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Thursday, April 28th, 2011

Michael Scott Declares Bankruptcy

Steve Carell is saying farewell to "The Office" tonight. This means saying goodbye to one of our favorite characters on TV: Michael Scott, the energetically awkward boss of Dunder Mifflin's Scranton branch whose love for his employees is only outmatched by his lunacy.

In one of our favorite moments from the show, Micahel is, like so many other Americans, besieged by credit card debt. After weighing his options he decides that declaring bankruptcy is the best one. Except, instead of hiring a bankruptcy lawyer he, in typical Michael Scott fashion, took his own route:

Good luck, Michael Scott.

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Posted in Bankruptcy News and Events | No Comments »

Tuesday, April 19th, 2011

Financial Literacy Survey Shows Our Weaknesses

The National Foundation for Credit Counseling reported results from its annual survey of consumer financial literacy recently, and the findings suggest that, as a nation, we’re still not as well equipped to deal with financial stumbling blocks as we need to be.

Specifically, the survey revealed the following about American consumers:

  • 26 percent of survey respondents reported spending more than they did last year, a percentage higher than it has been for two years. While this could be good for the nation’s economic recovery, it’s only one part of the puzzle.
  • More than 40 percent of respondents graded themselves as earning a C or lower in their personal finance know-how. This is alarming but not surprising: in more official tests of financial literacy (often given to high school students), it’s often common for the majority of students to fail.
  • While more than two-thirds of Americans reported paying for most purchases with cash or debit cards, 40 percent still reportedly carry revolving debt on their credit cards from month to month. This sort of behavior can be dangerous and debilitating, especially if a consumer is hit with unexpected job loss or income reduction. In fact, one of the most commonly cited factors for bankruptcy filings is overextension on credit.
  • More than 80 percent of the those polled apparently voiced the opinion that walking away from a mortgage can be justified in certain circumstances, particularly if the borrower was misled at the time of the loan or if the borrower can no longer afford mortgage payments. If many people get a chance to act on these beliefs, the effect on the housing market could be seriously detrimental, especially during a period of recovery.

Why Does Financial Literacy Matter?

The issue of financial literacy education has been a hot one in recent years, ever since the bubble in the housing market burst and the abuses (by lenders and borrowers alike) came to light.

Since the beginning of the Great Recession, we’ve seen legislation like the Credit CARD Act to improve the transparency of credit products for consumers, the creation of the Consumer Financial Protection Bureau, and proposals to change debit card fees and other consumer credit products.

When the Bankruptcy Abuse Prevention and Consumer Protection Act took effect in 2005, one of its provisions was the introduction of a Debtor Education (also called a Financial Management) course for all bankruptcy filers – the idea was that those who filed for bankruptcy could certainly benefit from a little guidance on financial matters. And the idea seems to be a good one.

But what about those who aren’t ready to file for bankruptcy? Luckily, the U.S. Government has set up a financial literacy destination, MyMoney.gov, for people who have never set foot in the bankruptcy court.

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Posted in Finance 101: Secure Your Future | 1 Comment »

Wednesday, April 6th, 2011

The Truth About Bankruptcy: Report Shows Many Wages Unlivable

A recent press release from a group called Wider Opportunities for Women reveals what many families struggling to make ends meet already know: many families with breadwinners employed full-time are unable to earn enough money to ensure a basic standard of living.

The study (discussed more below) highlights the troubling economic reality that many Americans face and could potentially help to de-mythologize the reasons people are pushed to file for bankruptcyprotection.

The Basic Economic Security Test

Here’s some background about the study and its findings.

  • Data collected since 1995: Over the past fifteen years, WOW has gathered data from state and federal pools (including census reports) to attempt to determine how much income is required to establish economic security across the country. The study attempts to determine not what people can survive on minimally, but how much they need to earn in order to achieve stability without help from public assistance.
  • Economic security numbers: The study found that a single person would need to earn $30,012 per year (about $14 per hour), a single person with two children $57,756 annually (about $27 per hour), and a family of four $67,920 per year ($16 per hour for two workers) to establish economic stability.
  • Minimum wage not enough: Compare the above numbers to the federal minimum wage ($7.25 per hour) and to the income identified as poverty-level for those groups ($10,830 for an individual and $22,050 for a family of four) and it’s easy to see that current diagnostic standards for “poverty” are somewhat misleading. Sources report that more than 14 percent of Americans lived below the poverty line in 2009.

