For the second time in three years, Hostess Brands (famous for producing Twinkies, Ring Dings, and Wonder Bread) has filed for Chapter 11 bankruptcy protection. According to CNNMoney.com, the company cited unmanageable expenses (largely in its employee pension plan) as its reason for needing bankruptcy again, after emerging from an earlier bankruptcy case in 2009.

The problem confronting Hostess Brands is similar to the ones that prompt many municipalities to file for bankruptcy protection: namely, that it cannot sustain the pension system it established many years ago.

Another problem Hostess Brands faces is the number of its creditors. Reports indicate that the junk food producer owes money to between 50,000 and 100,000 creditors – most of whom are former employees with pension plans. The sheer volume of creditors can make settling out of court difficult, and may have contributed to the company’s decision to choose bankruptcy.

Similar Problems Leading to Individual Bankruptcy?

While it’s easy to brush the problems faced by Hostess and many other large companies aside as unique to big businesses, the lessons from this giant-sized bankruptcy filing can provide important guidance for individuals. Here are some.

• Review your recurring expenses. If you’re struggling with paying your bills each month, it’s time to review what you’re paying for – and whether you’re getting your money’s worth. Cable and TV packages, cell phone plans (do you really need all those minutes?), and energy costs are all prime targets for cutting monthly costs and freeing up money to help you pay down debt. Downgrading to less luxurious entertainment and/or switching to energy-efficient light-bulbs and shower heads could save you significant money in the long term.
• Determine whether you can afford the services you’re paying for. Hostess doesn’t have enough money to pay its former employees. Do you have enough money to pay the people who work for you? If you’re looking to cut back on expenses, reevaluate your hair styling, manicures, lawn care, house cleaning, and any other services that you could cut back on or do yourself.
• Be wary of long-term service contracts. Cell phone providers are notorious for pushing customers into long-term service agreements. Credit card issuers and cable providers sometimes do the same. But unless you live in an area with no alternatives, don’t get sucked into an agreement that you might face penalties for trying to cancel, unless you’re positive it will benefit you for its duration.

Even if you end up filing for bankruptcy after making adjustments to your expenses, the process should prepare you for the type of living that will help you recover from bankruptcy, stick to your repayment plan (in Chapter 13 bankruptcy), and reestablish your credit so you can move forward and get past your debt struggles!

We’re seeing an improvement in the economy, but it may not have the effect you might expect. In fact, bankruptcies are up despite economic indicators showing improvement. Why are people continuing to file bankruptcy? Check out most common reasons in the graphic below.
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Bankruptcy and the Economy

We’re seeing an improvement in the economy, but it may not have the effect you might expect. In fact, bankruptcies are up despite economic indicators showing improvement.

Why People File for Bankruptcy in an Improving Economy

If things are looking up, why are people still filing for bankruptcy? The American Bankruptcy Institute expects the trend to continue, at least for a while.

• Low income along with rising prices cause families to turn to credit, racking up more debt.
• Banks are offering credit once more, which contributes to excessive debt loads.
• Main Causes of Bankruptcy
  • 42% of personal bankruptcies are caused by medical expenses.
  • For 22%, unemployment results in ever mounting debts that drive people to file.
  • 15% of people file for bankruptcy because of credit card debts, car loans, and mortgages that they just can’t afford.
  • Divorce rates stand at about 50% right now. Alimony, child support, and other divorce related expenses cause 8% of bankruptcies.

Worst Affected States

The states hardest hit by bankruptcy per capita include California, Nevada, Utah, Colorado, Michigan, Indiana, Tennessee, Alabama and Georgia.

Other Economic Oddities

The idea of the number of bankruptcies going up along with the economy may seem odd, but it’s not the only strange side effect of an improving economic state. Here are some other strange things we’ve seen.

• Wages
  • As the economy improves, workers receive the same wages. This is due to a weak job market, though it is improving.

• Foreclosures
  • For the past year, there has been a delay as lenders work on paperwork.
  • In 2011, the number of foreclosures started from outstanding home loans went from 0.96% to 1.08%.

The US economy may be on the rise, but it will be a while before we see this in areas such as bankruptcy and foreclosures. It takes time to bounce back from a recession and experts are predicting a continuing drop for some time yet.

We’ve all heard the (unfortunate) stories of lottery winners ending up in bankruptcy, but here’s one that’s even more of a shock to the system: the richest man in Ireland (or, I guess, the one-time richest man in Ireland) has filed for bankruptcy, citing debts in excess of $3.5 billion.

