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Financial Planning > College Planning > Student Loan Debt

Group Legal Plans Help Employees Cope With New Bankruptcy Rules

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In an age of complicated mortgages and complicated health plans, more and more employees run the risk of facing serious financial problems. Benefits advisors who offer employers high-quality group legal plans can keep those financial problems from eating away at employees’ productivity.

The number of U.S. bankruptcy filings climbed to 2.1 million in 2005, up 30% from the total for 2004, according to the Administrative Office of the U.S. Courts. During the fourth quarter, the number of filings soared 80%, to 667,431.

The increase was due largely to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which took effect Oct. 17, 2005. Because BAPCPA makes it more complicated for consumers to erase their debts, many individuals were rushing to file while the old law still applied.

New requirements for consumers who want to qualify for Chapter 7 bankruptcy, which allows consumers to start over with a clean slate, include a means test, mandatory credit counseling and a call for exhaustive documentation, such as tax returns, pay stubs, check registers and bank statements. As a result of these requirements, many individuals will have more difficulty qualifying for Chapter 7. These individuals may have to file under Chapter 13 and try to comply with a Chapter 13 payment plan.

Now that BAPCPA is in place, provisions of the law make it crucial that individuals facing financial problems have attorneys on their side to help them navigate through the complicated process.

Unfortunately, the employees who need help the most may have the least ability to afford an attorney.

A group legal plan can come to the rescue by offering employees convenient, affordable access to highly qualified attorneys at little cost to the employer and premiums that might start at less than $20 per month for the employees.

Ideally, a group legal plan can help employees stay out of bankruptcy court altogether by covering legal assistance with matters such as dealing with debt collectors and negotiating with creditors.

My own company found that legal plan usage for bankruptcy surged 53% in 2005, and about 150% in October 2005. Because many of the bills for services provided in October 2005 came in later, bankruptcy services usage was up 114% in November 2005 and 67% in December 2005.

In the first quarter of 2006, usage of bankruptcy services returned to normal levels, but many individuals continue to face difficult financial situations.

Notably, my company has found that usage of debt collection defense services was 15% higher during the first quarter of 2006 than during the comparable period in 2005. Some of the individuals who sought this sort of assistance may have done so because they no longer qualify for Chapter 7 bankruptcy. However, it is also possible that more individuals are voluntarily choosing to seek alternatives to filing for bankruptcy.

Kicker: Law And Order

What can a group legal plan offer employees facing mountains of personal debt?

o Pre-bankruptcy planning and counseling, as well as information about consolidation loans and other alternatives to bankruptcy.

o Assistance with contacting creditors to explain an employee’s situation.

o Help with asking creditors to extend the number of loan payments while reducing the amount paid each month.

o Preparation and filing of bankruptcy paperwork.

o Representation of employees at bankruptcy court hearings and trials.


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