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Monday, June 8th, 2009

Lucky to Have the Bankruptcy Option?

When times get tough, it’s easy to bemoan your difficult circumstances, but sometimes it’s more helpful to remember that things could be a lot worse.

I’m not being cynical here, I just think it’s worthwhile to consider how lucky we American debtors are to have the option of filing bankruptcy to eliminate our debts. Let me explain.

  • Indentured Servitude & Debt Labor: Once upon a time, incurring more debt than you could afford meant big trouble. In ancient Greece, for example, those who owed more money than they could repay were forced to work off their debts. In many cases, a debtor’s spouse, children and servants were also forced into “debt slavery” until their labor had cancelled out what they owed.
  • Debtors’ Prisons: In slightly more recent times - think mid-19th century Europe - those who couldn’t make good on their debts were often tossed into prisons. While they were incarcerated, their families were expected to repay their debts. The obvious flaw here is that it’s very difficult to make any money when you’re kept behind bars all day.
  • Debtors’ Colonies: In some cases, debtors were offered the option of debt labor and being sent to the “New World," aka the USA. The founders of the state of Georgia even envisioned that colony as a place to send debtors so they could work off their obligations.

Bankruptcy to Help American Businesses

When the United States was founded, its bankruptcy laws were among the first to be written.

We’ve been a land of entrepreneurs and innovators in part because of the freedom bankruptcy offers – it’s much less risky to start a new business when you know the government has your back financially.

And, while we may grumble about footing the bill when mega companies like GM file for bankruptcy, that’s arguably the price we pay for having a system that protects business owners and regular citizens alike.

Stay Close to Your Family & Friends When Filing Bankruptcy

Today, we may take for granted that, should we file for bankruptcy, we’ll have the support of our loved ones. Imagine having to relocate to a distant country where you knew no one or being thrown into jail because you couldn’t afford the balance on your credit cards.

Filing for bankruptcy may not be exactly “fun,” but it sure beats some debt-eliminating alternatives.

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Posted in Setting the Record Straight about Bankruptcy | No Comments »

Thursday, April 9th, 2009

After Filing Bankruptcy: Attempting to Collect Discharged Debts Is Illegal!

When you receive your bankruptcy discharge, you are legally excused from responsibility for any debts that have been discharged.

Unfortunately, some unscrupulous creditors count on people filing bankruptcy not knowing how far their protection extends and attempt to collect on debts after the court has excused them.

Don’t Pay What You Don’t Owe

The fresh start granted to you by the court protects you from the following.

  • Mail contact from creditors: Letters indicating that payment is due are prohibited; if you receive any, show them to your attorney.
  • Phone calls from creditors: Again, you have no obligation to pay discharged debts. Contact from creditors asking you to do so is forbidden. Record the time and date of any such calls.
  • Lawsuits from creditors: Because you no longer owe money on discharged debts, creditors have no legal recourse to collect them.
  • Failure to update your credit report: Creditors that threaten to continue reporting a discharged debt as unpaid to scare you into paying it are breaking the law. Be sure to check your credit report for accuracy and note any wrong information you see.

Why Creditors Attempt Collection

Put simply, creditors stand to make money by attempting to collect on debts you don’t owe.

If you pay them, they get cash they otherwise wouldn’t have.

In some cases, the people or groups attempting to collect aren’t even your original creditors! Here’s why:

  • Say you owed one credit card company $1,000, but the debt was discharged in bankruptcy. You now owe the company $0, which is how much they can legally collect from you.
  • A third party collector may offer to buy your debt from the credit card company for, say, $10 for the privilege of “owning” the discharged debt. The credit card company may agree, since $10 is more than $0, so they technically make a profit.
  • The collector can then hound you about paying the debt, even though you no longer have any legal obligation to do so. If you end up paying, they make $990. If not, they only lose $10.
  • Because enough bankruptcy filers are unaware that they don’t have to pay these debts (or feel somehow guilty about not having paid them), many pay. This makes the illegal debt collection profitable even when some people refuse to pay.

Contact a Bankruptcy Lawyer

If any of your creditors tries to collect on this “zombie debt,” you have the right to contact a bankruptcy lawyer.

You have rights and can take action to protect them – that’s what the fresh start is all about!

