According to a report released by the Administrative Office of the U.S. Courts, bankruptcy filings rose 30% in 2008. An additional 241,724 bankruptcy filings were received by the court as of September 2008. From Oct. 1, 2007 to Sept. 30, 2008 over 1 million bankruptcies were filed in the United States. That’s a dramatic increase in personal bankruptcies which clearly reflect the very real economic challenges faced by ordinary citizens who are finding it impossible to remain afloat financially. Many of these bankruptcy filers are facing major financial hardships for the first time in their lives as the rug is being pulled out from under even the most financially responsibly families. They didn’t file bankruptcy because they wanted to get away with not paying their debts; they simply took an honest assessment of their financial position and the current economy and made a wise decision to cut their losses before it’s too late.

There is another dynamic taking place that we don’t hear about in the news, many creditors are becoming more aggressive as they experience record defaults on both secured and unsecured debts. These aggressive collection practices are forcing many debtors to file bankruptcy who under ordinary circumstances would try to wait until their financial circumstances changed in the hopes that they could eventually repay their debts. With all of these factors in play, bankruptcy filings are set to increase even more and even faster as debtors try to save what little assets they have remaining.

According to an article in the Boston Globe, credit card companies will reduce lending by more than $2 trillion over the next 18 months. Prompted by rising credit card loan defaults, credit card companies want to take less risk and lend less money to even fewer debtors. In an environment where consumers are spending less and facing job losses, pulling back on credit card lending is an unprecedented move that may be dangerous for an already fragile economy.

The economy has already lost over 300,000 job in November and this move by credit card companies just seems like another nail in the coffin. Many families depend on credit cards to stretch their meager earnings and as income in case of emergencies such as unemployment or unexpected medical expenses. Pulling back on the availability of credit now may cause our economy to come to a standstill. Anyway, what happened to the billions of dollars giving to these companies to "unfreeze credit"? We need to begin holding them accountable and demanding to see results.

Banks and consumer advocates failed to convince Federal bank regulators that a program designed to forgive huge portions of credit card debt was in the best interest of the economy.

The Office of the Comptroller of the Currency rejected the proposal for a special program that would forgive as much as 40 percent of credit card debt held by consumers who don’t qualify for existing repayment plans. Under the proposed plan, borrowers would be able to defer payment of income taxes on the forgiven portion of their credit card debt after the part not forgiven was paid off. The lenders would also be able to defer reporting their losses on the forgiven credit card debt.

The unusual alliance of financial industry interests and consumer advocates were represented by the Financial Services Roundtable (which represents over 100 large banks, brokerage firms and insurance companies) and the Consumer Federation of America presented the credit card debt forgiveness program to the Treasury Department agency on Oct. 29, 2008.

The credit card debt forgiveness proposal was rejected because the Deputy Controller did not believe it was prudent to give credit card companies the power to defer reporting losses for several years.

Although I can understand why the government would not want to let creditors defer the reporting of losses, credit card debtors need relief immediately. Currently there is no way credit card debtors can gain relief from defaulted credit card debts short of bankruptcy. Some type of credit card debt forgiveness program needs to be created immediately to help the most desperate debtors.

As the eroding economy squeezes credit crunched consumers, credit card lenders are pulling back the amount of credit offered, even to the most creditworthy. With over $21 billion in bad credit card loans in the first half of 2008, credit card lenders are laying off thousands of workers as the industry is predicted to lose over $55 billion in the next 18 months, according to a Dallas Daily News article. According to analysts, current losses which amount to 5.5% of credit card debt could surpass the 7.9% of losses sustained during the implosion of the technology bubble in 2001.

This is bad news for many Americans who rely heavily upon credit cards to pay for everyday purchases. For consumers who have leaned on easy credit to stretch their budgets as rising housing costs have taken a bite out of their wallet, a contraction of credit may be fatal to their financial outlook. More and more Americans may need to consider bankruptcy as the credit card lenders not only limit offers; but reduce existing customer’s credit lines.

In both Chapter 7 and Chapter 13 bankruptcy, the debtor is not allowed to give any creditor preference over another. But what often happens is that before filing for bankruptcy a debtor will repay family and friends while not paying anything to unsecured creditors. This is unwise because if a bankruptcy case is filed within a year of these payments to family and friends, the trustee make take the money from the friend or family member the debtor paid and redistribute it to creditors in accordance with the Texas bankruptcy laws. If a debtor has already shown preferences to family or friends who loaned money the debtor can correct this with the “new value” exception found in 11 U.S.C. 547(c)(4) and undo a preference by having the family member or friend extend a new unsecured loan in the amount that was repaid. This effectively unravels the preference before the bankruptcy. For this to work, the debtor must use exemptions to protect the money. This method is risky so discuss any transfers or loan repayments with your bankruptcy attorney.

Although there are definitely benefits to cash-out mortgage refinancing there are some risks that homeowners should know.

1. Inaccurate Appraisals - When taking out a cash-out mortgage refinance there is a risk that your home appraisal may be higher than its true value. If you enter into a cash-out refinance loan based on an inflated appraisal you could find yourself with an upside down mortgage, owing more than the house is worth.
2. Increased Monthly Mortgage - A cash-out refinance may leave you with a higher monthly mortgage payment.
3. Temptation To Spend - Since a cash-out refinance (when used to pay off credit card debt) effectively brings your credit card balances to $0, you may end up racking up more debt if you have not curbed your spending habits.

On the last point, many people see cash-out refinance as a quick fix for their debt woes; but if you do not get the root of your financial problems you could end up with even more debt on your hands. Remember to only use your credit card in an emergency and pay off the balance immediately.

Many Americans rely on credit cards not just for emergencies or miscellaneous expenses; but as a tool for everyday survival. This reliance on high interest credit is sinking many households deep into debt where any small emergency could topple their financial house. In a desperate attempt to stop the financial loss caused by high interest credit cards some homeowners are entering into cash-out mortgage refinances to pay off their credit cards. In a cash-out mortgage refinance the homeowner replaces their current mortgage with a mortgage that is for more than what they owe on the home and they take the difference to pay off credit card debt. For example, if a homeowner owes $100,000 on their home; but it appraises at $150,000, they may refinance for $150,000 and consolidate the credit card debt into the new loan, plus any closing costs associated with the new loan. The problem with this is that although the homeowner may get a lower interest rate for the credit card debt, he/she has also lost all of the equity in their home. It is also very common that two-thirds of those who tap into their home equity end up with more credit card debt within 2 years, according to a study by Brittain Associates.

(source: http://www.responsiblelending.org/issues/credit/reports/page.jsp?itemID=28012846)

With millions of Americans facing job losses and mounting debt, many are choosing to ignore calls and letters from debt collectors. Let’s face it, when you’re struggling to pay the basics…food and shelter who has any money or energy left for debts that you can’t pay off any time soon. But be forewarned, if collectors see that your debt is languishing and you haven’t made any payments they may attempt to garnish your wages or bank account.

What Happens In A Garnishment?

Once the debt collector secures a court judgment against you he can use it to seize your wages or bank account.

In the case of wage garnishment, most states won’t allow the seizure of more than 25% of your wages. Also, certain types of income, such as SSI cannot be garnished. Speak to an attorney regarding what income is exempt from garnishment.

In the case of a bank account garnishment, all funds can be seized with few exceptions as noted above. It is up to the debtor to prove what funds in the account are exempt from seizure.

How To Avoid Garnishment

Respond to debt collectors and negotiate a repayment plan or settlement before they sue you. If you have already been sued or have a garnishment speak to an attorney immediately.