Here’s a look at his story – and what we can learn about avoiding debt from it.

From Rags to Riches…to Rags

Sean Quinn reportedly left school when he was 14 with a $200 loan from his father. With that money, he started a quarrying business that ballooned over the years and allowed him to pursue other business interests, one of which became Quinn Direct, an insurance business that became Ireland’s largest.

At his prime, he had an estimated net worth of $6 billion and ranked as the 164th richest person in the world. Here’s what went wrong:

• Anglo-Irish Bank (AIB), which had invested serious money in real estate, began to face financial trouble in 2008 when real estate markets around the world started to tank. As the bank faced unmanageable debts, its stock prices plummeted.
• Quinn, convinced that the bank would eventually recover, reportedly bought AIB shares in droves, thinking he was getting an excellent deal.
• In addition to buying up as many shares as he could, he borrowed more money from the bank to purchase additional shares.
• Rather than recovering, though, the bank continued its downward spiral, and Quinn’s shares became worthless. Further, he now owes the bank money that he does not have, having lost it all when the shares’ value declined.

Debt-Control Lessons

More than anything, Quinn’s story seems to be one of knowing when to stop. He proved his chops as a businessman and investor, but squandered his hard-earned money on the foolish (and disastrous) purchase of AIB stocks.

While most of us will probably never have the chance to blow $6 billion, we can all learn something from Mr. Quinn:

• Don’t borrow to gamble. Because AIB stocks were so distressed when he bought them, Quinn’s purchase of those stocks was akin to playing slots. Had he lost all his money, that would have been bad, but because he borrowed money, he might now face legal trouble related to the billions of dollars in debts he’s attempting to discharge in bankruptcy.
• Know your weaknesses. While it’s true that big risks can lead to big rewards, they can also lead to big disasters. Had Quinn followed the prevailing wisdom, he likely wouldn’t have ever started his multi-billion dollar corporations – but he also probably wouldn’t have bought AIB stocks when he did. We all have weak spots and it’s a good idea to surround ourselves with people who can balance our biases so they don’t lead us to debt.
• Don’t be afraid of bankruptcy. Sometimes, filing for bankruptcy is the only workable solution. And many people who file find that doing so inspires them to improve their finances in the future.

The Los Angeles Dodgers’ famous bankruptcy declaration earlier this summer has been making headlines as the team winds its way through bankruptcy court proceedings. The latest news is that the team has submitted its Chapter 11 repayment plan to the bankruptcy court and is waiting for approval.

So what interest could I, the Debtress, have in all this MLB bankruptcy news? I thought it provided an excellent opportunity to discuss how Chapter 13 bankruptcy repayment plans work and what might happen if the court rejects a repayment plan.

Chapter 13 Repayment Plans: Who’s in Charge?

Chapter 11 bankruptcy (which the Dodgers are using) essentially works like Chapter 13, but on a grander scale. Because there are no debt limits in Chapter 11, it’s often used by businesses to reorganize debt. Individuals generally get the same benefits with Chapter 13, which is less expensive but more restrictive in its provisions.

Here’s how the repayment plan works in Chapter 13 cases:

• Submission of a repayment plan: Shortly after a person files the Chapter 13 case with the court, a repayment plan is submitted. This plan outlines how the filer plans to repay her debts over the next three to five years.
• Repayment by priority: There are certain rules that govern what must be in the plan. Certain types of debts (including debts secured by property, child support, alimony, most tax debts and others) must be repaid in full. Other types of debts (including credit card debt and other unsecured debts) may be repaid in part or not at all.
• Repayment by disposable income: The repayment plan must be realistic, meaning that the filer must be able to afford the payments from her current income. Further, the plan must devote all disposable income to repayment of debts.
• Confirmation by creditors: In order for the plan to go into effect, creditors listed in the plan must confirm its terms. If a repayment plan is confirmed, the filer starts making payments as outlined.
• Rejection by creditors: If one or more creditors objects to the terms of the plan, though, the filer may have to reevaluate. One common reason a creditor might reject a repayment plan is if the filer would have paid the creditor more after a Chapter 7 property liquidation than under the repayment plan.
• Court approval: Once creditors have approved the plan, the bankruptcy trustee must do so as well. A trustee might reject a plan (and demand a rewrite) if the filer’s income isn’t likely to allow the payments outlined.

Right now, the Dodgers are waiting to hear from creditors and the court about the terms of their repayment plan. A rejection could send them back to the drawing board to try to figure out how to solve their debt woes while continuing to play ball.

