt situation (or even in every foreclosure situation), failing to consider bankruptcy early enough in the process of getting out of debt can have a seriously negative impact on your finances. Why?

Because some of your assets are exempt. While laws differ depending on where you live, every state has certain bankruptcy exemptions—property that the bankruptcy court cannot legally collect as payment for your debts. This means that those who might be helped by bankruptcy protection could be depleting resources (including retirement funds) that would have been protected had they filed for bankruptcy.

The question raised by Credit Slips is an important one, and serves to reinforce the importance of considering bankruptcy early enough that it can offer you its full benefits. Not sure about your case? Consider consulting with a bankruptcy lawyer in your area to help walk you through the specifics of your case.

The information included in this post is only general information and is not meant to be construed as legal advice. If you are in debt and facing foreclosure, consider speaking with a local bankruptcy attorney.

According to a report released by the Federal Reserve Bank of New York, American household debt delinquency rates declined last quarter—for the first time in about four years. Here’s a look at some of the specifics in the report and what they might mean about the economy.

• As of June 30, 2010, 11.4 percent of U.S. household debts were considered delinquent (which generally means 30 days or more past due).
• On March 31, 2010, 11.9 percent of such debts were delinquent.
• On June 30, 2009, 11.2 percent were delinquent.

According to the report, delinquency rates had increased steadily since the first quarter of 2006, when they hovered at slightly less than five percent of household debt. It seems that, once the housing bubble burst and the stock market began to tank, household delinquency shot up.

Sources suggest that the decrease in delinquencies is the result of two major moves by consumers:

• Paying down existing debt: As part of the tight economy (including limited access to loans and reduction of job availability), many consumers are focusing on eliminating debts they currently hold. Various studies have suggested that we are, as a nation, taking on less consumer debt now than we did during boom years (likely both because of tighter lending standards and a desire to prepare for potential economic shocks).
• Filing for personal bankruptcy: Whether consumers opt to file under Chapter 13 or Chapter 7, part of a bankruptcy filing generally includes a discharge of some unsecured debt. Once those debts are discharged, consumers are legally excused from paying them, and they’re essentially removed from the total picture of household debt.

Perhaps unsurprisingly, the Fed’s report indicates that both the total household debt and the percentage of that total occupied by mortgage debt have increased significantly since the beginning of 2004. Data from the last two years suggest that both totals are beginning to inch downward, but are still significantly higher than they were before the housing boom began.

Implications for the Economy

So what might these numbers mean for the larger economy? It may be too early to say. As mortgage debt has risen (both in total and as a percentage of all debt), so have mortgage delinquencies, showing a serious upward leap began in 2006 and peaked in the first quarter of 2009.

But it’s still too soon to say whether that 2009 high will remain the top of the graph—in the quarters since then, the total amount of mortgage debt has fluctuated enough to leave doubt about whether it’s on a steady decline.

Additional Resources

Fed’s Quarterly Report on Household Credit and Debt

The Better Business Bureau has released a warning that cautions consumers to be careful when considering automobile loan modification offers. Some currently being advertised, it seems, are nothing but money-draining scams.

According to the BBB, complaints have poured in from coast to coast against a Florida-based company called Auto Relief Group (ARG). This company has apparently been charging consumers upfront fees and promising to lower their monthly car payments by modifying the terms of their auto loans—but not following through.

If this sounds familiar, it’s because mortgage modification scammers have used similar tactics to bilk homeowners in danger of mortgage foreclosure. And, with unemployment rates near 10 percent nationally, more households than ever are reportedly in need of loan modifications—one industry insider reported that 1.9 million cars were repossessed last year.

So what should you do if you’re in need of a modification on your car loan? The BBB suggests following these steps:

• Contact your lender: The lender is not the enemy—in fact, it’s in your lender’s best interest that you continue making payments on your loan. Letting your lender know you’re experiencing financial hardship and asking for a modified payment plan that allows you to make lower monthly payments is probably the easiest and most direct way to go about changing your loan terms.
• Do a background check: If you’re uncomfortable negotiating with a lender or don’t think you have the proper skills, it’s okay to pay someone to help you—but make sure you check out the company’s chops before enlisting its services. Checking online with your state’s BBB chapter will allow you to see its Reliability Report, any complaints against it and whether there are any lawsuits pending against it.
• Know the warning signs: Asking for substantial advance fees before performing any service is considered a red flag that something is not right. If a company you’re considering requires such an arrangement, take your business elsewhere—some states even have laws preventing upfront fees.
• Ask for a written agreement: Before sending out your first payment, ask for a written contract including the terms of your agreement and all payments you’re expected to make. This shouldn’t be at all problematic for legitimate companies.
• If things go wrong, file a complaint: If you realize you have been scammed by a company promising an auto loan modification, take action. File a complaint with your state’s BBB chapter and consider filing another complaint with the Federal Trade Commission—both groups allow you to do so online.

