Regretting a hastily filed bankruptcy

As consumers rush to file for personal bankruptcy before an overhaul of the federal bankruptcy law goes into effect, the American Financial Services Association Education Foundation (AFSAEF) has a message for anyone thinking about jumping on the bandwagon: stop and think twice.

"No one should file for bankruptcy without a complete understanding of the financial consequences," says Susie Irvine, president and CEO of AFSAEF.

On April 20, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, whose "needs-based" formula directs individuals with some means of repaying financial obligations into Chapter 13 (a repayment plan). The new law, which goes into effect six months after enactment, has prompted some bankruptcy attorneys to urge consumers to file now.

While bankruptcy may seem like a quick fix, said Irvine, it stays on an individual's credit record for up to ten years and creates long-lasting problems - ranging from an inability to get credit from some lenders, to having to pay higher interest rates. "Bankruptcy should be used only as a last resort, after exhausting all other alternatives," she said.

Although the new law requires consumers to undergo credit counseling prior to filing, they should seek help at the first signs of financial difficulty, said Irvine. AFSAEF lists the following "red flags" that could mean trouble:

Being denied credit - This happens when creditors believe you are overextended or having problems paying your bills.

Using credit cards to stay afloat - They should be used for convenience, not out of necessity.

Borrowing money earmarked for other financial obligations - Juggling bill paying each month or depleting savings to pay bills exacerbates the problem.

Not knowing how much you owe - If you don't know where your money is going, it's time to establish a budget.

Working overtime to keep up with spending - You may be living beyond your means.

Being consistently late with bill payments - This could indicate a need to reexamine your cash flow.

Based in Washington, D.C., AFSAEF (www.afsaef.org) helps consumers realize the benefits of responsible money management. It is affiliated with the American Financial Services Association (AFSA