Financial Stability, Emergencies and Bankruptcy

Given these numbers, it’s no wonder that millions of Americans require help from the bankruptcy court each year. One essential part of economic stability, as the report highlights, is being able to save money for emergencies. And, on bankruptcy filing surveys, filers commonly cite as reasons they filed financial emergencies such as:

  • Illness or injury that led to high medical costs and/or job loss;
  • Job loss, layoff, or reduction;
  • Family events such as divorce, the death of a family member and the birth or adoption of a child;
  • Over-extension on credit (which can result from relying on credit to buy necessities); and
  • Unexpected expenses (like a car or home repair).

Recession Hurting Many Families

The study also showed that Americans with less education have the most difficulties finding jobs with livable wages, and that more low-income families than ever have reported not being able to afford basics like food within three months of losing their income.

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Posted in The Truth about Bankruptcy | No Comments »

Wednesday, February 16th, 2011

It’s Getting More Expensive to Have Your Identity Stolen

A new report from Javelin Strategy & Research uncovers some potentially troubling numbers about the changing face of identity theft. Here’s a look at the report’s findings and some reminders about what you can do to protect yourself, your identity, and your credit.

  • In total, fewer people were victimized by identity theft in 2010: The number of identity theft cases dropped by a reported 28 percent from 2009 to last year - reports in 2010 dipped to the 2007 level. Additionally, it seems the average dollar amount of fraud committed by identity thieves dropped slightly (from $4,991 in 2009 to $4,607 last year). The group speculates that a decrease in corporate data breaches can be credited with the per-case drop-off.
  • More expensive fraud for individuals: While the total number of identity theft cases decreased last year, the cost of such incidents for victims rose. In fact, Javelin reports that the jump was large – 63 percent – up to $631 from $387 in 2009. This suggests that the types of identity theft being favored now are those that cost victims more (in the form of covering fraudulent debts, paying legal fees, etc.).
  • New account fraud most popular: The report shows that new account fraud, one of the most difficult types of identity theft to detect, accounted for a whopping $17 billion last year, the largest amount in any category. New account fraud occurs when the thief opens a new bank or credit account with the victim’s identifying information; the other type of fraud, existing account fraud, dropped in popularity last year, to $13 billion dollars’ worth, from $23 billion a year before.
  • There’s a better chance you know the thief: It seems that in 2010, there was a seven percent increase in fraud perpetrated by thieves who knew their victims (including family members, friends and roommates). The report notes that those ages 25 to 34 are most likely to be victimized by this type of fraud.
  • Sign of the times: The Javelin report suggests that, because identity theft crimes have changed in direct opposition to changing retail sales, the increase in identity theft could well be an indicator of economic hardship.

How Bad Can Identity Theft Be?

If you aren’t convinced by these numbers that identity theft can be a pain in the neck (and in the wallet). A story from ABC News detailed the saga of a man who battled for 17 years against an identity thief living across the country.

The victim found himself responsible for debts he never took on and even ended up in jail for a crime he didn’t commit. If that’s not reason enough to take steps to protect your sensitive information, consider this: despite federal protections, some bankruptcy filers still cite identity theft as one of the factors that pushes them to the bankruptcy court in the first place.

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Posted in Identity Theft | No Comments »

Wednesday, December 15th, 2010

Your Post-Bankruptcy To-Do List

If you’ve filed for bankruptcy, you’ve probably already heard a thing or two about how important it is to rebuild your credit. A recent post at CreditBloggers.com provides an excellent guide for how, precisely, a person can begin this daunting process.

Here’s a look at some of the key tips discussed on the post.

Know Where Your Credit Stands

If you haven’t already, now is the time to visit AnnualCreditReport.com and get a free credit report from each of the big three credit reporting bureaus (every American is entitled to one free credit report per year from each bureau). When you get the report:

  • Review all the information carefully: Accounts that were discharged in your bankruptcy filing should have a balance of zero dollars and indicate that the debt was forgiven in bankruptcy.
  • Look for mistakes: Check for any incorrectly reported information – this could include a report that you still owe money on an account that was discharged.
  • Contest the mistakes so they can be removed: If you notice any incorrectly reported information, contact the credit reporting bureau and identify the problem. You’ll probably be asked to send written documentation that you no longer owe the debt, but the process will be worth it because the less your credit report says you owe, the better off your credit will be.

Start to Make Credit Amends

Once you’ve figured out how your credit looks, it’s time to start engaging in the kind of behavior that will replenish your credit report with positive credit actions and thus make you look like a more attractive credit risk to potential future lenders.