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Posted in Post-Bankruptcy Debtor Education | 3 Comments »

Wednesday, April 8th, 2009

Assert Your Rights As a Consumer

Unfortunately, a recent report from the FBI suggests that cyber crimes increased as much as 33 percent last year.

This means that, as a consumer, you need to take steps to protect yourself and know what you can do if you’re victimized by online fraud.

Fair Credit Reporting Act

This law gives you the right to access your credit report for free and to challenge any incorrect information you see there.

Staying abreast of the information on your credit report is one of the best ways to make sure you aren’t victimized by identity theft and other cyber crimes. Just follow these steps:

  • Go to www.annualcreditreport.com and request a free credit report from Equifax, Experian and TransUnion once every year. (You may want to request one every four every four months, or all three at once.)
  • Check the information against your own records. If you notice any inaccuracies on your report, contact the agency immediately.
  • Be sure you file all complaints in writing and persist until the matter has been handled appropriately.

Incorrect information on your credit report can harm your overall credit rating – when you apply for loans or credit cards, you may be offered higher interest rates than you would have been otherwise or even be denied a loan entirely.

Truth in Lending Act

This law is designed to protect consumers in credit transactions.

Lenders are required to disclose specific information about loans (including interest rates, payment periods, late fees and more).

When lenders don’t comply with the terms of this law, your rights have been violated and you may want to take action.

Fair Debt Collection Practices Act

Creditors must adhere to strict rules when trying to collect money from you: they’re limited to calling between certain hours of the day, prohibited from certain types of contact altogether and forbidden to deceive you in order to collect money.

How to Know If You’ve Been Victimized

Besides these two acts, the government has outlined housing acts, credit reporting acts and others to make sure you get a fair shake in the world of credit. But how can you be sure you’re taking the right steps?

Consulting with a bankruptcy lawyer familiar with the laws in your state can be an effective way to make sure your rights as a consumer are recognized and, if they aren’t, to take appropriate legal action.

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Monday, March 2nd, 2009

Young People Increasingly Concerned About Money

According to a new study, nearly two-thirds of teens and young adults aged 12 to 29 admit they are becoming increasingly concerned about their personal finances.

TRU, a youth research firm, conducted the “3rd Wave" study by examining the upcoming buying intentions of 1,300 teens and young adults.

The study showed that 44 percent of people between the ages of 12 and 15 were concerned about the recession.

In addition, 71 percent of those between the ages of 20 and 29 expressed an increasing concern over the failing economy.

Teens Are Holding Back the Cash

TRU asked the teens and young adults to indicate whether they anticipate spending more, less or the same in particular categories of purchases over the next 12 months.

The majority of those surveyed said they expect to spend less on electronics, restaurant meals, snacks and entertainment.

However, they did expect to spend the same amount as they currently do in categories such as housing, transportation and food costs.

Fast food is out in the coming year, as 75 percent said they would be hitting the drive-thru less often over the next 12 months. Seven out of ten survey respondents also said they plan to eat more meals at home.

Dinner and a movie at home may be the new trend, as 53 percent said they would be staying home more.

More than 25 percent of people 20-29 said they may consider getting a second job and one-fifth said they would shop at second-hand stores in the coming months.

Learn more about filing bankruptcy as a debt-relief option?

Read more: How to Tame the Debt Dragon

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Posted in Credit and Bankruptcy, Financial Literacy | No Comments »

Friday, February 20th, 2009

How Much Debt is Too Much? Know When Debt Needs a Solution

Although most people have debt, some may not know how much debt is considered “too much debt” and when a debt solution is needed.

One way to get a general overview of your financial health is to calculate your debt to income ratio—your monthly debt payments compared to your monthly income.

Knowing Your Debt to Income Ratio

Your debt to income ratio can give you a good idea of where you stand and can help you decide if you need to reduce your debt.

When mortgage lenders calculate an applicant's debt to income ratio, mortgage and rent payments, property taxes and insurance are included in the calculations.

Other lenders may not consider housing costs as part of a borrower’s debt when calculating the income to debt ratio.

