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Monday, June 13th, 2011

Inherited Money in Bankruptcy

One question that many potential bankruptcy filers have is how the bankruptcy court handles inherited money and money that bankruptcy filers expect to receive in the months after their filing. The answer depends on a few variables. Here’s a look at some of them.

  • The 180-day rule. One of the most important rules about bankruptcy and inheritance is that funds inherited within 180 days (or about six months) of the filing of a bankruptcy petition are generally considered to be part of the bankruptcy estate. This means that the bankruptcy court has the right to use those funds to repay creditors, pay court fees or do anything else it deems appropriate.
  • Date of death. In the case of money inherited from a deceased person’s estate, the date of death will be taken into consideration. If the person died within the 180-day window, then the funds generally go to the bankruptcy estate, even if the filer doesn’t receive them until some time later.
  • Type of inheritance. Another factor bankruptcy courts consider is how a person inherited money. Depending on laws in your state, the court might treat an actual will differently than another type of contract designating you as heir to certain money or property. A bankruptcy lawyer in your state can help you figure out how the court is likely to treat your expected inheritance.
  • Exemptions. In some states, inherited property might be protected by bankruptcy exemptions. In certain cases, even if an inheritance falls within 180 days of a bankruptcy filing, the filer may be able to keep the inherited property.
  • Bankruptcy fraud. It’s important to note that filers must report any expected inheritance on their bankruptcy petitions. If a filer tries to lie about or conceal inherited assets, the court could convict him of bankruptcy fraud, which is punishable by a serious fine and up to five years in jail.

Inherited Money & Debts

If you have reason to expect that you will inherit money or assets in the near future, it’s a good idea to start thinking now about how you plan to use that money. While debt repayment is one option, it’s not the only one.

Consider speaking with a financial adviser about your options for setting up an emergency fund, negotiating your debts, and taking money management or investment classes. If you have debt, taking advantage of an influx of cash to improve your overall financial system may be more effective than simply making a one-time debt repayment.

Alternately, if you’re expecting an inheritance and wondering whether or not filing bankruptcy makes sense for you (either now or later), you may want to seek the counsel of a bankruptcy attorney.

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Posted in Filing Requirements, The Law and Your Money | No Comments »

Wednesday, April 27th, 2011

Mortgage Scammers on the Loose

Despite the best efforts of groups like the Better Business Bureau and the Federal Trade Commission, scammers manage to find new ways to take money from unsuspecting consumers on a regular basis. Here’s a look at one of the latest warnings that’s been posted by consumer advocates.

A New Mortgage Scam Afoot

The latest in a long line of mortgage and foreclosure “rescue” scams seems to be one that involves attempting to trick homeowners into thinking they qualify for money from a lawsuit against their lenders. According to the BBB, the scam works like this:

  • An official-looking letter arrives: Victims have reportedly noted that they received a letter indicating that they were eligible to join a “joinder action suit” against certain mortgage lenders and banks. The letters noted the potential for winning significant financial compensation in the suit.
  • Unrealistic promises: Victims who called the number listed on the letter were apparently directed to employees of the scammer, who falsely suggested that, by joining the suit, victims might win thousands of dollars, have their interest rates slashed to two percent or have their mortgage principal reduced by 80 percent.
  • Request for upfront payment: In classic scam fashion, victims were then told that they must pay a $5,000 retainer fee to ensure their spot in the lawsuit.

Unsurprisingly, none of the information presented in the letters or during follow-up phone calls was true. But what many victims found disturbing was that the scammer had access to their personal information, including name, address, loan information and even loan amount. In other words, this particular scam may have seemed frighteningly legitimate.

How to Spot a Scam

If you’re among the millions of Americans currently struggling with your mortgage, be sure to follow these safety tips (from the BBB) if and when you decide to seek mortgage assistance.

  • Go directly to your lender first. Third-party “relief” providers, especially those that approach you unsolicited, are much less trustworthy and much more likely to take your money and offer you nothing in return.
  • Be suspicious of mailings from strangers. If you receive a letter about any class action or mass joinder lawsuit, be sure to check online to learn about the latest scams. Then, contact your bank or connect with a lawyer to assess the nature and legitimacy of the letter.
  • Shy away from advance fees. Thanks to new consumer protection rules that took effect this year, advance fees are only permitted in rare cases. In many cases, those that ask for money upfront are interested only in your money and may not stick around long enough to provide the help they promised.
  • Beware of forensic loan audits. These are hot scamming ground and often have no effect on a person’s mortgage payments.

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Posted in Home Foreclosure | 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 »

Monday, April 11th, 2011

Celebrate Financial Literacy Month

The Federal Trade Commission has announced that April is National Financial Literacy Month and, as such, a great opportunity for Americans of all ages to brush up their financial smarts to make the most of their money, credit and financial future.

