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Now more than ever before, radio and television advertising is flooded with ads purporting to resolve your debt and credit issues.  Are these debt settlement firms a panacea or another pitfall?  If you’re not careful, you will find yourself not climbing out of the financial hole you’re in, but digging yourself deeper into debt.

Credit counseling is a good way to get started.  You will find most reputable agencies are working with clients to ensure that your income matches your expenses at a minimum.  Ideally, you want your income to exceed your expenses, but you need to get to break-even before taking the next step.  It starts with curbing your spending.  It moves onto establishing a solid budget in order to get income and expenses into balance.  Moving beyond that - the work begins to initiate meaningful savings plans.

For those in the most serious situations, many firms now offer a fee-based debt management system to help the client restructure and repay their obligations.  These are most often offered on a percentage basis or a monthly fee basis with you, the client, paying money to the debt management firm.  From that, they pay your obligations and take their cut.

So what’s the pitfall?   Too many people are still using their credit cards.  They’re not budgeting for anything.  They throwing good money after bad, bridging the gap on one end of the equation with the "help" of the debt management company while still supplementing their income with credit card spending.  Not good.

The lure of an attractive advertising campaign can be strong.  The television or radio extends its imaginary hand, promising to "eliminate your debt."  It’s hard, when you’re drowning in a financial morass, not to reach out and grab hold of that helping hand.  Truth be told… anyone claiming to be able to "eliminate your debt" is highly unlikely to back up that promise.  Negotiate new terms on your behalf?  Probably.  Consolidate your debt into "one manageable monthly payment?"  Sure, if you stop increasing your debt load.

Never forget, you can always go to your Better Business Bureau in order to ascertain the quality of the firm you are intending to use.  You will see the firms’ ratings with regard to overall level of service and customer complaints and are awarded a letter grade of A+ (being the best) to F (for failure).  You must use due diligence!

Other typical pitfalls and issues to avoid:

• Companies that offer you a document that claims to absolve you of all of your debt.
• Companies that charge fees "up-front" or fees that are unreasonable steep.
• Lenders can still sue you even though you’re hoping to settle.
• The process can take several years to accomplish, with the industry average being about 36-months.
• This will negatively impact your credit and debt interest will continue to accrue during the process.
• Companies that advise you to stop communicating with your lenders or stop making payments to your lenders.

Tips and information for you:

• Always communicate with your lenders.  The worst thing you can do is cut them off.
• Find a firm that is certified with the National Foundation for Credit Counseling.
• Lenders would rather get something instead of nothing.
• You will probably have to pay income tax on the amount of the forgiven debt.
• Do not sign any contracts or agreements until you’ve read and understood them completely.
• Check the laws in your state - some, for instance, prohibit the collection of fees earlier than "half-way" through the process.

Most importantly, client beware. As with any industry, there are plenty of bad apples out there who will make your situation potentially far worse.  Emails and websites tout a way to consolidate bills into one monthly payment without borrowing; stop credit harassment, foreclosures, repossessions, tax levies and garnishments; wipe out your debts; or rid bad credit. These offers often involve bankruptcy proceedings , but they rarely say so.

Proceed with caution.

• Chapter 7 Bankruptcy
• Chapter 11 Bankruptcy
• Chapter 13 Bankruptcy

These terms strike fear in the hearts of worried citizens all over the country as they take the difficult steps of running their home financial figures, figuring out which bills not to pay in today’s economy instead of working on which bills they should pay.  What’s the difference in bankruptcy options?

You are faced with a decision to declare bankruptcy and wonder if what you have always heard and never imagined would happen to you - are they true?  Is it really about being protected?  Will bankruptcy be a "black mark" on my financial history or remain in your "permanent record" forever?  These thoughts which are swirling around in the heads of Americans in numbers we’ve not seen in a very long time can be overwhelming.

Should you file for Chapter 7 Bankruptcy?  As a for instance, if you’re currently unemployed with no source of income, Chapter 7 would be a realistic option unless you have family contributions or other sources of income. If  you’re a homeowner and not willing to surrender the home, preferring instead to maintain current mortgage payments - you would have to have some source of income or other financial assistance to pay them.

What about Chapter 11 Bankruptcy?  This is generally not a personal bankruptcy option. It is a chapter of the United States Bankruptcy Code which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to any business , whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy.

What is a Chapter 13 Bankruptcy?  Well, this is another personal bankruptcy option.  This is an option whereby the consumer can reorganize their debt load.  The Chapter 13 is based on whatever available income there is in the family.  The process calculates your current monthly income and all of your expenses and what remains can be distributed to your unsecured creditors.

How will bankruptcy affect your future?  Can you survive a bankruptcy?  Should bankruptcy be avoided at all costs?  It is most certainly survivable and a person can emerge from a bankruptcy situation with a fresh start financially.  However, what needs to change is your spending habits.  You have to assess what your needs are and separate them from the things you want.  Want vs. Need.  An honest assessment and preparing to live within your means is of paramount importance in order to come out of a bankruptcy smarter and with a focus of avoiding the mistakes and circumstances which brought you here in the first place.  The key is to learn from your history so that you are not "doomed to repeat it."

Critical Tip: Don’t tap into your retirement fund(s) in order to try to keep your head above water at this critical time.  Retirement funds cannot be seized in a bankruptcy proceeding! Leave them alone so that they may serve their purpose - availability during your retirement years.

RealtyTrac Inc. reports that the filings for foreclosure proceedings have increased 30% in February 2009 as compared to this time last year.

In a statement today, RealtyTrac reported that 290,631 homes received default notices, auction notices, or were seized by lenders. First-time foreclosure filings totaled 161,976, the highest figure in over 4-years, according to their records.