Other debts that are generally included in debt to income ratio calculations are:

  • Personal loans and home equity lines of credit
  • Car payments
  • Monthly payments on revolving credit accounts
  • Student loan payments
  • Double the minimum monthly credit card payments
  • Child support payments

To determine the income figure to use in a debt to income ratio, consider:

  • Monthly take-home pay
  • Amount received yearly in overtime and bonuses, divided by 12
  • Any other annual income, divided by 12

The total of all monthly debt payments divided by total monthly income is the percentage of debt to income.

You can use this number to determine if you should seek a debt solution.

How Low Can You Go?

Obviously, the lower your debt to income ratio, the better.

Lenders generally consider a 36 percent or lower debt to income ratio good.

If your debt to income ratio is above 36 percent, you may be stretched financially and need to reduce your debt.

Lenders generally consider borrowers with an income to debt ratio, including housing expenses, below 30 percent to be a low risk.

Finding a Debt Solution

If your debt to income ratio is 40 percent or higher, it may be a good idea to seek a debt solution.

You may consider utilizing credit counseling through an accredited agency, a debt settlement program or filing bankruptcy.

Chapter 7 bankruptcy can be a very attractive option for people who have a large amount of unsecured debt. With Chapter 7, many people can get a fresh start after debts are discharged and begin to rebuild finances without the heavy burden of unmanageable debt.

Debt Calculator

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Monday, February 2nd, 2009

Sick of Creditor Harassment? Tips on Dealing with Debt Collectors

The slumping economy has caused many Americans to depend on credit cards to survive. A real problem arises when the credit card bills are due and there’s no money to pay them.

Enter the debt collector.

According to the Federal Reserve, nearly one in 20 credit card accounts in the U.S. were delinquent, or more than 30 days past due, at the end of 2008. And when a credit card account becomes delinquent, debt collectors begin calling.

A recent Washington Post article provided some valuable tips consumers can use to protect their rights when debt collectors begin calling.

In Debt? You Make the First Call

Financial experts recommend calling creditors first if you’re having a problem paying bills on time.

If you call them before they call you, you may be able to negotiate a lower interest rate and/or get fees waived or reduced

Avoid Debt Collection Companies: Don’t Ignore Your Creditors

If you don’t take the opportunity to call the creditor before they start calling you, it’s not a good idea to ignore them.

If an account is more than 90 days past due, the lender may have a third-party debt collection agency step in and attempt to collect the debt.

Consumers should realize that the federal Fair Debt Collection Practices Act provides protection for consumers by restricting the actions of third-party debt collectors.

However, this law does not apply to the original creditor and if a debt is sold to another company, the law regards the new owner as an original creditor.

Credit card companies have fewer restrictions when contacting debtors, but are generally more reasonable and pleasant when dealing with consumers. These companies usually wish to keep their customers, if at all possible.

If the account is turned over to a debt collection company, it’s usually much harder for the debtor to work out a solution.

Don’t Lie About the Debt, But Don’t Acknowledge It Either

While it’s not a good idea to dodge or ignore calls from debt collectors, there are things experts say debtors shouldn’t say.

For example, some experts tell debtor to not lie, but to also not specifically acknowledge owing the debt.

Keep in mind that you’re not required to speak with debt collectors and you may terminate a phone call at any time.

Don’t Agree to Unrealistic Repayment Plans

Debtors should never agree to a payment plan that can't be managed. If you agree to a payment plan, the payments should be made according to the agreement.

Don’t Provide Personal Information

You should never provide personal financial information to a debt collector.

Some debt collectors ask for debtor's bank account numbers and routing numbers, but this information should not be provided.

Gail Cunningham of the National Foundation for Credit Counseling warns that this type of information could be used to garnish a bank account if the collector gets a judgment against you.

Know Your Debt Collector

Consumers should collect detailed information from any debt collector who calls.

Collection agencies may attempt to hide their identities, so start by trying to get the name and address of the debt collection agency from the caller.

Under the federal debt collection act, you must send a written request for the debt collector to stop calling. Verbal requests are generally ignored.

Verify the Debt

Debtors should also demand verification of the debt.

The law gives debtors the right to request and review documentation of the debt. If a debt has been resold several times, the debt collector may be unable to provide proof of the debt.

The Protection of a Bankruptcy Lawyer

If a debt collector threatens court action, it may signal that it’s a good idea for a consumer to contact a bankruptcy lawyer.

If a debtor has a lawyer, debt collectors may only attempt to contact them through their lawyer.

