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Friday, January 29th, 2010

FTC Hails Victory Over Abusive Debt Collection Practices

The Federal Trade Commission announced this month that it has settled charges with three debt collectors accused of various types of abusive debt collection. The settlement, which reportedly includes the largest civil penalty ever levied on a debt collection agency, comes in conjunction with future restrictions for the defendants.

Fair Debt Collection Practices Violated

According to the case, the defendants violated terms of the Fair Debt Collection Practices Act, which outlines acceptable behavior for agencies responsible for collecting on debts. These guidelines prohibit a variety of actions, including:

  • Contacting a debtor before 8:00 am or after 9:00 pm local time
  • Contacting a debtor after receiving a written request not to do so
  • Contacting a debtor at her place of work after being told not to
  • Calling the debtor with the intent to annoy, harass or abuse
  • Contacting the debtor directly when he is known to have an attorney
  • Misrepresenting a debt or using deceit to collect money
  • Threatening arrest or legal action when neither is an option
  • Seeking more than a person legally owes
  • Publishing a person’s name on a “bad debt” list
  • Reporting information incorrectly to a credit reporting bureau
  • Contacting a third party about a consumer’s debt
  • Contacting a debtor by embarrassing media (like a post card)

In this case, the men were charged with threatening arrest and legal action when none was warranted as well as using harassment and abusive contact to collect debts. The men in question were senior managers at debt collection agencies and as such either participated in the illegal actions or were responsible for such actions among their employees.

The Settlements

One of the three defendants, Keith Dickstein, owner of Academy Collection Service, Inc., apparently paid a $2.25 million settlement in 2008. The two defendants who settled early this year, Edward S. Bastian and Edward Hurt, were saddled with fines of $375,000 and $300,000 respectively for abusive collection practices.

The fines were suspended after each man paid $7,500, based on their ability to pay; payment of the remainder will depend upon their future compliance with debt collection laws.

Your Consumer Rights

Federal law outlines many protections for consumers. Make sure you have an idea of what consumer rights you have so you can take legal action, if necessary, should they be violated.

Additional Resources

Fair Debt Collection Practices Act (PDF)

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Posted in Financial Literacy | 11 Comments »

Thursday, January 28th, 2010

Tuition May be Tax Deductible This Year

With tax season coming up, everyone is looking for new ways to save, either to get a larger refund or to afford paying taxes owed. Thanks to a new ruling, some graduate students may find extra breathing room come tax time.

The Wall Street Journal reports that, thanks to the persistence of Lori Singleton-Clarke, a Maryland woman, students pursuing a Masters in Business Administration degrees (MBAs) may now find their tuition is tax deductible.

Several aspects of the case could be important to MBA students and others looking to save money this tax season.

  • Know the code. The Internal Revenue Service’s tax code is complex and detailed, so knowing where to look for potential deductions can help. Tax deductions for education can be found in IRS Publication 970 (see below).
  • Ask for help. If you aren’t tax-savvy yourself, you may want to enlist the help of a professional tax-preparer or commit to learning how to work at-home tax software like TurboTax.
  • Stay organized. The WSJ reports that Singleton-Clarke’s case was successful in part because she kept all her paperwork organized and was able to provide adequate documentation for her claim.
  • Be persistent. Singleton-Clarke’s case was not always easy, sources note. But she stuck it out and ended up saving herself some serious money – and potentially paving the way for other graduate students to do the same.

Does Your Education Qualify?

Educational expenses eligible to be considered tax-deductible must meet certain specific criteria, including the following.

  • Income limits for single and married individuals affect how much tuition can be deducted.
  • Parents may deduct certain expenses for children whose education they fund, but only if the parents claim the children as dependents.
  • Certain institutional fees (like health care and books) are not considered part of tuition and so are not eligible for the tax deduction.
  • Even a single college- or graduate-level class could qualify you for the tax deduction.

A more detailed review of these regulations is available here, or you can browse this year’s version of Publication 970 (below, as a PDF).

Other Tax Concerns

Whether or not you pursued further education this year, stay alert during tax season. Certain predatory loans in disguise tend to crop around this time of year, including RALs (refund anticipation loans) and RACs (refund anticipation checks).

If you do wind up owing taxes that you can't afford to pay, you can file an extension and possibly work with the IRS to pay your taxes over time. Paying taxes owed is important since they typically cannot be discharged in bankruptcy.

Remember to keep your sensitive information (like bank account numbers and Social Security Number) private!

Additional Resources

IRS Publication 970 (2010)

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Posted in Legal Info | 2 Comments »

Tuesday, January 26th, 2010

Elliss Bankruptcy a Riches to Rags Story

Financial lessons are often best learned in retrospect, which can make it difficult to tell when you're going down the wrong financial path. Luckily, we can always learn from the mistakes of others.

