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Thursday, September 17th, 2009

Student Loan Debt: Can it be Forgiven?

Back in the good old days (that is, before the global economy took a nosedive), many states offered loan forgiveness programs for graduates who chose to work in public service once they got their degree.

Now, thanks to budget cuts and a lowered demand for student loans on the secondary market, many states have had to pare down their educational debt forgiveness programs.

How Do Your Loans Measure Up?

Federal student loans generally come from one of two sources: the Federal Family Education Loan Program (FFEL), which includes Stafford and PLUS loans, and the William D. Ford Federal Direct Loan Program.

Those with Direct Loans may qualify for more forgiveness programs, so if you have FFEL loans, you may want to consider consolidating your loans into one Direct Loan (the government websites above have details on how to do this).

Forgiveness for Members of the Armed Forces

  • Interest accrual freeze: If you’re on active duty during war, mobilization or a national emergency and have a Direct Loan from October 1, 2008 or after, you may qualify to have your interest frozen for up to five years. This would prevent the amount you owe on loans from growing while you serve.
  • Interest rate cap: If you join up after taking out a loan, you may qualify to have the interest you pay on that loan kept below a certain rate. Further, if you took out FFEL loans before August 18, 2008 and were an active service member at the time, you may qualify to have your interest rate capped at six percent.
  • More forgiveness for Perkins loans: While five years of military service has long qualified you for a 50 percent forgiveness of Perkins loans, new rules allow 100 percent of such loans to be excused after five years for those who have served at least a year as of August, 2009.

Forgiveness for Teachers

  • Multi-district workers: As long as you teach in economically disadvantaged areas (labeled as “Title I” in the No Child Left Behind Act), you should qualify for forgiveness of FFEL and Direct Loans. Now, educational workers who teach part-time at more than one district or school can also qualify.
  • Your subject matters: The amount of forgiveness you qualify for depends on what you teach. Those who become instructors in underserved areas (like high school math and science) can expect the government to cover more of their loans.

Forgiveness for Public Service

FinAid.org lists the “service” career paths you could choose to have your loans forgiven, but the relief won’t be immediate. In fact, you’ll probably need to make payments and work in the field for a decade before your remaining debt is wiped out.

Student Loans in Bankruptcy

Student loans are one of the most difficult types of debt to discharge in bankruptcy. Debtors must prove that the loan presents an undue hardship, such as an injury that prevents the type of work for which the degree was earned. Additionally, the debtor must have made a good faith effort to repay the loan prior to filing bankruptcy.

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Posted in Economic News: How Are We Doing? | 1 Comment »

Tuesday, September 15th, 2009

FTC’s Ban on Robocalls in Effect

The FTC reported last week that its rule prohibiting automated phone calls about vehicle maintenance took effect September 1, 2009. What does that mean for you? Hopefully, one more way to prevent scammers from tricking you into giving away your money.

The Scam: Threats of Ending Car Warranty

According to the FTC, the scam worked like this:

  • Customers received pre-recorded phone calls suggesting that their vehicles’ warranties were about to expire.
  • Scammers then prompted victims to pay for pricey and unnecessary car service contracts unrelated to their original warranties.

Thanks to legal action taken by the Federal Trade Commission, such telephone calls are no longer legal, and the companies accused of setting them up could face criminal penalties.

Who’s Involved and the Penalties They’ll Face

The chief company named by the FTC is Transcontinental Warranty, Inc. It and its parent company have reportedly been banned from making any more prerecorded calls. The first of September was significant to this case because it marked the beginning of the FTC’s planned enforcement of the ban on prerecorded commercial calls enacted a year ago.

Some organizations are exempted from the prerecorded call ban, though. These include:

  • Groups delivering strictly informational messages
  • Politicians
  • Banks
  • Telephone Carriers
  • Most charitable organizations

Debtors should know that debt collection agencies fall under the "informational" group, and will still be allowed make make automated calls. Debtors may only be able to end these calls by making arrangements to repay the debt or by filing bankruptcy.