If a debtor winds up filing bankruptcy, an automatic stay is issued and all collection activity must stop immediately—that means no more calls, no more letters, no more contact. Period.

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Posted in Find a Bankruptcy Lawyer | 1 Comment »

Tuesday, January 27th, 2009

10 Hot Tips to Save Cold-Hard Cash

In today’s economy, we all need to save money when we have the opportunity to do so.

While it’s not always easy, there are ways you can spend less and use your savings to pay down debts and grow your savings and retirement accounts.

Here are some pain-free money-saving tips that can really help gather the green in your wallet.

1) Make a shopping list and vow to stick to it. By sticking to your list, you can avoid impulse buys.

2) Use draft dodgers at doorways and apply weather-stripping and caulk around windows to keep heating and cooling costs under control.

3) Slow down on the Internet. Most people don't need the fastest (and priciest) Internet connections. You may be able to save a few dollars a month by bumping the speed down a notch - and you'll probably never notice a difference.

4) Visit your local library. Rather than buying paperbacks and magazines, utilize the library for your literary needs (and you can often rent movies for free from there too!)

5) Clip grocery coupons and shop on double-coupon days. These pennies off can really add up.

6) Eliminate your landline phones. Ditch this service and save $30 - $50 a month.

7) Unplug electronics when not in use. Even when you're not using your gadgets, they're still using energy that you pay for - so unplug them to save up to $256 a year.

8) Share a ride, bike or walk. (Are you noticing that some of these ideas will not only save you money, but are good for the environment as well?)

9) Negotiate rates with your cable company. The Wall Street Journal recently reported that some companies will offer to cut your bill to keep you as a customer.

10) Change your light bulbs. According to the EPA, if every household in the U.S. replaced a single traditional light bulb with a compact fluorescent one, it would result in a collective $600 million annual savings on utility bills.

Are You Living A Budget-Conscious Life But Still Having a Hard Time Making Ends Meet?

If you've tried everything to try to save money and repay your debt, filing bankruptcy may be a debt-relief option for you.

Check out our bankruptcy information portal Bankruptcy 101 and talk to a bankruptcy lawyer today about your options.

We'll connect you--for free and with no obligation--to a bankruptcy lawyer in your area.

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Posted in Bankruptcy and the Economy | No Comments »

Friday, January 23rd, 2009

China’s Not Digging Our Debt & It Could Affect You

Suffering economies are not exactly news anymore as we come to terms with the recession rocking most corners of the globe.

But it does appear that the shifting impact of the crisis will continue to show itself in new ways.

Take, for example, China’s decreasing interest in buying U.S. debt.

Like much of the rest of the world, China is having its share of economic troubles. According to The New York Times, the Chinese government is planning a $600 billion stimulus package to recharge the national economy.

This may have long-term benefits for the Chinese people; however, the move could mean bad news in the United States.

China is reportedly the largest foreign holder of U.S. debt, currently holding more than $1 trillion.

But since the economic downturn, China has shown less interest in buying our debt – partly because it needs money for its own stimulus projects.

So What Does China's Debt Disinterest Mean for Americans?

The more buyers interested in holding our debt, the lower the returns received by the holders.

So, when China was frantically gobbling our debt, returns fell to near-zero levels.

As China’s interest wanes, fewer entities will hold American debt and those groups will likely expect greater returns on what they have.

This could force the U.S. government to raise key interest rates in an effort to generate more income to pay off debt holders.

And, as you may have guessed, an increase in those interest rates could translate to increased interest rates for all borrowers, including individuals looking to buy a car or a home.

This may seem like more gloomy news in a season of plenty of economic gloom, but, according to the NYT, there may be a bright spot in the future.

Apparently, America could benefit long-term from having its debt spread more evenly among debt holders.

However, if the shift happens too quickly, the short-term effects could outshine any potential long-term gains.

This may not be the worst news from the global recession, but it certainly isn’t the best, either.

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Wednesday, January 21st, 2009

Keep Your New Year’s Resolution to Reduce Debt

Of all the 2009 New Year’s resolutions that were made a few weeks ago, many are likely to be forgotten in the upcoming months.

But if you made a New Year’s resolution to reduce debt in 2009 there are simple steps you can take to stay on track and reach your goal.