The Detroit News reports that former Detroit Lions lineman Luther Elliss was forced to file for bankruptcy thanks to a series of bad investments and debts.

While the story is frustrating to hear—Elliss reportedly earned more than $11 million in a five-year period—it is surprisingly common. So how do the once fantastically rich manage to end up in bankruptcy court? Often enough, simply by making some bad decisions.

Elliss, it seems, got sucked into the real estate bubble and ended up with two homes worth less than what he owed on them. Last summer, he and his wife reportedly filed for Chapter 7 bankruptcy to receive a discharge from their debts.

Taking the Long View on Your Finances

While most of us will never command the kind of salaries professional athletes can expect, we would do well to look at how quickly a fortune can disappear.

  • Nothing is guaranteed. If the current employment situation has taught us anything, it’s that no job is permanent, but many of us act as if our life circumstances are not subject to change. When making major purchases (homes, cars, schools, etc.) remember that a stretch now could easily become a financial impossibility if your salary changes.
  • Listen to the right people. In the Tribune article, Elliss notes that he didn’t listen to suggestions from his wife or adviser—and that it cost him in the long run. Unfortunately, nobody is guaranteed to have your best interests at heart except you, so be very wary when people ask for financial commitments and promise unrealistic returns. On the other hand, know who honestly cares about your well-being and take their advice to heart.
  • It's a marathon, not a sprint. Remember that you're in this thing called life for the long haul. There will always be great investments around, so make sure you learn all you can about one—and feel totally comfortable committing to it—before sinking in your hard-earned cash. It's true that you can't win if you don't play, but you also cannot lose.

There's an old bit of financial wisdom that summarizes pretty much every other guideline for handling money: spend less than you make and save the rest. It's easy to get drawn into upgrades and status symbols and all the rest, but at the end of the day (or the lucrative career as a professional athlete), financial stability is often worth the sacrifices of getting there.

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Posted in Bankruptcy News and Events, Financial Literacy | No Comments »

Friday, January 22nd, 2010

Consumer Price Data Paints Bleary Picture of 2009

The U.S. Labor Department released its monthly Consumer Price Index data, and the numbers confirm what most Americans can already sense: the recession continues to exact its toll. Here's a look at the numbers for the whole of 2009.

Overall: Consumer Prices Up 2.7 Percent

During 2009, consumer prices rose a collective 2.7 percent, a jump that, according to the Labor Department, was led largely by increased energy prices. In other areas, prices actually fell over the last 12 months:

  • Food: In 2009, food prices dropped by 0.5 percent, with food consumed at home dropping 2.4 percent and food away from home actually rising 1.9 percent.
  • Energy: Here’s where the biggest jump occurs. Energy costs increased 18.2 percent, with a 53.5 percent increase in the cost of gasoline and a 6.5 increase in the price of fuel oil.
  • Everything Else: The umbrella category that includes all consumer goods but the two above saw a 1.8 percent rise during 2009, with increases in everything from clothing to cars to medical services.

So how does the overall 2.7 percent increase in prices compare to recent years? Not too well, it seems. In 2008, prices rose a scant 0.1 percent – though both last year’s change and 2008’s were heavily influenced by fluctuating energy prices.

The core inflation rate, which adjusts price rises with changes in income levels, rose 1.8 percent in 2009, the same figure as that for 2008, and a relatively small number.

Weekly Wages Fall

In addition to prices inching up, Americans saw their weekly wages dip by 1.6 percent in 2009, meaning their buying power has shrunk considerably since a year ago. Last year’s drop was the largest since 1990.

While the picture overall is still pretty bleak, there’s a spot of light in all the clouds: commentators note that because inflation has remained modest, the Federal Reserve will likely keep key interest rates low to stimulate borrowing and help the economy pick up vigor.

The drop is purchasing power also points to the 1.44 million consumer bankruptcy cases filed in 2009.

Additional Resources

Department of Labor January 2010 Consumer Price Index Report (PDF)

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Posted in Bankruptcy and the Economy | 7 Comments »

Thursday, January 21st, 2010

Stricter Mortgage Lending Regulations Implemented

As many people now know, the current recession was touched off by the collapse of the real estate market, which ballooned out of control in the mid-2000s.

Now, according to CBS News, mortgage lenders have learned a tough lesson and are changing the way they do business. Here’s a look at some notable changes and why they’re cropping up.

Big-Time Losses

During the subprime lending boom, many lenders (including big players like Fannie Mae and Freddie Mac) offered high- or variable-interest loans, no-down-payment loans, and other types of loans that people were unlikely to pay off easily.

Now, many of those loans have gone bad, meaning that the borrowers were unable to make payments and the houses in question have gone into foreclosure. Lenders are thus writing off (that is, accepting as lost) billions of dollars in bad debts – and they have to do something about it.