Groups that choose to ignore the restriction could face fines up to $16,000 per call. Telemarketers may be able to place automated calls to customers who opt-in to receive them.

It seems that Transcontinental has temporarily been excused from paying the proposed settlement ($24 million) because the company lacks sufficient funds to make payments, but that information is subject to change.

Your Consumer Rights

The Federal Trade Commission and other government entities exist to protect you the consumer from deceptive and unfair business practices. If you suspect you have been victimized by an illegal scam, consider telling a lawyer or filing a complaint online with the FTC at ftccomplaintassistant.gov.

To learn more about what types of protection you can expect, check out this page on your consumer rights. Or speak with a local attorney about bankruptcy protections.

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Posted in Finance 101: Secure Your Future, Predatory Lending | No Comments »

Monday, September 14th, 2009

Home Loan Modification Program Begins to Help

According to a New York Times article, the Obama administration’s Home Affordable Modification Program (HAMP) is on the road to achieving its goal of modifying 500,000 home loans by November.

What Is HAMP?

HAMP is a program designed by the Obama administration to incentivize home loan modifications for lenders.

This program could help many people avoid filing Chapter 13 bankruptcy to keep their homes.

It’s backed by $75 billion and designed to end the foreclosure crisis plaguing American real estate. Here’s how it works:

  • Lenders reach out: For every home loan lenders and borrowers successfully modify, the lender gets $1,000 from the HAMP fund.
  • The payments begin: After three months of successful payments, the loan modification is considered “complete,” and cash incentives are distributed.
  • Maintenance is rewarded: For each year that the borrower (the homeowner) stays current on payments, the lender is given another $1,000.

In other words, HAMP attempts to lure lenders to modifications. Without this program, many lenders are financially incentivized (by the fee structure of the mortgage lending industry) to let mortgage loans slip into delinquency and the homes into foreclosure. In other words, late and delinquent loans earn lenders the most money through fees and penalties.

Who Can HAMP Help?

Borrowers are considered eligible if and when they’re at least 60 days behind on their home loan payments. Various economists have estimated that as many as two million American families can expect their homes to go into foreclosure before the end of the crisis if nothing is done to modify their loans.

Reports indicate that:

  • 19 percent of eligible borrowers have been offered modifications so far, which equals more than 570,000 loans.
  • 12 percent of eligible borrowers (about 360,000) have actually started the loan modification process.
  • Nearly eight percent of all U.S. homeowners are seriously delinquent on their mortgage payments, according to recent reports from the Mortgage Bankers Association.
  • 47 mortgage servicers have so far signed up with the Treasury Department to participate in the HAMP program. These servicers account for approximately 85 percent of all eligible mortgages.

Looking Beyond the Numbers

While the modification totals have been modest so far, these numbers show improvement from Bush administration efforts, when the FDIC announced explicit disapproval of the foreclosure-prevention steps taken at that time.

If more homeowners are able to engage in mortgage modification, the number of Americans filing bankruptcy to prevent foreclosure may start to drop off, a good sign of economic turnaround.

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Posted in Home Foreclosure | 3 Comments »

Sunday, September 13th, 2009

Federal Reserve Survey: Economy Stable or Improving

The results of the Federal Reserve’s Beige Book business survey, reported earlier this month, suggest that the U.S. economy has stabilized or begun improving.

This assessment comes from a survey of the 12 regional Federal Reserve Banks, 11 of which reported “signs of” an improved economic situation.

The Findings: Faint Praise?

Overall, the report isn’t exactly parade-inspiring; in fact, the anecdotal evidence provided in it may only seem positive in comparison to the dreary numbers and figures we’ve grown accustomed to seeing. For example:

  • Retail sales were generally described as “flat,” which suggests a lack of growth – but no shrinking, either.
  • Labor markets were described as “weak.”
  • Gross Domestic Product (GDP) shrank by only one percent between April and June – a consoling number only when compared to its 6.4 percent decrease from January to March.