How to Reduce Debt in 2009

In order to be successful with your New Year’s resolution, you’ll need to clearly understand your financial circumstances.

Start by adding up your debts, establishing a budget and creating a timeline to paying off your debts.

Your plan may include eliminating extras and cutting out unnecessary spending. For some people, getting a second job could help save more money to chop down those bills.

Control Spending Habits

Millions of Americans rack up enormous amounts of debt by using credit cards to make purchases.

Credit was once so easy to get that many people felt as if they weren’t actually spending real money when they used plastic. As many of us can attest to, credit card debt can add up quickly.

Use credit cards only for emergencies and make it a habit to pay for purchases with cash. This will prevent overspending, reduce impulse buying and make you more aware of your spending habits.

Obvious Tip, But Necessary: Save Money!

In order to reduce debt, it’s important that you actively seek out ways to save money and eliminate cash leaks in your budget.

Even small savings in your budget can add up quickly. The money saved can be used to pay off your bills.

  • If you have both a landline and a cell phone, you might consider discontinuing the landline.
  • Pay credit card bills on time each month to avoid late fees and higher interest rates. It’s important to keep a close eye on bank statements, because many banks are raising interest rates without notice, even if you’ve never been late with a payment. It may be possible to transfer balances to lower interest accounts in order to save money.
  • Shop wisely and seek out the best deals on essential items.
  • Trim high grocery bills by buying generic products when possible and clipping coupons. If you’re able to shop at a supermarket that doubles coupons, the savings really add up.

[TIP: For more ideas on how save money, check out The Debtress blog.]

Too Deep in Debt? Chapter 7 Bankruptcy Eliminates Debt

If you've lost your job or are otherwise unable to pay your bills, you might consider Chapter 7 bankruptcy to eliminate debt.

By filing Chapter 7 bankruptcy, you may have unsecured debts like credit card, utility and medical bills discharged. This discharge can be a tremendous relief and may help you get a fresh start.

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Friday, January 16th, 2009

Creditors Scramble to Get What They Can From Debtors

Faced with the deep recession and more consumers filing bankruptcy, banks and lenders are feeling the squeeze.

Not only are many consumers backed into corners with unmanageable debt and few options, debt collectors are realizing that their options are limited too.

Many people are simply unable to repay their debts--and as the old saying goes, you can't get blood from a stone.

According to a recent article in The New York Times, lenders and debt collectors are now scrambling to get what they can from borrowers, even if it means forgiving a portion of the debts.

Some creditors are now accepting greatly reduced payments, allowing debtors to clear the debt.

This new wave of debt forgiveness has nothing to do with charity and is not an act of kindness.

Creditors are reacting to the devastating economy and working with debtors may keep them from losing everything.

Creditors Know of Chapter 7 Bankruptcy

Make no mistake; lenders are fully aware that if a debtor files Chapter 7 bankruptcy, many debts could be completely discharged.

As the recession deepens and more Americans are losing their jobs in mass layoffs, banks and credit card companies are preparing for more defaults in 2009. As a result, these creditors are competing for payment.

While some companies are scaling back consumer credit lines and hiking up fees, others are giving customers more leeway.

The New York Times reports that Bank of America said in 2008 it waived late fees, lowered interest charges and, in some cases, reduced loan balances for more than 700,000 credit card holders.

American Express and Chase Card Services are reportedly working with customers too, and the Times reported that every major credit card lender is giving debt collectors more options to help distressed debtors.

Debt collectors are also feeling the squeeze, as they are generally paid based on the amount of money they are able to recover. The number of borrowers who are receiving payment extensions has reportedly doubled in recent months and deals to forgive 20 to 70 percent of credit card debts are becoming common.

Just a few years ago, banks and credit card companies were far less likely to work with debtors. However, as the number of people filing bankruptcy grows so does the amount of bad debt that credit card companies are forced to write off. This has forced many creditors to change their debt collection strategies.

Creditors realize that consumers now have fewer options to pay off debts.

Debtors who may have used equity in their homes to pay off debts in the past no longer have home equity.

As costs of food and fuel have soared and many consumers have lost their jobs, savings have been depleted and filing bankruptcy becomes the only option.

So, if you have outstanding debt, consider giving your lender a call a having a chat. Perhaps you could pay off that account for less than you think.

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