A fascinating article from the blog FiveCentNickel.com looks at the phenomenon of people who file for bankruptcy after winning the lottery. And, in case that last sentence blew by you: it’s true. People who win the lottery still end up filing for bankruptcy.

So how can you avoid the rags-to-riches-to-rags trap? The article suggests that financial health may be more about your attitude toward money and less about how much of it you have.

The Link Between Lottery Winnings and Bankruptcy Filings

Here’s a summary of a study conducted to determine what impact lottery winnings had on people’s finances.

• Size doesn’t matter: In the study, which looked at 35,000 people who won between $600 and $150,000 in the lottery, researchers found that the amount of money a person won had no effect on their chances of filing for bankruptcy. In other words, the $1,000 winners were just as likely to need bankruptcy protection as the $150,000 winners.
• Time will tell: The other interesting finding was that those who won smaller jackpots were more likely to declare bankruptcy within two years of winning; but during a five-year period, winners of all amounts of money had the same likelihood of filing.
• Net worth didn’t change much: Finally, the study showed that, at the time of the bankruptcy filings, the people who won the largest jackpots ($25,000 to $150,000) had only $8,000 more to their name in cash and assets at the time of their filing than those who received the smallest winnings.

Learn from Their Mistakes: How to Make Your Money Stick Around

Because these numbers are so intriguing (and depressing), financial analysts of all stripes have been proposing reasons for the findings. The explanation that most people are coming up with is that money alone will not solve anyone’s financial problems. In order to take control of your finances and live a debt-free life, it’s important to do lots of things, including these.

• Don’t distinguish between “types” of money In other studies, researchers have discovered that people spend “found” money (i.e. money we don’t have to work to earn) more quickly and easily than “earned” money. In order for a windfall to make a substantive difference in your finances, you need to ignore where it came from.
• Learn the financial ropes: Unfortunately, lottery jackpots don’t come with financial management manuals – if they did, fewer people might end up in financial trouble after winning. But developing your financial knowhow can prepare you for a variety of financial upsets, of both the good and bad variety, and set you up for a life where you don’t need the lottery to stay afloat.
• Know your limits: In general, we tend to overestimate our levels of competence and knowhow in a variety of areas. And, as the article points out, winning the lottery is only likely to boost a person’s confidence. But, whether or not you have millions coming your way, recognize your limits and seek help from professionals in areas you aren’t sure about (whether that’s investing, saving, bargain shopping, or somewhere else).

Remember, debt-busters: the lottery is not a cure-all for financial woes. More importantly, you can take control of your finances without a huge windfall – you just have to be willing to work for it.

According to bankruptcy filing statistics released so far this year, we’re on track to hit more than 1.5 million bankruptcy filings by the end of 2010, which suggests that plenty of us are dealing with significant debt.

The good news, according to a recent article from WalletPop.com, is that on average, we owe slightly less on our credit cards than we did this time last year ($4,951 compared to $5,719) which means some people are getting serious about paying down credit card debt.

Slaying the Beast

So how can you join the ranks of those freeing themselves from credit card debt? Financial analysts recommend some of these strategies:

• Target your budget: Many people who find themselves in serious credit card debt got there by ignoring their real monthly limitations and capabilities. In order to get serious about eliminating your debt, you need to know exactly how much money is coming in and going out of your house each month (in the form of bills, mortgage or rent, food, entertainment, and anything else you spend on). You may want to get right down to paying off your debt, but you can’t make a realistic plan until you know how much money you have leftover each month to put toward debt payment.
• Consider the snowball: If you’ve done some research about debt elimination strategies, you’ve probably heard of the debt snowball, which involves making minimum payments on all credit cards and funneling any extra money (as determined by your budget) to the balance of the card with the highest interest rate. If you’re a hard logic-and-numbers kind of person, this method will likely work well, because it’s the least expensive way, in the long run, to eliminate your debt.
• Or start with the smallest: On the other hand, some people prefer to start funneling extra money to the credit card with the lowest total balance, which allows them to eliminate entire card debts more quickly. This might work better for you if you like small rewards to keep you on track. In the end, it might cost a few more dollars than the snowball method, but if it helps keep you motivated to pay down your debt, it’s probably worth it.
• Find out where you really stand: If thinking about your debt overwhelms you, it may be difficult to understand objectively. To get a concrete idea of where you stand financially, try using this debt calculator to determine exactly how bad (or not so bad) your situation is.
• Know the benefits of bankruptcy: If you do the above calculations and realize you’re in over your head financially even if you juggle your money a bit, don’t be afraid to consider filing bankruptcy. Bankruptcy protection exists for a reason, and, for some people, it’s the only realistic solution to serious debt. A bankruptcy lawyer near you can help you determine whether bankruptcy is a realistic solution to your problems.