These are the so-called “positive” findings of the survey, which is perhaps more an indicator of how badly the U.S. economy has been doing for a while than anything else.

The Exceptions

The Federal Reserve of St. Louis was apparently the only district that did not declare outright improvement in the economy; rather, the St. Louis district noted that the pace of economic contraction “appears to be moderating.”

And not every economic sector showed even hints of recovery: the commercial real estate market is apparently still suffering “very low levels” of construction and continued weak demand for space.

What About Unemployment?

The economy’s gradual recovery is expected to be tough on those looking for work, according to the opinions of several economists. Many are predicting peaks in unemployment in the next few months and slow returns to pre-recession levels.

Indeed, the most recent release of data from the Bureau of Labor Statistics shows that job openings in the U.S. have dropped by 2.4 million, a 50 percent decrease since June 2007.

These numbers have remained fairly consistent for the past several months, and show no indications of drastically changing in the near future.

And of course, the number of Americans filing bankruptcy shows little sign of slowing down, with figures from August, 2009, slightly below July's high and well above last year bankruptcy rate.

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Posted in Economic News: How Are We Doing? | No Comments »

Friday, September 11th, 2009

New Book, Credit Numbers Celebrate Cheap Americans

Not too long ago, spending on credit was in, especially in the United States. But, since the global economic recession has humbled a lot of us financially, it looks as though thriftiness is making a comeback.

Exhibit A: In Cheap We Trust

Journalist Lauren Weber recently published a book about the “cheapskate” roots of contemporary Americans. In her research, she found that frugality was one of the principles on which the country was founded:

  • Using less meant buying less – generally from England and other established countries that we, as a nation, wanted to be independent from.
  • Working hard meant expanding the businesses and farms we owned, which would lead to hiring more Americans and expanding the nation’s workforce.

Weber also highlights how and why cheapness became passé – with the introduction of credit cards and easy credit in the 1950s, people were all too ready to adopt the not-so-thrifty way of life plastic allowed them. And so it became hip to spend.

The Verdict: Take advantage of the trend of cheapness to whip your personal finances into shape. And you might want to check out her new book (from the library, of course).

Exhibit B: Consumer Credit Drops in July

July marked the sixth straight month in which Americans cut back on consumer borrowing, according to the Federal Reserve. In fact, American consumers cut back by 21.6 billion dollars – significantly more than the approximately 4.5 billion dollars expected by many economists.

Here’s a breakdown of the important numbers:

  • Monthly decrease in borrowing: 21.6 billion dollars.
  • Decrease from June: 10.4 percent; this drop was the largest since a 16.3 percent decline in June of 1975.
  • Decrease in revolving credit: 8.0 percent.
  • Decrease in non-revolving credit: 11.7 percent
  • Total current consumer credit: 2.47 trillion dollars (in the third quarter of 2008, before the stock market plummeted, total borrowing was close to 2.58 trillion dollars).

Even with the assistance of Cash for Clunkers and the predictions of many economists that the recession (and the bankruptcy wave) is coming to an end, American consumers are speaking clearly with their wallets. While some trends end before you’ve even had a chance to see what they’re all about, it looks like American frugality is here to stay – at least for a little bit longer.

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Posted in Finance 101: Secure Your Future | No Comments »

Thursday, September 10th, 2009

Kennedy Fought to Keep Corporate Bonuses Out of Bankruptcy Protection

Senator Edward M. Kennedy will be remembered for his contributions to a wide variety of issues, including his tireless advocacy for health-care reform, but the late Senator from Massachusetts also played a crucial role in the bankruptcy reform law of 2005, an infamous piece of legislation that made it more difficult to abuse the benefits of filing bankruptcy.