One of the most important things to keep in mind while focusing on rebuilding your credit is to be wary of credit scams – they abound, and scammers often target people who have recently filed for bankruptcy. Here are some common scams to avoid:

  • Advance fee loan scams: This term covers a variety of scams, but for people trying to rebuild after bankruptcy, advance fee scams might involve someone posing as a lender and “guaranteeing” you a loan – if you agree to pay a fee in order to have that loan offered to you. If, in fact, you were able to get a loan and make regular payments on it, the loan would likely help you rebuild your credit. But if it’s an advance fee scam, what will likely happen is your loan will never materialize and the fee you pay will be gone forever.
  • Credit repair scams: These, too, are sadly common. They involve a company promising to “repair” or “wipe out” your credit record – even if the information on it is completely accurate. Of course, this is not legal to do and will end up costing you money that you’d be better off saving or putting toward real credit-building ventures.
  • New credit file scams: This variety of scam involves a company giving you a “new credit identity” – essentially, the company gives you an Employee Identification Number (EIN) to use with the credit bureaus in lieu of your Social Security Number. The claim is that you’d get to build credit from a clean slate, but the catch is that this is highly illegal and could lead to jail time and/or hefty fines. Plus, all the time you spend building your “new” credit identity is time in which your real credit identity just languishes.

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

Wednesday, November 3rd, 2010

Credit, Cosigning and Bankruptcy: What You Need to Know

If you’re thinking about cosigning a loan for a friend or family member to help him qualify for better interest rates or a greater loan amount, make sure you know your responsibilities if the borrower is unable to make payments or ends up in bankruptcy.

Many people struggling with debt could use a reminder about the responsibilities of a loan cosigner. Here’s a recap and expansion.

Your Responsibilities in Cosigning

Before putting your signature on the dotted line of someone else’s loan, review the facts:

  • You are considered a borrower: Even though you may have nothing to do with this loan or line of credit after you sign your name, it will appear on your credit report. This means that the primary borrower’s payment habits have the potential to affect your credit score.
  • Your credit may take a hit: Besides the question of timeliness of payments, having an extra loan on your credit could affect your credit in another way: by shifting your credit-to-debt ratio. This ratio (which compares your total credit limit to how much debt you have) affects your credit score, which in turn could affect your ability to get future loans.
  • You are agreeing to pay: According to figures from the Federal Trade Commission, of cosigned loans that go into default, 75 percent are paid by cosigners. And if the primary borrower decides to file for bankruptcy protection, you’ll likely be required to pay the loan as well.
  • You agree to all loan terms: This means that if the primary borrower falls behind or defaults, you’ll be responsible not only for the loan payments but also for any late fees, penalties, increases in the interest rate, and so on. Further, a debt collector could conceivably approach you for payments, and might (in extreme cases) even resort to legal measures.

The Moral: Cosign with Caution

This isn’t meant to detract people from cosigning altogether – in fact, cosigning a loan can be a great way to help a loved one build or rebuild credit. But before you agree to put your signature on lending papers, make sure you understand the potential consequences. You may want to consider:

  • Making a separate contract between you & the primary borrower to define expectations;
  • Setting up an “emergency plan” for making payments if the primary borrower thinks she might miss a payment;
  • Discussing the primary borrower’s income sources and spending habits to get an idea of what you’re working with financially; or
  • Setting aside some money specifically for covering that loan.

The bottom line is to treat a loan you’re asked to cosign as you would any other loan – after all, it could have as big an impact on your credit score and financial health.

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

Monday, October 18th, 2010

Bankruptcy Woes for Liverpool Football Club?

There has been considerable buzz in the news lately about the financial woes of one of the world’s best-known soccer teams, England’s Liverpool Football Club. The trouble involves loan defaults, ownership issues and lots of other juicy bankruptcy-related news – of course, Liverpool’s fans probably aren’t too thrilled.

Loan Defaults and Contract Breaches

According to Bloomberg news, Liverpool Football Club’s money problems are somewhat thorny:

  • Parent company behind on its loan: It seems that Kop Holdings, the parent company of Liverpool FC, has fallen behind on a loan agreement with Wells Fargo bank. In fact, sources note that the loan is in default (more than 30 days past due).
  • Potential buyout by an American company: According to reports, the American company New England Sports Ventures LLC has proposed a buyout plan that would let England’s most successful soccer team avoid bankruptcy.
  • Contract breach might prevent the sale: But, news outlets report, the current owners of the team made eleventh-hour changes to the board to ensure that its members voted against the buyout. Royal Bank of Scotland, however, has challenged the board member change in court, apparently calling it a breach of contract.