Back in the early days of the foreclosure crisis, consumer advocates were warning about foreclosure rescue scams, which caused thousands of distressed homeowners to part with their money and, often, their last chance of staying in their homes.

Now, unscrupulous individuals are scamming struggling homeowners out of their money in a slightly different way.

Loan Modification Scams

Apparently, “forensic audits” are at the heart of this scam. Here’s how they work:

• You pay a mortgage loan auditor. Scammers of all sorts are notorious for upfront fees, and the loan modification scammers are apparently no different. If someone asks for fees before performing a service, be very wary.
• The auditor examines your loan for fraud. Theoretically, a loan auditor’s job is to review your mortgage documents and discover any illegal activity on the part of the lender.
• The auditor goes to your lender. Once evidence of fraud comes to light, an honest auditor can take it to the lender and use it as a bargaining chip to get you better terms on your loan.

But, naturally, the dishonest auditors out there won’t follow through. They may fail to thoroughly examine your loan papers, fail to actually visit and negotiate with your lender or simply walk away with your money.

Protect Yourself, Your Money and Your Home

If you are in danger of losing your home to foreclosure, you’ve probably considered applying for the government’s Home Affordable Modification Program (HAMP). To see if you qualify, start by taking this survey at the government’s HAMP website.

Once you know whether you can reasonably expect a modification from your bank, consider researching loan auditors in your area (honest ones may in fact be able to help you find fraud in your loan – and they won’t charge you fees until they’ve actually helped you).

To verify a company’s credibility, check out their standing with your state’s Better Business Bureau (BBB).

Other Options

If a loan modification isn’t in the cards based on your loan, you may be able to stave off foreclosure by filing for Chapter 13 bankruptcy. A bankruptcy lawyer in your area may be able to help you determine whether this is the best path for you.

Oh, yeah. The Debtress has had enough. Get ready for a short rant…

I’m tired of the bankruptcy stigma. In tough economic times like these, we can’t afford financial judgment.

It’s time for people to realize that bankruptcy isn’t for “slackers” or people who “want a free ride.”

Here are the common reasons millions of Americans seek bankruptcy protection:

Unexpected expenses: Whether it’s a major medical procedure, a natural disaster or an unforeseen car breakdown, major expenses can throw a person’s finances out of whack.

Income reduction: Particularly when the economy is bad, getting laid off or having even just a few hours cut can seriously cut into a person’s available funds.

Job loss: When a person loses their job, their whole world is turned upside down. Even if they were able to stay on top of their bills before losing their job, bankruptcy may now be the only relief for the bills that piled up after the job loss.

Injury or illness: It’s no secret that medical bills can add up quickly. Especially if you’re one of the tens of millions of Americans without health insurance, medical costs can mean serious problems for your finances.

Divorce: Stretching income that use to cover one household over two can cause strain – and that doesn’t even take into account lawyer and court costs.

Births or deaths in the family: Funeral costs, hospital costs, caring for a new child – we often don’t think of the price tag on these events because they’re so emotionally charged; but major family changes can hit the bank account hard.

Identity theft: Though laws are in place to protect identity theft victims, some still find that their finances cannot be salvaged and need to turn to bankruptcy.

Overextension of credit: This one may be a little more within a person’s control – but it can certainly make any of the others on the list worse.

Learn more about filing bankruptcy

So, let’s stop judging and let’s start dealing with our debt.

So how do you know it’s time to consult with a bankruptcy lawyer about your financial future?

If you’re tired of worrying about debt, harassment from creditors, overdue bills, meeting your daily expenses, you may benefit from filing bankruptcy.

If you’re in danger of losing your home to foreclosure, unable to catch up on long-term debt or have been blindsided by an unexpected financial setback, you may also benefit from filing bankruptcy.