  • Credit score requirement: In the era of subprime lending, people with low credit scores were often specifically targeted for high-interest loans. Now, according to sources, Fannie Mae will not issue loans to anyone whose FICO credit score is below 620.
  • Equity requirement: If you’re looking to refinance your current home loan, lenders now require you to have some equity (that is, some amount of the principal paid off) in your original loan.
  • Down payment a must: In the olden days, buying a house without a down payment was unheard of; the subprime lending "innovations," though, introduced loans with no down payment required. Major lenders, it seems, are returning to the traditional wisdom that you must pay a significant amount of money up front.
  • Debt-to-income ratio consideration: Fannie Mae has also reportedly announced that it will not lend to anyone whose debt-to-income ratio rises beyond 45 percent – that is, in order to get a loan, you must not pay more than 45 percent of your monthly income on all debt payments (including car, credit card, student loan, etc.) combined.

So what does this mean for people thinking about buying a home? Basically, it means you need to be at the top of your game financially. You should be checking your credit report regularly and making sure you’re an attractive candidate to home lenders – and if you aren’t right now, it’s time to take steps to become one.

Additional Resources

Home Buying Brochure

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Posted in Mortgage Foreclosure | 3 Comments »

Monday, January 18th, 2010

Research Suggests Ways to Spend Smarter

High unemployment rates and sluggish recovery in the job market mean that many Americans are still budgeting carefully and watching every penny that leaves their wallets. It’s times like these when studies like the one conducted by researchers at San Francisco State University can help us make important spending decisions.

Memories Last Longer than Stuff

The new budget study examined recent purchases made by adults enrolled at SFSU. Here's what the researchers discovered:

  • Happiness from things fades. On average, researchers found, the thrill brought about by new objects faded in six weeks to three months. This means that, no matter how much you love that new computer, dress or TV, you will get used to it in a few months and the pleasure it brings you will dwindle.
  • Happiness from memories lasts. On the other side of the coin, the pleasure induced by spending money on experiences (like sporting events, plays, hikes, etc.) endures, thanks to our ability to remember and relive these experiences.

So how can you use this information to make the most out of the money you have for leisure? Focus on participating in events rather than accumulating goods. And, suggests the study, recruiting friends and loved ones to join you is a particularly useful way to make sure you enjoy yourself and create enjoyable memories.

Here are some ideas to consider when thinking about an experience (rather than an object) to spend money on:

  • Take a class. Many community colleges and organizations offer continuing education departments that offer fun classes like ballroom dancing, cooking, yoga or sculpture.
  • See a play. Check local newspapers or schools for events put on by community and school theatre or music groups. Bonus: these are often low-cost outings.
  • Plan a picnic. Even in bad weather, you can organize a picnic indoors to shake up the monotony of chilly days. Team up with friends and make everyone responsible for one part of the meal. Or have everyone agree to bring a dish they've never had before.
  • Be a tourist at home. Spend a day visiting museums or landmarks close to home that you've never actually explored. See what you can learn about your hometown.
  • Get lost. Team up with a friend and try to get lost. Then spend the day driving or walking around areas you’ve never seen before. Take pictures as souvenirs.
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Posted in Financial Literacy | No Comments »

Saturday, January 16th, 2010

December Unemployment Unchanged at 10 Percent

The Bureau of Labor Statistics has released its most recent unemployment numbers (for December 2009), and they paint a gloomy picture of the U.S. job landscape.

While the actual unemployment rate and number of unemployed people in the country remain unchanged from the last recorded period (10.0 percent and 15.3 million, respectively), certain figures point to a dismal immediate future.

Unemployment by the Numbers

Here's a look at a breakdown of the current unemployment figures for the United States:

  • Adult men: 10.2 percent
  • Adult women: 8.2 percent
  • Teenagers: 27.1 percent
  • Whites: 9.0 percent
  • Blacks: 16.2 percent
  • Hispanics: 12.9 percent
  • Asians: 8.4 percent

While these numbers represent little movement in either direction from the BLS's last report, they also don’t paint the whole picture. For example:

  • Long-term unemployment continued its upward movement, reaching 6.1 million people who have been without work for 27 weeks or more, composing approximately 40 percent of the total number of unemployed people.
  • The number of underemployed people remains at 9.2 million – though these people are working, they have fewer hours than they’d like because of economic restraints.
  • A whopping 929,000 workers are considered "discouraged," meaning they’re out of work and they would like to work but have stopped looking for jobs because they believe none are available. A year ago, the number of discouraged workers was only 642,000.

Perhaps unsurprisingly, job losses continued in certain sectors (including construction, manufacturing and wholesale trade) and increased in temporary help services (likely from holiday hires).