So what might happen to the celebrated soccer team from across the pond?

Business Bankruptcy and Its Effects

When businesses file for bankruptcy, the court’s protection tends to work slightly differently than when individuals seek such protection. For example:

  • Chapter 11 reorganization: In a Chapter 11 bankruptcy filing, businesses get the opportunity to reorganize their finances and agree to pay off creditors from future earnings. In rare cases, individuals can file for Chapter 11 bankruptcy, but it’s a more common move for corporations. When businesses are in Chapter 11 protection, they can still operate, selling their goods and services as usual.
  • Chapter 7 liquidation: When businesses file under Chapter 7 of the U.S. Bankruptcy Code, a bankruptcy trustee generally sells off their assets and uses the money to repay creditors (much like a Chapter 7 filing for individuals). If a company files for Chapter 7 bankruptcy, it cannot continue operations.
  • Automatic stay: As in personal bankruptcy filings, businesses that seek bankruptcy protection are protected by the automatic stay for the duration of their case. This legal stay prohibits all collection action against the filing company.

According to Bloomberg, the Royal Bank of Scotland (RBS) is not looking forward to actually enforcing any sanctions against the soccer team itself because of potential negative effects such sanctions might have.

While this story may not resonate with American readers quite the same way it would with those more familiar with England’s soccer leagues, it is a big deal. Consider the same thing happened to the Chicago Cubs last year when its parent company, The Tribune, filed bankruptcy.

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Posted in Bankruptcy News and Events | 1 Comment »

Thursday, October 7th, 2010

Should Medical Debts Show Up on a Credit Report?

In recent weeks, the U.S. House of Representatives passed a piece of legislation that would require credit reporting bureaus to remove medical debts from consumers' credit reports if those debts were paid or settled more than 45 days before the release of the report.

If the Senate passes a similar bill, this could mean good news for millions of Americans who have seen their credit rating suffer because of medical bills they were unable to pay.

Medical Bills & Bankruptcy

Sources note that, in recent years, medical debt has ranked as the most common contributing factor to personal bankruptcy filings in the U.S. And, according to insiders, that's partly because of the following reasons.

  • Unclear medical billing techniques: As you've probably noticed, most medical care facilities don't send you out the door with a bill for their services – instead, the bill comes weeks or sometimes months later, and you have to sift through it to figure out what you were charged for.
  • Limited or absent medical insurance: As recent debates over healthcare reform reminded us, millions of Americans don't have adequate medical insurance, meaning that even relatively minor procedures can have severe financial consequences for the uninsured.
  • Persistently high unemployment: Because health coverage in this country is generally linked to employment, the currently high unemployment rate means that more Americans than ever are uninsured or underinsured. Expensive medical bills, coupled with limited income, often mean serious financial distress.

Medical Bills & Credit Reporting

So what would be the benefit of removing paid or settled medical debts from credit reports?

  • Improved credit: With fewer negative actions on a credit report, more Americans would qualify for more attractive loan terms (like lower interest rates). This, in turn, would set the stage for people acquiring less debt overall and perhaps mean fewer people would need to seek bankruptcy protection.
  • Improved incentives to pay: Knowing that paying or settling medical debts could have a seriously positive impact on their credit scores could push more consumers to negotiate payments on medical bills. The long-term benefits associated with an improved credit score might provide the motivation to work through confusing language and overwhelming bill totals.

Medical Bankruptcy

The Senate's action on this bill could play an important role on the finances and credit health of millions of Americans. According to one study, as many as 40 percent of Americans have medical collections on their credit reports – and such information is harming their overall credit health.

If you're worried about medical debts or think you may need bankruptcy protection to address your financial concerns, take action now by connecting with a bankruptcy lawyer for a free consultation.

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Posted in The Law and Your Money, Your Credit Score | No Comments »

Tuesday, October 5th, 2010

When It’s Time to File for Bankruptcy: How to Know

Bankruptcy protection is often cited as a crucial part of the fabric of American capitalism – with the safety net of bankruptcy available, entrepreneurs and risk-takers can proceed without worrying that following their dreams will have devastating financial consequences.

Recognizing the important role bankruptcy plays in our economy, two bankruptcy analysts have developed a color-coded system to help consumers gauge their level of financial health and help them figure out whether they should be seriously considering a bankruptcy filing to protect their financial future.