So what kinds of things can you do to celebrate financial literacy month? The FTC recommends checking out these services.

  • Money Matters: This web site has information in both English and Spanish about essential financial literacy topics including debt collection, credit repair scams, vehicle repossession, job hunting, job offer scams, foreclosure rescue scams, budgeting for mortgage payments and more. Whether you prefer quick tips or more in-depth videos, this site has information to help you.
  • Free Annual Credit Reports: Here, the FTC explains how and why Americans are entitled to a free credit report from each of the three major reporting bureaus once each year. This site also provides information about why it’s important to check your credit report regularly and where you can get your no-strings attached, truly free credit report (www.annualcreditreport.com).
  • You Are Here: This site is geared toward children and provides them interactive online games that teach them about advertising, competition and steps they can take to protect their privacy and prevent identity theft.

Why Does Financial Literacy Matter?

So why does our country need a financial literacy month in the first place? In recent years, tests administered to high school students yielded almost no passing scores and, as we are still collectively learning, ignorance about financial matters (such as how mortgages work) on a grand scale can lead to devastating financial fallout for the entire economy.

In addition to those resources provided by the FTC, consider visiting these sites as part of your financial literacy month celebration:

  • Fair Debt Collection Practices Act: This page explains who is protected by the FDCPA and what the law prohibits from debt collectors. Understanding your consumer rights is one powerful way to make sure you aren’t victimized by scammers or dishonest debt collectors.
  • The Bankruptcy Glossary: Thinking of filing for bankruptcy protection? You may want to start here as you consider what bankruptcy might mean for you. This page offers plain-English definitions for many terms commonly used in bankruptcy cases.
  • Consumer Financial Protection Bureau: The government’s new consumer protection body is still growing, but already offers a number of interactive options for people interested in staying up-to-date about consumer protection rules, laws and debates.

Remember: the only one responsible for your money, retirement fund, loan payments and other financial obligations is you. If you aren’t sure how your money is working (or not working) for you, it’s a good idea to take the time to educate yourself about basic financial literacy matters – the resources are out there and they’re free.

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Posted in Finance 101: Secure Your Future, Home Foreclosure, Identity Theft | 1 Comment »

Thursday, December 30th, 2010

Lawsuit Challenges Legality of Pre-Employment Credit Checks

The U.S. Equal Employment Opportunity Commission (EEOC) has filed a lawsuit alleging that the practice of conducting pre-hiring credit checks by Kaplan Higher Education Corporation, a company that provides test-preparation and post-secondary services, discriminates against certain classes of Americans and is therefore unlawful.

And, in case that’s a little too much legal information for your comfort level, here’s what that means and why it’s good news if you’re struggling with debt and/or recovering from bankruptcy.

So What’s the Deal with Pre-Hiring Credit Checks?

Here’s a look at the basics of employer-conducted credit checks.

  • What they are: As part of the hiring process, many employers (as many as 60 percent, according to some polls) have begun running credit checks on job applicants (in addition to conducting criminal background checks). In theory, these credit checks are valuable to employers because they divulge information about an applicant’s overall capabilities.
  • Why they’re controversial: While few people oppose the practice of running credit checks for applicants to positions that involve finance, many consumer advocates have spoken out against credit checks for applicants in non-financial fields. After all, if the current recession has taught us anything, it’s that poor credit can have little to do with a person’s responsibility, intelligence and job worthiness. Further, a few states have already made pre-employment credit checks illegal for non-finance jobs.
  • The current lawsuit: The EEOC’s charges against Kaplan include allegations that Kaplan’s practice of conducting credit checks before making hiring decisions constitutes to discrimination, because black and Latino Americans reportedly have statistically lower credit scores than white Americans.
  • The legal reasoning: According to a Credit.com piece on the issue, the case has teeth because it applies legal reasoning the EEOC used to show that criminal background checks also disproportionately affected black job applicants because blacks are more likely to be arrested than whites.
  • The reason it’s important: If the court rules that pre-employment credit checks lead to discriminatory hiring decisions, such credit checks could be outlawed in more states, potentially making employment easier to find for people who have struggled with debt problems.

Potential Outcomes of the Case

While the lawsuit is still in its early stages at this juncture, it has the potential to change the current state of pre-employment credit checks in the U.S. The court could, depending on the evidence presented, rule that pre-employment credit checks amount to discrimination in the hiring process.

This could be good news for people recovering from a bankruptcy filing or otherwise fighting debt burdens, because being denied employment for credit-related reasons can lead to a frustrating and debilitating debt cycle.

In the mean time, you may want to consult with a bankruptcy lawyer if you have been denied employment because of something in your credit report.

