Bankruptcy Questions Answered

Mortgage Foreclosures & Delinquencies

In light of some mixed news about housing and foreclosure for the second quarter of this year, the outlook isn’t too rosy for the short-term future of the nation’s real estate market, a recent New York Times article notes.

Here’s a look at some of the numbers released recently by the Mortgage Bankers Association and various government organizations and what they might mean for the housing market:

• According to the MBA, the number of homes currently in some stage of foreclosure fell in the second quarter of 2010, marking the first such decline since 2006.
• Sources note that foreclosures on subprime loans may have already peaked and are likely now dropping off; however, it seems that prime loans are now in danger of default, partly because of continued high unemployment.
• Mortgages that are 90 days past due (considered to be in “serious default”) accounted for 9.11 percent of all loans in the second quarter, a drop from 9.54 percent in the first quarter of this year.
• Sources note that existing home sales in July 2010 were 26 percent lower than they were in July 2009.
• Sales of new homes, it seems, were down 32 percent in July 2010, compared to a year earlier, apparently making the month the slowest on record (with stats going back to 1963).
• As many as seven million households were behind on mortgage payments in July, according to sources (down from the high of eight million, reached about eight months ago).
• Numbers suggest that banks and lenders are starting to clear the foreclosure logjam: in July, 279,685 foreclosures were started, an increase from 225,700 in June.

Clearly, these numbers don’t exactly point at recovery in the housing market—and some analysts have reportedly predicted that as many as four million American families could lose their homes to foreclosure before the crisis eases.

And such a high rate of foreclosures could have a seriously detrimental effect on the overall economy:

• Less money, less spending: Consumers who are struggling to make mortgage payments are likely to spend less in other areas, meaning that consumer-supported economic growth may be weak.
• More foreclosures, more houses: As banks start foreclosing on homes, more vacant properties will flood an already saturated market.
• More houses, lower prices: This inundation of homes will mean that supply is far higher than demand, and could lead to further drops in housing prices.
• Lower prices, more underwater mortgages: As home values continue to decrease, more borrowers will likely find that they owe more on their homes than those properties are currently worth.

There is no clear end in sight for this cycle of foreclosure.

Additional Resources

Home Insecurity

Posted in Bankruptcy and the Economy, Economy, Foreclosure, delinquencies, housing | Comments Off

Student Loan Debt Tops Credit Card Debt in U.S.

The Wall Street Journal reported this month that the amount of money Americans owe on student loans has officially surpassed what we they owe on credit cards.

How did student loan debt come to outweigh credit card debt, which seems to dominate the headlines and personal finance blogs?

Here’s a look at the numbers behind the scenes:

• Americans currently owe $826.5 billion in revolving credit  -essentially means credit card debt. This is actually down from a high of $975.7 billion two years ago.
• Current educational debt - student loans - comes to $829.9 billion. Analysts estimate that More than  $300 billion of that was accrued in the last four years.

These numbers suggest a variety of explanations and ramifications. Here’s a look at some of the issues and likely outcomes of the new balance of personal debt.

• Paying down debt: Because credit card debts tend to have higher interest rates than student loan debt, it seems that people tend to pay off their credit cards before worrying about their student loans. That could be part of the reason why student debt has crept up in recent years while credit card debt has inched down.
• New credit card requirements: Another potential explanation for the shift is that many credit card issuers have increased minimum payments in recent months, which translates to people paying down more of their debt, whether they like it or not.
• Attention: Credit card debt generally gets more media attention than student loans, which may make paying it off a bigger priority for some people.
• Rising cost of college: The cost of attending college continues to rise. And with graduates entering a tough job market many are finding it difficult to pay down large student loan debts.

Bankruptcy and Student Loan Debt

One especially interesting element of the shifted debt load is the role that personal bankruptcy has to play.

Bankruptcy filing rates are on the rise, and the use of bankruptcy as a credit card debt elimination tool has become more common and accepted. However, bankruptcy cannot typically clear student loan debts.

• Student loans in bankruptcy: Except in cases of extreme financial hardship, student loans are not dischargeable in bankruptcy court. This means that even if a person files for bankruptcy and has other loans discharged she will still be responsible for paying her educational lenders.
• Credit cards in bankruptcy: Credit cards, on the other hand, can be discharged during a bankruptcy filing. With a Chapter 7 bankruptcy, some people clear their credit card debt in only a few months.