Looking Ahead

So what do these numbers mean for the future of the U.S. economy and job market? Some analysts suggest the unemployment rate will actually get higher as the economy begins to pick up.

This may sound counter-intuitive, but makes sense upon closer examination: as the economic situation improves nationally, more people will likely enter the work force, believing more opportunities for work are available. And, even if more jobs do crop up, they may not keep pace with the number of new workers seeking employment.

For now, the problem of long-term unemployment continues to plague Americans: the average length of time without a job was 29.1 weeks as of December, which is apparently the highest average since 1948, when records were first kept.

Additional Resources

Employment Situation (BLS News Release, January 2010)

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Posted in Unemployment | 5 Comments »

Friday, January 15th, 2010

Decade in Bankruptcy: 13 Million Consumer Filings

In a decade with two recessions, two wars and skyrocketing unemployment, bankruptcy became a financial safety net for a record 13 million Americans.

It's no wonder that Time called it the decade from hell.

the year in bankruptcy

Between January 2000 and December 2009, 13,363,085 personal bankruptcy petitions were filed as Americans attempted to defy debt, stop foreclosure and get a fresh financial start.

A large percentage of those came in 2005, when a new bankruptcy law threatened to make it more difficult to file Chapter 7 bankruptcy. More than 2 million bankruptcies were filed that year, as consumers rushed to beat the October deadline.

The decade total was an increase of nearly 29% over the bankruptcies filed in the 1990s.

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Posted in Year in Bankruptcy | 1 Comment »

Thursday, January 14th, 2010

Bankruptcy Filings Hit 1.44 Million in 2009

Bankruptcy filings in 2009 reach 1.44 million as consumers and businesses dealt with unemployment, foreclosure and tight credit.

The Year in Bankruptcy

A total 1,435,425 bankruptcy petitions were filed in the 50 states and Washington D.C. That figure increases to 1,446,967 when Puerto Rico, Guam and the Virgin Islands are taken into count.

Nationwide, the bankruptcy rate was up 32% in 2009 compared to 2008 and reached the highest level since the 2005 bankruptcy law change.

Arizona saw the largest increase in bankruptcy filings in the U.S., with 77% more filings in 2009 than 2008. Nevada and Wyoming followed, each with a 59% increase year-over-year. Nevada had the most filings per capita.

Bankruptcies for the year peaked in October, when 133,365 petitions were filed—the highest amount since October, 2005, when consumers rushed to file before the BAPCPA law went into effect. Filings slowed in November and December, but remained above the 2008 monthly totals.

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Posted in Year in Bankruptcy | 6 Comments »

Wednesday, January 13th, 2010

Is Texting ‘HAITI’ to 90999 a Scam?

Update: 1/20/2010. As aftershocks continue to do damage in Haiti, help is still desperately needed. There's still some confusion on how to donate. Here's what you can do:

  • Send a text with the word Haiti in the message. The recipient should be the five-digit number 90999. You should receive a confirmation response. Reply Yes. $10 will be added to your phone bill
  • Log on to RedCross.org to make a donation online via credit or debit card (minimum $10) or find a Red Cross location near you.

Watch out for scams that ask you to send your credit card information over text message as well as web sites that prompt you to download software.

In the wake of the traumatic 7.0 earthquake that struck Haiti Tuesday evening, an outpouring of support has been heard across cyberspace. And thanks to developments in technology, donating to important and topical causes is easier than ever. But could a text of support really find you victimized by a scam?

Right now, there are two legitimate ways to donate to Haitian support and relief organizations:

  • Text 'HAITI' to 90999: This service was set up by the U.S. State Department. Texting "HAITI" to the number will donate $10 to the International Red Cross, and will appear as a charge on your wireless bill.
  • Text 'YELE' to 501501: This will donate $5 to Yele Haiti, a non-profit organization founded by singer and Haiti native Wyclef Jean. A donation to Yele will also appear as a charge on your cell bill. You can also donate larger amounts at Yele's website.

So far, these are the only two legitimate text-to-donate services providing support to Haiti relief, according to consumer watchdog groups. But others may be popping up to take advantage of Americans' generosity.

The Better Business Bureau and the Federal Trade Commission have issued statements warning possible donors to watch out for scams, which tend to pop up after a catastrophe.

The five-to-six digit numbers known as short-codes make it difficult to tell who is on the receiving end of a text. A legitimate charity will not ask you to send your personal information or credit card number through text message.

The devastating earthquake that struck Haiti, the western hemisphere's most impoverished nation, Tuesday hit 10 miles southwest of Port-au-Prince, Haiti's capital and largest city. Haiti's prime minister has issued a statement that hundreds of thousands may have perished in the quake.

The Bankruptcy Blog reports often on consumer affairs and identity theft issues for all consumers, in addition to bankruptcy information.

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Posted in Uncategorized | 32 Comments »

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