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

Wednesday, November 17th, 2010

Watch out for these Ridiculous (but Legal) Credit Card Fees

Since the passage of the Credit CARD Act and its full implementation this summer, consumers have been protected in some important ways from the credit card industry. But, as Credit.com reminds us in a recent post about absurd credit card fees, there are still plenty of credit card industry practices to be wary of.

Here’s a look at some of the fees you should watch out for (and avoid, if possible) if you’re in the market for a credit card.

  • Hefty upfront or activation fees: Though the CARD Act limited how high initial fees can be on credit cards, many issuers are still charging upfront and/or activation fees. One industry insider has apparently defended these fees as legal because many issuers assess them before an account has officially been activated, meaning that they can’t contribute to the card’s limit.
  • Credit insurance or protection: This credit card charge is reportedly designed to allow consumers to stop making payments if they lose their job unexpectedly (but, one would assume, it would not stop any interest from accruing on the balance due). Naturally, it’s not free, and, according to Credit.com, your credit card issuer may not even tell you that you’re paying for such “protection” – you have to check your bill to determine whether you’re forking over cash for this. And, if you are, consider calling your card issuer to cancel it.
  • Inactivity fees in disguise: Because the CARD Act forbids credit card issuers to charge inactivity fees (that is, charges for not using a card), some companies, it seems, have done little more than renamed their inactivity fees to keep them alive. Some cards apparently charge “annual fees,” which consumers don’t have to pay if they charge a certain amount each year. If you use your card very little and don’t think you’ll reach the annual fee limit, you may want to close the account.
  • “Pick-a-rate” interest rates: This practice, according to Credit.com, is particularly nefarious because it can go undetected by individual credit card holders – it doesn’t cost individuals very much money, but, when applied to millions of accounts, earns a hefty chunk of change for credit card companies. What essentially happens is that credit card issuers charge a slightly higher interest rate than usual – your best bet is to avoid cards that have this language in the agreement: your interest rate “will be the maximum prime rate reported in the 90 days preceding the last day of the billing cycle.” An ordinary interest rate will be signified in your contract in this language: your interest rate “will be the maximum prime rate reported on the last day of the billing cycle.”

The bottom line? Watch out. Even though federal law protects your consumer rights to a certain extent, it’s still essential to read all the fine print and make sure you understand the terms of your credit card before you sign anything.

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

Tuesday, November 9th, 2010

Students & Parents Need Financial Literacy Lessons

Hard economic times (like the ones we’re in) tend to remind us of how important understanding financial matters can be. After all, everyday transactions and financial decisions are what pave the way to larger financial events like being able to purchase a home or requiring the debt help offered by bankruptcy.

But, according to a recent report from Credit.com, fewer than half of the nation’s high school students were able to earn passing grades on a test of the basic tenets of financial literacy. And, according to another Credit.com story, many American parents are similarly befuddled by money matters.

What Your Kids Need to Know about Money

According to Credit.com, financial literacy lessons are best given and demonstrated in the home. Here are some finance basics to consider:

  • Debt starts early: Sources note that the average college student leaves school with about $4,000 in credit card debt and $20,000 in student loans – that’s a pretty big hole to be in, especially in this economy, when jobs are difficult to find. Further, reports indicate that bankruptcy filings are increasing most rapidly among citizens aged 18 and 25.
  • Money affects the whole family: It seems that as many as half of all college graduates are now moving in with their parents after leaving school because of an inability to find work or afford alternate housing. This can put a financial strain on parents, especially those who are already having difficulty making ends meet.
  • Talking is important: It’s unfortunate that money is often a taboo subject in this country, because discussing finance issues in an open, frank manner may be the best way to make sure everyone is on the same page financially. Credit.com reports that 85 percent of teenagers are worried about money – in many cases, speaking with teens about a household’s finances might relieve some of their stress.
  • It’s okay to be confused…if you seek help: One study suggests that a mere five percent of American parents were able to name the main factors that affect a person’s credit score, which means that if you’re not sure where to begin teaching your kids about money, you’re not alone. The good news is that there are plenty of educational resources available for free online, which means you and your family don’t have to be in the dark much longer.

Start Your Kids on a Path to Financial Success

If you don’t talk with your kids about money, now might be the time to start. Consider addressing some of the following:

  • How much things cost: If you’re paying all your kids’ expenses, they probably don’t understand the dollar value attached to each item.
  • How much people make: While you may not be comfortable revealing your salary to your children, you can discuss minimum wage, typical salaries for various professions, and how much time a person must spend working.
  • How credit cards work: Kids probably don’t ever see a credit card bill – only the magic of using plastic in a store. So teach them about interest rates and monthly payments.
  • Allowance: If you don’t already give your kids an allowance, it might be a good tool to teach them how to handle money.