As the housing market crisis in the United States continues to worsen, President Barack Obama has put forth a $275-billion rescue plan to help mortgagees with notes that they cannot afford or have been devastated by depressed home values. Plummeting housing values have stolen nearly 2-1/2 trillion dollars from the residential market in 2008. Unemployment’s climb to February’s figures of around 8% are adding gasoline to the foreclosure fire. Unfortunately, President Obama’s latest in a string of bailout plans won’t change the reality for homeowners entering into or already involved in the foreclosure process.

The combined percentage of loans in foreclosure or at least one payment past due in the fourth quarter was just over 11%, the highest on record, according to the Mortgage Bankers Association in Washington. The percentage of loans 60 days past due and 90 days or more late also were at record levels.

On February 18th, 2009 - President Obama introduced a plan to use $75 billion of public funds to encourage lenders to modify or refinance home loans, avoid foreclosures, and bail-out homeowners behind on their mortgages. The President also conveyed that the Treasury Department would provide as much as $200-billion in additional backing for Fannie Mae and Freddie Mac to free up funding for new mortgages.

To qualify for a refinanced loan, applicants will have to fully document income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to Treasury.

The new bankruptcy laws passed in 2005 created several new forms that must now be included in a bankruptcy petition, including the Means Test in a Chapter 7 bankruptcy. The means test is supposed to tell the court whether or not you have enough disposable income left after paying your necessary living expenses to pay at least some amount to your creditors in order to settle your debts, rather than wiping them out. According to the credit companies that lobbied congress for the bankruptcy law changes, most people who file bankruptcy really can afford to pay their debts but they just don’t want to. In the last 3+ years since the bankruptcy law went into effect, we’ve seen this isn’t the case, but you are still required to complete this paperwork as well as the other changes that were ordered like the pre-bankruptcy credit counseling and post-bankruptcy personal financial management courses.

The bankruptcy means test consists of 57 questions about your income and expenses which are then compared to national and regional averages to determine if you make and spend more than most people in your area, as well as what your disposable income is or should be. If most of your debt is not primarily consumer debt, or you are a disabled veteran “the presumption does not arise”, and you do not have to complete the majority of the form. The “presumption” is a nice way of saying whether or not you may be trying to abuse the bankruptcy system. If the presumption does arise at the end of the means test you may be forced to file a Chapter 13 bankruptcy.

The second section will determine your income. You, and possibly your spouse, depending on how you plan on filing bankruptcy, will answer questions on your gross wages, business income, rental/property income, interest/dividends earned, child support, pension and any other income, averaged for the last 6 months. The third section will determine your average yearly income and compare it to the median family income based on the state you live in, and the size of your family. If your income is more than the average for your family size in your state you will have to continue filling out the means test, if it is less than the presumption does not arise.

In part five you will deduct standard expenses for your family based on regional numbers the government has declared as acceptable for your area and family size, including food, clothing, health care, housing and utilities, transportation and other necessary expenses. There is space for you to show that you spend more than the standard amounts, but you must be able to show receipts for these expenses for at least the last 6 months in order to submit that to be considered by the court.

In part six the deductions listed in part five are calculated and used to determine how much disposable income you have left over. If you have less than $6575 a year, the presumption does not arise, if you have over $10,950 the presumption does arise, and if you have somewhere inbetween $6576 and $10,949 you must continue with the means test form which compares the amount of unsecured, non-priority debt you have with your disposable income.

The bankruptcy means test can be intimidating, and can seriously affect your ability to file ch 7 bankruptcy, so you should consult a bankruptcy attorney before proceeding with your bankruptcy filing.

It’s beginning to appear that in this time of economic crisis, declaring personal bankruptcy has become a viable option for more people than ever before. As a result, it is losing its historical stigma due, in part, to the reality that we all probably now know more people than ever before who have done so. And we are more understanding.

With unemployment accelerating at a pace not seen in decades while the real estate market continues to flounder, the economy is faced with the reality that today, more people are just relinquishing their homes and other worldly possessions instead of working out a debt repayment plan in bankruptcy courts across the nation.

Several experts in the credit counseling and bankruptcy profession recognize the attitude change as being a byproduct of the current economic conditions. Historically, bankruptcy has been looked-upon as a personal failure.

Chapter 7 bankruptcy filings for individuals are up more than 25% for the first three-quarters of 2008. This, alarmingly, is in comparison than the entirety of the year 2007. (Chapter 7 Bankruptcy liquidates the assets and turns them into cash for creditors.)

Conversely, Chapter 13 bankruptcy filings have plummeted from 42% of all personal bankruptcies in 2006 to a level of 25% through three-quarters of 2008. (Chapter 13 Bankruptcy allows the client to keep the assets through a repayment plan with creditors.)

This increase in Chapter 7 filings comes despite the 2005 change in the federal bankruptcy code in making it harder to qualify for liquidation-style bankruptcy in an effort to encourage Chapter 13 filings, which forgive less debt and require payment plans in most cases.

People have resigned themselves to their own personal reality. This has become a fact of life for many people. In the past, folks had a sense of urgency and a strong desire to do whatever it takes to keep their homes. Today, people are simply walking away… tossing the keys to the home inside… packing up their belongings and telling the mortgage companies, “Come and take it. We’re done here.” Why is that? Quite simply, no matter how much they scrimp, save, and fight - when the sun goes down, they’re still significantly “upside down” on their mortgages.

More people are becoming eligible to file bankruptcy, incomes are sinking, work hours are being cut-back, and too many are simply being laid-off. There are drawbacks to both the consumer and the community. Neighborhoods will be affected negatively for a long time as bankruptcies and foreclosures continue to accelerate with no end in sight.