Peter Edmondston of The New York Times says that Kennedy’s contribution to the bill was typical of his populist philosophy.

As the passage of the bankruptcy “reform” plan became inevitable, Senator Kennedy inserted a provision on the bigger bill that was designed to stop large corporations in bankruptcy from handing out big bonuses to employees.

Bankruptcy in the Corporate World

The provision has withstood several court cases so far, and more can be expected as more corporations find themselves filing for Chapter 11 bankruptcy.

During his 18-minute speech in support of the change, Kennedy said that the Senate as a whole was “blatantly ignoring the real abuses in our bankruptcy laws: the corporate abuses that have become epidemic in recent years.”

He went on to call corporate bankruptcy law in the United States “grossly inadequate,” and criticizes the fact that the proposed 500-page bill did nothing to address this deficiency.

Key Employee Retention Plans

Kennedy’s amendment banned a common type of bankruptcy bonus program known as the “key employee retention plan,” or KERP.

So far, the KERP restriction program has gotten mixed reviews. Some believe that bankruptcy attorneys can sidestep KERP limitations by simply renaming the pay packages or making them available for those who meet very “low-bar” performance options or goals.

Rep. John Conyers of Michigan said in 2007 that despite Senator Kennedy’s “laudable efforts, creative practitioners have developed ways around the code’s restrictions.”

Others say that KERP has done a good job of requiring many corporate bonus programs to be based on real performance-related achievements. In 2006, a bankruptcy judge overseeing a Chapter 11 bankruptcy case rejected an initial bonus plan for top executives.

When explaining his decision, the judge cited the Kennedy amendment. That judge later approved bonuses for the same executives after a “modification” of the terms involved in the program.

Business Bankruptcy's Effects

Kennedy believed that rewarding individuals who have driven a company to a costly financial reorganization cost taxpayers’ money, pushed many workers out of jobs, and represented an unsupportable position in the face of the worst economy since the Great Depression.

As more such cases make their way through the courts and executives again feel bold enough to offer retention packages designed to keep their “best employees,” the true durability of Senator Kennedy’s contribution to the Bankruptcy Reform Act of 2005 will be put to the test.

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Posted in Bankruptcy News and Events | No Comments »

Wednesday, September 9th, 2009

Bankruptcy Filing Jeopardizes Prize Money Destined for the Blind & Deaf

Months after winning $1 million on a game show, Georgia’s state superintendent of schools and her husband reportedly filed Chapter 7 bankruptcy.

However, this isn’t a story of why they filed; it's a story about what happened afterward.

In fact, according to the Atlanta Journal-Constitution, Superintendent Kathy Cox was selected to appear on Fox’s “Are You Smarter than a Fifth Grader?” partly because she wanted to play to win money for Georgia schools.

Unfortunately, getting her prize money to the children of Atlanta hasn’t been as easy as she hoped.

Background: She Wanted to Spend Winning on the Blind & Deaf

Sources indicate that Cox planned to donate her TV winnings to three state-run schools for children with vision and hearing impairment.

And, as the first person ever to win the top prize of one million dollars on “Fifth Grader,” it looked like the schools would be receiving some cash.

The Filing Bankruptcy Twist

But, three months after her winning, Cox’s husband filed for Chapter 7 bankruptcy protection, largely because of debt his construction company accrued.

In a Chapter 7 bankruptcy:

  • A filer’s non-exempt assets can be liquidated. The money raised from the liquidation sale is then distributed among the filer’s creditors to cover debts.
  • The trustee determines how to distribute funds. A bankruptcy trustee, who is a federal employee, makes decisions about how much money goes to which creditors.

In the Coxes’ situation, their trustee has reportedly sued the Coxes and Fox Broadcasting Corporation in an attempt to get the prize money paid to the Coxes’ creditors rather than the schools.

Indeed, most state bankruptcy laws consider cash above a certain amount to be a non-exempt asset and therefore destined for the filer’s creditors.