There’s been a fair amount of discussion lately about the ups and down of credit card balance transfers and whether they’re effective debt-elimination tools, particularly in light of some of the changes taking place thanks to the Credit CARD Act. Here’s a look at the basics of understanding balance transfers and determining whether one might work for you.

What Is a Balance Transfer?

Actually, it’s pretty much what it sounds like: when you transfer the balance you owe on one credit card to another card. In other words, you apply for a new card, use that card to “pay off” the debt on the old card and then make payments to the issuer of the new card.

Why Would Someone Do That?

Credit card issuers have attracted transferees by offering them low introductory rates and (in some cases) minimal fees to transfer a balance. If you’re trying to pay down your debt, transferring a card’s balance to a card with a lower interest rate might make financial sense.

Could a Balance Transfer Work for Me?

This is where the issue gets tricky. There’s no set-in-stone answer; the truth of the matter is that you have to do some number crunching in order to determine whether or not a balance transfer could save you money and help you eliminate debt. If you’re pondering this question, start with these steps:

• Determine your current credit card’s interest rate and exactly how much money you owe on that card.
• Figure out any fees associated with a balance transfer. According to this article from bargaineering.com, the fee is usually a percentage of the amount you want to transfer.
• Find out the promotional interest rate on the new card (which will often hold for about a year) and the regular interest rate that you’ll be charged once the promotional period ends.

These numbers are key to answering the question of whether or not to transfer your debt. And the next factor is essential, too: Will you be able to pay off your debt within the promotional period?

• Yes, I can pay off my debt before the promotional rate runs out. In most cases, it seems, it makes financial sense to transfer a balance if you’ll be free of the debt within the promotional period. But don’t just guess on this—determine exactly how much money you plan to put toward the debt each month, add in the transfer fee, and see if that adds up to what you owe (on cards with a zero percent introductory rate).
• No, I can’t pay off my debt before the promo rate expires. This situation is a little stickier and requires slightly more complicated math. First, determine how much per month you’ll pay toward this debt. Then, figure out the yearly interest rate (APR) that equals the promotional interest rate (i.e. if the promo rate is effective over 12 months, that is the APR; if the promo period is different, divide by the number of months it’s effective and multiply that number by 12). Remember to factor in the transfer fee. If that rate is higher than the rate you’re currently paying on your card, forget the balance transfer—it won’t save you money. If the post-promotional interest rate is lower than your current one, the transfer makes sense. If it’s higher, see the bargaineering.com article for detailed calculation instructions.

Additional Resources

Understanding Credit

The Burden of Credit Card Debt

This article is not advice. If you are having trouble with credit card debt, considering talking to a financial advisor or bankruptcy attorney in your area.

New home sales dropped to the lowest levels on record in July, according to figures on housing sales released by the Commerce Department.

The housing market continues to struggle following the end of the homebuyer tax credit that expired April 30.

According to CNNMoney, new home sales dropped 12.4 percent. The seasonally adjusted annual rate was 276,000 in July, down from 315,000 in June.

Year-over-year sales fell 32.4 percent.

The number of new home sales is the lowest ever recorded by the Commerce Department the Commerce Department, which began tracking housing sales in 1963.

Lower than expected

Economists surveyed by briefing.com had predicted that new home sales would rise to an annual rate of 334,000 in July.

This optimism came on the heels of the rise in March and April numbers, as an $8,000 tax credit encouraged first-time homebuyers to enter into the market.

But sales dropped again in May, after the tax credit expired, and improved only a little in June.

“The [latest] report shows the housing industry is still nursing a bad hangover,” Mitchell Hochberg of Madden Real Estate Ventures, in New York, told CNNMoney. “With shadow inventory, rising foreclosures, little job growth and more stringent access to credit, weak sales will persist and the industry’s headache will linger.”

Some believe that a recovery in the housing market will be a key indicator of a recovery of the economy as a whole.

Existing home sales also down

Another report on the real estate industry showed that sales of existing homes dropped as well, by a rate of 27.2 percent. This number was a steeper drop than experts expected, to a seasonally adjusted rate of 3.83 million units.

Single family homes, which make up most of these transactions, dropped to their lowest number of sales since the middle of 1995.

New home prices drop

The report from the Commerce Department also shows that the median price of new homes sold in July 2010 is down almost 6 percent from June, and 4.8 percent lower than July 2009. That median price was $204,000.

Estimates put the number of new homes for sale at the end of July at 210,000. At the current sales pace, it would take a little over 9 months to sell through that inventory.

Sales fell the most in the western part of the country, followed by the Northeast, then the South and the Midwest.