Financial Warning Signs that You Might Need Bankruptcy

The various colors in this code, much like those in the code used by the feds to communicate the current level of threat of a terrorist attack, work like this:

  • Green zone (no need to file bankruptcy): If you're in this category, you have no real need for bankruptcy protection. You probably make more than you spend, pay your bills on time, have assets and insurance, have no credit card debt and save money regularly.
  • Blue zone (financial changes might be needed): Here, you don't quite need bankruptcy protection, but your financial habits, if continued, may lead you to a place where you will. People in this zone may be worried about losing their job, have trouble paying bills in full each month, have credit card debt and secured debt, and may not by able to save money regularly.
  • Yellow zone (bankruptcy is an option): At this level, you need to evaluate your situation and consider your debt-relief options, bankruptcy being chief among them. People in the yellow zone are often experiencing some financially difficult life change (like divorce, injury or layoff), have begun to miss payments on both unsecured and secured debts, have few or no assets, are getting calls from debt collectors and may not have insurance. If you're in the yellow zone, you need to take some sort of action, whether that's negotiating with your creditors or consulting with a bankruptcy lawyer.
  • Orange zone (bankruptcy should be seriously considered): Here, your debt is getting out of control. People in the orange zone tend to be delinquent (more than 60 days late) on at least one bill, use one credit card to pay off another, owe serious tax or medical debts but cannot afford them, have been out of work more than three months and may have had creditors initiate lawsuits against them. While there are still alternatives to bankruptcy available at this stage, it's generally a good idea to consult with a lawyer to see what the best option for your finances and legal status is.
  • Red zone (file for bankruptcy right away): At this stage, you're no longer in a position to negotiate and need the protection of the court to prevent having your assets repossessed, your wages garnished, your home foreclosed or similar actions taken. Many people in this phase are unemployed and may have run out of unemployment benefits. Under these circumstances, filing for bankruptcy is often helpful because it may halt all collection action.

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

Tuesday, September 28th, 2010

New Debt Relief Rule Means More Truth in Advertising

If you’re struggling with debt and looking for a way to improve your finances, there’s good news on the horizon: beginning Monday, September 27, new rules issued by the Federal Trade Commission prevent advertisers from deceiving potential customers about their ability to offer financial relief.

Here are some of the new protections the FTC’s latest consumer protection rule outlines.

More Honest Disclosures

While bankruptcy is a well-known debt relief option, many consumers try to avoid filing for bankruptcy by opting for debt settlement or credit counseling. While both options work well in many instances, in some cases, dishonest companies pitch too-good-to-be-true offers and consumers end up with more debt than they had before.

Now, advertisers will have to:

  • Announce proposed fees & refund policies No longer will companies be able to get away with advertising how low a price might be (“as little as…”). Now, advertisers will have to base their proposed fees on actual results they can realistically expect to get from a person’s creditors.
  • Estimate likely time frame: After consulting with a customer, debt-settlement companies must offer a good-faith estimate about the likely length of time the process will take, based on a debtor’s individual circumstances.
  • Estimate savings required to settle debts: As with the other new requirements, companies must make estimate how much money an individual customer must save before he has a realistic chance of settling debts based on that customer’s individual circumstances.
  • Disclose potential negative side effects: Rather than glossing over the downsides of debt settlement, companies are now required to review with customers the potential negative impact on their credit reports, the chance that creditors will bring lawsuits against them and any potential tax consequences.

More Honest Advertising

In addition to the above requirements, debt settlement firms are now required to advertise likely savings based on all their clients, not only the most successful ones. Theoretically, this should give potential customers a more realistic picture of how much debt settlement could actually help their finances.

Debt Settlement Vs. Bankruptcy

While there is no one-size-fits-all debt relief option, bankruptcy protection does have some obvious advantages over debt settlement and some other bankruptcy alternatives, which include:

  • Legal protection from creditors: Because bankruptcy functions as part of the federal government, those who file for bankruptcy are legally protected from creditor contact once they file their cases.
  • Federally and state regulated processes: While anyone can start a debt settlement firm, regardless of qualifications, bankruptcy attorneys and judges must meet very specific requirements, so you won’t have to question the background of the people you’re working with.
  • Federally regulated costs: The fees associated with filing for bankruptcy are set by federal laws, so you know you aren’t getting ripped off when you start a case (although fees that lawyers charge may vary). Debt settlement firms, on the other hand, can charge whatever they want – and some unscrupulous firms do, to the detriment of their clients.

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

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