Naturally, a protest has been scheduled and people on both sides of the debate are fervently determined to fight for their cause.

The Underlying Issues

Part of the reason for the hullabaloo and confusion is that the various parties can’t agree about whether Cox participated in the game show as a representative of the state schools or as an individual.

The check she received from Fox was allegedly made out to her, which complicates matters.

Ultimately, the judge who presides over the court case between the two parties will have to decide whether the money Cox earned on the show is legally hers or the state’s.

Learn more about filing bankruptcy.

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Posted in Bankruptcy News and Events | 1 Comment »

Tuesday, September 8th, 2009

FTC Publishes Warning About Layaway Plans

The Fair Trade Commission, a consumer protection group, has recently suggested that American consumers take some precautionary measures before agreeing to buy anything with a layaway plan.

What Is Layaway Plan?

  • Traditional layaway: These programs work by allowing you, the consumer, to buy goods bit by bit. Rather than using cash or a credit card, you can make regular payments to a retailer and receive your item only when you’ve paid its full price. The name refers to the physical act of setting aside or laying an item away until the customer has fully paid for it.
  • Contemporary layaway: Today, layaway programs still exist, but are no longer confined to stores’ physical locations. Online layaway programs allow you to make payments to a layaway company, which acts as a middleman between you and a retailer, and then have your item delivered when you’ve completed payments.

Protecting Yourself When Using Online Layaway Sites

Online layaway services each work a little differently, but they have the same basic structure:

  1. Online retailers post their items. You select which item you want to buy.
  2. Online layaway firms allow you to set up a payment plan to cover the cost of the merchandise.
  3. You make payments (by check, money order, debit or credit card) according to the agreement.
  4. When you’ve paid for your item completely, the layaway company sends money along to the merchant and the merchant sends you your purchase.

Nowadays, you can pay for anything from furniture to vacations to planned surgery with a layaway program.

Before agreeing to a layaway plan, though, make sure you understand these crucial items:

  • Terms of the layaway plan: Reading the information provided will help you determine whether there’s a limited time to make payments, a minimum payment required, service fees of any kind, and penalties or fees for late or missed payments.
  • Cancellation options: Will you get a refund if you decide you no longer want the item? Some companies offer partial refunds; some do not. You may be charged a non-refundable fee even if you back out of the agreement. Be sure you know your options for getting your money back if you change your mind.
  • Reputation of the business: Online companies can be more difficult to evaluate for seediness than real-life ones. To determine the credibility and reputation of the firm you’re working with, check with your local Better Business Bureau (www.bbb.org), your state’s attorney general (www.naag.org) and your local consumer protection agency (www.consumeraction.gov).

Pssst...

If you've been the victim of a bad layaway plan and you're slipping behind on all of your bills, filing bankruptcy may be an option for you.

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Posted in Finance 101: Secure Your Future | No Comments »

Monday, September 7th, 2009

Study Shows Rampant Pay Violations for Minimum Wage Workers

In honor of Labor Day, Total Bankruptcy is looking at some interesting (and frightening) labor statistics.

A study released last week shows a troubling trend in minimum-wage employment: failure to comply with many laws governing workers’ rights.

The Wage Study

Funded by grants from the Joyce, Hanes, Russell Sage and Ford Foundations, the study examined 4,387 low-wage workers in Los Angeles, Chicago and New York, the nation’s three largest cities. Included in the research were workers often excluded from such studies, including those paid in cash and undocumented immigrants.

Survey subjects represent a group that, according to the study, makes up 15% of the workforce in the three cities involved.