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Posted in Economic News: How Are We Doing?, Finance 101: Secure Your Future | 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 »

Wednesday, October 27th, 2010

Take Advantage of Free ID Theft Protection & Education Materials

The Federal Trade Commission has announced that, in honor of National Protect Your Identity Week, it will provide consumers with a wealth of free information and materials about how to fight, avoid and protect themselves against identity theft.

Where to Learn about Identity Theft Prevention

Though federal laws exist to protect the finances of people who are victimized by identity theft, it’s still fairly common for bankruptcy filers to indicate that identity theft contributed to the financial distress that led them to file for bankruptcy. Here’s a look at what the FTC has to offer:

  • Basic information: This “one-stop national resource” provides consumers with information about what identity theft is, how to recognize it, how to prevent it and what to do if they’ve been victimized by identity theft. Additionally, the site has information for businesses and law enforcement groups to help prevent and fight identity theft cases from happening.
  • Informative videos: The FTC has posted some educational videos for consumers interested in learning how to reduce their online risk of identity theft and how to protect their digital lives from exposure to identity threats.
  • Online application of skills: At their game portal, the FTC offers consumers a chance to test their knowledge about the risk factors of identity thefts, basic precautions to take to avoid being victimized by identity thieves and apply identity theft prevention skills by playing online games. This site might prove especially helpful for younger computer users who might be resistant to more traditional information sources.
  • Reminder of your rights: Finally, the FTC has posted a reminder about every American consumer’s right to obtain and view copies of his or her credit report and why staying abreast of what appears in your credit is important to financial health.

Legal Help for Identity Theft Woes

To top off its bevy of useful information about fighting and preventing identity theft, the FTC has also announced that it will offer legal guidelines for identity theft victims. This web page is designed to help victims and their advocates (whether lawyers, credit counselors or other activists) determine how to proceed to maximize the benefit of fighting identity thieves.

As many people who have unfortunately felt the sting of identity theft already know, the crime can lead to hours of headaches as consumers try to sort out their financial situation and reclaim their private information. Generally, there are a few practices can help you avoid identity theft:

  • Shred all sensitive documents before disposing of them;
  • Don’t click on unfamiliar links online and definitely don’t enter your personal information unless you’re sure what web site you’re on;
  • Don’t share your passwords with anyone;
  • Check your free credit report every year for suspicious activity; and
  • Make sure your email has a good spam filter. Be wary of emails from unknown sources.

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

Tuesday, August 24th, 2010

Study: Credit Card Application Disclosures Improving

Here’s some good news from the world of credit: according to a study conducted by the web site CardHub.com, the language on applications for credit cards has improved in clarity in recent years. Specifically, the transparency and completeness of disclosure of a credit card’s terms in the large print has gotten better.

The study looked at several elements of a credit card agreement, including these:

  • Clarity on rewards: This category rated how easy it was to interpret and apply rewards points.
  • Clarity on annual fee: Here, the study looked at whether issuers displayed the annual fee prominently or hid it among other pricing details.
  • Clarity on cost of carrying a balance for new purchases: This section looked at the clarity of introductory interest rates and APRs for new purchases made with the card (i.e. not balance transfers).
  • Clarity on cost of making a balance transfer: Here, the study examined the ease of finding how much it would cost to transfer balances from one credit card to another.

The study based its clarity ratings on whether or not the researchers had to click to various pages before finding the information they wanted, whether they had to sift through fine print and whether information was clearly visible on the page.

The Findings

If you’re interested in applying for a new credit card, the study may be worth checking out, as it includes detailed scores for cards put out by the top ten issuers in the U.S. Overall, the study found these trends:

  • Transparency is improving on annual fee disclosure: Whether because of new regulations introduced by the Credit CARD Act or other motivations, it seems that most card issuers have improved the clarity with which they explain the annual fees associated with their cards. Annual fees have apparently become more popular since the passage of the CARD Act, which limits overdraft fees.
  • Transparency is still poor for balance transfers: One area in which many cards reportedly need improvement is information about transferring balances from one credit card to another. While balance transfers can be used to lower interest rates and thus help pay down debt, they often come with fees and unclear terms, which can make them more trouble than they’re worth.
  • Cash-based rewards are easiest to understand: Another area where card issuers fell short of the transparency mark was on disclosing how rewards points and miles work and what exactly they’re worth. Because of this lack of clarity, the researchers recommend cash-back rewards as the most effective kind to use.

What might all of this mean? Hopefully, it will mean people are better informed about using their credit cards and able to manage their finances more effectively—and possibly reverse the trend of unmanageable credit card debt and filing bankruptcy that the country has seen for decades.

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Posted in Your Credit Score | No Comments »

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