Before Filing Bankruptcy

If you’re considering filing bankruptcy, here’s what to keep in mind:

1. Find a bankruptcy lawyer near you. Because of recent changes to bankruptcy law, filing a case (whether it’s Chapter 13 or Chapter 7) can be more complicated. When you work with a bankruptcy attorney, you can focus on your life and let a lawyer focus on legal regulations.
2. Don’t make any major financial maneuvers. Some people make the mistake of transferring property, giving away valuables or charging large purchases before filing for bankruptcy. But actions like these are often viewed by the court as bankruptcy fraud and can cause your case to be dismissed immediately.
3. Complete your credit counseling briefing. Before a bankruptcy court will accept certain bankruptcy petitions, your must file a certificate of completion of the credit counseling briefing, which verifies that bankruptcy is your only viable option for eliminating debt.
4. Get ready to make a commitment. Bankruptcy may provide you with a fresh financial start in life, but it’s up to you to follow through and maintain financial health after bankruptcy.

Talk to one of our sponsoring bankruptcy lawyers today.

Times are tough and it seems like people and companies are filing bankruptcy left and right–but is bankruptcy right for you?

I’ve teamed up with a Total Bankruptcy contributor to bring you some facts about filing bankruptcy.

What Happens to My Credit After Filing Bankruptcy?

Most people considering bankruptcy wonder how filing for bankruptcy will affect their credit. Before you make a major financial decision, make sure you do your research:

1. Bankruptcy and Your Credit Report:

A bankruptcy filing will stay on your credit report for 10 years. This may seem like a long time, but consider this: as time passes (and you develop healthy credit habits), the effect of bankruptcy on your overall credit rating often diminishes greatly.

2. Borrowing After Filing Bankruptcy:

You may fear that filing for bankruptcy will ruin your chances of ever borrowing money again, but when you think about it, how easy has it been getting new loans when creditors see you are delinquent on your current payments?

Most lenders will review your credit history, but recent credit action tends to matter more than old credit action. In other words, staying out of unnecessary debt after your bankruptcy can have a positive impact on how lenders view you.

3. Loans After Bankruptcy:

It’s certainly possible to obtain loans after you file for bankruptcy. Total Bankruptcy has nationwide online relationships with lenders who are friendly to bankruptcy filers.

4. Credit Cards After Filing Bankruptcy:

You may think that you’ll never want another credit card again, but the truth is, you’ll likely need a credit card after bankruptcy to help establish a strong credit history. Find out how to avoid credit cards that cost too much – and find ones that will help you stay on your feet.

Learn more about filing bankruptcy.

Bankruptcy: It’s just one of those words we don’t like to talk about.

But the truth is that bankruptcy has been a real debt-relief solution for millions of people who’ve struggled with debt, unfair interest rates and mortgage terms, job loss, divorce, unexpected medical costs and/or wage reduction.

If you’re deep in debt and are having trouble paying your bills or making ends meet, bankruptcy may be able to help you get out of debt once and for all.

Ask yourself these questions:

• Are you heavily in debt, with little prospect of getting out of that debt in the near future?
• Are your creditors threatening foreclosure, repossession or other legal action?
• Have you experienced a dramatic drop in income?
• Are you frequently late paying bills?
• Do you only pay the minimum on your credit cards?
• Are you paying more money than you make on just your monthly living expenses?
• Have you recently become partially or totally disabled?
• Are you going through a divorce resulting in a decrease of income but an increase in expenses?

If you’ve answered “yes” to any of these questions, filing bankruptcy may be an option for you. Read on for information about the two types of personal bankruptcy.

Filing Chapter 7 Bankruptcy

This type of bankruptcy is often a good option for people who:

• have lots of unsecured debt like credit card debt, medical bills and outstanding payday loans
• have little/no money after paying monthly living expenses & bills
• rent their home or have little equity in their home

Chapter 7 eliminates unsecured debt and stops creditor harassment–and the process usually only takes a few months.

Learn more about filing Chapter 7 bankruptcy…

Filing Chapter 13 Bankruptcy

This type of bankruptcy is often a good option for people who:

• have a steady income and can pay for basic necessities but are having trouble making scheduled payments on debt
• have significant equity in their home/property
• are facing foreclosure

Chapter 13 bankruptcy stops foreclosure proceedings and gives you 3-5 years to catch up on past-due bills. Under Chapter 13, you are put on an agreed-upon payment plan where you make just one payment each month.

Learn more about filing Chapter 13 bankruptcy…

First Step: Talk to a Bankruptcy Lawyer

A bankruptcy lawyer is a good resource who can help you determine whether filing bankruptcy is right for your specific situation.

Talk to a bankruptcy attorney today.

What Do You Think About Filing Bankruptcy?

If you’ve filed bankruptcy in the past or are thinking about filing bankruptcy, let’s hear from you.

What was your experience? What are you thinking about? What do you think about filing bankruptcy? –Leave a comment so we can share our thoughts.