The Findings: A Variety of Violations

The study exposed violations of a variety of workplace laws, including these:

  • Minimum wage violations: 26% of subjects were paid less than the federal minimum wage; 60% of those were shorted by more than one dollar per hour. With minimum wage at $7.25, one dollar is nearly 14 percent of an earner's income.
  • Overtime violations: More than 25% of respondents worked more than 40 hours in a week. Of these, 76% were not compensated according to overtime payment laws. On average, workers clocked 11 hours of overtime and were either underpaid or not compensated at all.
  • Off-the-clock violations: Almost a quarter of interviewees arrived early or stayed late for a shift; 70% of these received no compensation for those hours.
  • Meal break violations: 86% of respondents worked long enough to qualify for meal breaks, but more than two-thirds (69%) had no break, a shortened break, were interrupted during their break or worked during their break.
  • Pay stub and illegal deduction violations: Though documentation of earnings and deductions is required in all three states, 57 percent of those interviewed received no such documentation. Further, 41 percent noted that their employers had cut their pay for illegal deductions.
  • Tipped job violations: Respondents in tipped wage fields, where the minimum wage is lower, reported not receiving even the tipped-worker minimum wage. And 12% reported that bosses or supervisors stole a portion of their tips.
  • Retaliation violations: Twenty percent of those interviewed reported employer retaliation (in the form of suspension, firing, threatening or similar) when they attempted to form a union or lodge complaints. Another twenty percent noted that they opted not to speak up for fear of retaliation.

In addition to these, other violations were recorded. And, according to the study, the findings may be more accurate than traditional government-based studies because the respondents included 39% illegal immigrants, 31% legal immigrants and 30% natural-born Americans.

Bankruptcy and Wage

Statistics show that the average bankruptcy filer earns less than $30,000 a year, a group that certainly includes those working for minimum wage. Pay violations are not only illegal, but they make it difficult for workers to pay bills and debts, leading many to file bankruptcy.

Minimum wage earners who don't have health insurance, for example, may be forced to file Chapter 7 bankruptcy to discharge medical debt.

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Posted in Miscellaneous News | 1 Comment »

Sunday, September 6th, 2009

Back to Basics with the AmEx Charge Card

We’ve seen the old is new again trend in fashion, hair styles—even the VW bug made a comeback. So I guess no one should be surprised that American Express is making a bold push for its “new” charge card.

The Original Charge Card

Ever wondered where the idea of credit cards came from?

As the legend goes, a businessman named Frank McNamara took some clients out for a fancy dinner in 1949. At the end of the meal, he realized—to his great embarrassment—that he hadn’t brought enough cash to cover the check.

And so plastic cards were born.

Charge Card Vs. Credit Card

Though the terms are occasionally used interchangeably, charge cards and credit cards are actually two different things.

  • A credit card is a source of revolving credit, meaning that you pay for purchases over time and accrue interest on whatever balance you leave unpaid. You have the option of purchasing well beyond your current means and making payments gradually.
  • A charge card essentially allows you to take out very short-term loans, usually for a month. At the end of each month, you must pay your balance in full. Should you fail to pay in full, you could be heavily fined or have your card canceled.

In other words, charge cards put significant pressure on users to purchase only within their means, where credit cards do not.

American Express’ New Advertisements

Though charge cards have been around for decades, they’ve fallen out of popularity with the rise of credit cards. But now, what with financial responsibility all the rage, American Express has launched a new ad campaign touting the benefits of its charge card.

The ads, apparently already showing up in newspapers, encourage users to spend responsibly. They further suggest to Americans: Don’t take chances. Take charge.

Can Charge Cards Help You?

If you’re trying to build or rebuild your credit (after filing bankruptcy, for instance), charge cards have certain benefits:

  • You can’t spend more than you can repay
  • You’re forced to pay in full each month, which can help with budgeting
  • If you adhere to the rules, you won’t be charged interest
  • Positive payment action can help improve your credit

In short, charge cards may work well for you, but remember that American Express isn’t the only company that offers them. As with any major decision, be sure to research a variety of charge cards before signing up for one.

If you have problems with credit card debt, consider talking to a local attorney about bankruptcy.

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Posted in Your Credit Score | No Comments »

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