SPRING CLEANING

In the Northern Hemisphere, religious and community festivals throughout March and April celebrate new life, renewal and fresh starts. In the early Roman calendar before 150 B.C., March or â??Martiusâ?? was the first month of the year. This is the time when people get into closets, attics and basements to get rid of dust, dirt and things no longer needed. In many places, it is even warm enough to clear the garage, barn or shed of winterâ??s clutter. Spring cleaning is an annual household ritual for many of us. April is also National Financial Literacy Monthâ??a fitting time to tend to our financial house as well.Congress recently passed legislation that addresses the cost borne by all Americans when people allow their finances to spiral out of control. The Bankruptcy Reform Act of 2005 will relieve some of the aggregate burden that we bear when filers who have the ability to repay some debt under Chapter 13 instead file under Chapter 7 provisions. To be sure, the majority of filings are valid, and the law exists to help those in real financial trouble. Bankruptcy laws were originally implemented to help people in catastrophic financial ruin. But a full seven to ten percent of bankruptcy filings (about 100,000 to 150,000) are abusive under the intent of the law, and cost consumers approximately $3 billion. The new means test specifically targets those who abuse bankruptcy protection and have substantial repayment ability. The law also assists family farmers by permanently extending Chapter 12 provisions, which help families continue farming as they work through debt problems to avoid foreclosure.Consumer bankruptcy filings have increased five-fold since bankruptcy laws were initially implemented in the late 1970s. Since the early 1980s, real median family income rose 15 percent and Gross Domestic Product tripled--economic conditions that should not have generated a dramatic surge in filings. From September 30, 2003, to September 30, 2004, a staggering 1.6 million individuals filed for bankruptcy. Bankruptcy filings force financial institutions, the medical community and other creditors to recoup lost money. They raise interest rates, shorten grace periods and assess higher late charges and penalty fees to mitigate riskâ??all social costs borne by you, me and anyone else who uses banks, credit unions, or seeks medical care.While the new law addresses those abusing the system, the inordinate increase in filings since the early 1980s points to a much larger problem. Unsecured consumer debt is at record levels. Americans owe $2 trillion on credit cards; the average American has six or seven cards and owes an average of over $2,500 on those accounts.Credit cards in and of themselves are not necessarily a bad thing. A credit card charge is tantamount to a small (or large) loan. Because of our strong and solvent economy, lending institutions can help people who would otherwise be unable, purchase goods and services that enhance their quality of life. In emergencies, they can be invaluable. The Bankruptcy Reform Act includes a number of consumer protection provisions, including new disclosures for credit card owners to help people understand these financial commitments. Even so, the freedom, stability and flexibility of our access to and usage of consumer credit require personal responsibility. We live in a wealthy country and have many places to spend money and extend our credit. It is up to us to spend wisely, save diligently and keep our personal financial house in order. Spring is a great time to clear out the old, get a fresh start and prepare for changes and new endeavors. Who knows what lies in store for us!