So what does all this mean for you? If you’ve found yourself saddled with student debt, credit card debt or both, it’s important to consider all of your options for easing your debt burden. Consider talking with a local bankruptcy attorney to explore your options.

Posted in Bankruptcy, Bankruptcy and the Economy, Credit Card Debt | Comments Off

Jobless Numbers Rise Unexpectedly in Early August

The Department of Labor reported last week that initial unemployment claims for the week ending August 7 rose 2,000 from the previous week, to 484,000. This rise was apparently unexpected, and marks the highest rate since February of this year.

The news sent stock markets tumbling earlier this week as job growth remains frigid.

Here’s a closer look at the latest numbers from the Labor Department and what they mean:

• Initial claims rose to 484,000 from 482,000, meaning the unemployment rate will likely hold steady at 9.5 percent.
• The four-week floating average, which includes more data and so offers a check for highly volatile fluctuations, also rose to 473,500 – an increase of 14,250.
• The average year-to-date number of insured unemployed people in the United States was 5.018 million.

And, while extended unemployment benefits were available to people in many states, some analysts are reportedly growing nervous about the implications of such persistently high job loss numbers. In fact, some seem to be worried that the country is locked into a self-perpetuating cycle of unemployment and a weak economy:

• Many business owners and those responsible for hiring new employees are reluctant to do so because of fears that the recession isn’t over yet: They’re reluctant to commit to increased spending because they’re worried that they won’t be able to pull in enough revenue to justify long-term hires.
• Many individuals, worried about losing their jobs or dealing with reduced hours, are also “hunkering down” by spending less money, taking out fewer loans and focusing on saving more.
• Without adequate consumer purchases, some retailers are struggling to pull in enough income to stay afloat or grow. This means that they’re refraining from expanding or making new hires.

The problem is complex and involves all sectors of the economy and now, some analysts are suggesting that the recession will either end up having a “double dip” - meaning we’ll plunge back into recession after a brief period of economic growth - or that the first period of recession never actually ended.

So what can you expect in the coming months? It doesn’t look like any significant changes are on their way in the near future, which could mean:

• Housing market struggles: Many people are still facing foreclosure, underwater mortgages and bankruptcy. So anyone looking to sell, build or buy a house may face difficulties.
• Credit remains tight: Unless you have a squeaky-clean credit report history, you may not qualify for attractive loan terms while the recession slogs on.
• Income options are limited: While jobless numbers remain high, you may have trouble finding additional income, which can be frustrating if you’re trying to pay down debt.
• Saving matters: Whether you’re just beginning to save or working on a hefty nest-egg, now is not the time to blow it – you might need it for tough times ahead.

Posted in Bankruptcy and the Economy, Job Loss, unemployment | Comments Off

Families Struggle with Skyrocketing College Costs

If you think college costs are on a rapid ascent, recent statistics released by Sallie Mae and Gallup support your belief. According to reports, the average cost of college attendance rose a staggering 17 percent in 2010.

Just how much are costs rising? Sources indicate that the average costs of college attendance increased roughly 30 percent for families making between $100,000 and $150,000. In addition, those in the $35,000 to $100,000 income bracket experienced a 20 percent jump in college costs.

In order to pay college tuitions, parents and students are borrowing an increasing amount of money, as well as using more of their personal income.

How are Students Paying for College?

The survey revealed some interesting figures on how Americans are paying for
college:

• In order to pay for school, 73 percent of Americans say they have reduced other spending, 48 percent have increased their hours at work, and 43 percent of families say their student has lived at home in order to reduce housing costs.
• According to the report, which polled more than 1,600 parents and students, parents paid for 37 percent of the total cost of college attendance. Of this total, 10 percent was through loans, and the rest was given from current income.
• On the other side, loans secured by students covered 14 percent of the cost of college, and student income and savings accounted for 9 percent of spending.
• The second largest source of college payment came from grants and scholarships, which accounted for 23 percent of overall college funding.

These numbers show that most families have to dip into numerous sources to cover the cost of higher education.

Consequences for Personal Finances

The statistics above show how college costs are apportioned among various parties. What they don’t reveal is the impact rising costs have had on the personal finances of both parents and students.

• Last year, the average amount of money parents paid from their personal income and savings rose 26 percent to $8,752, up from the previous year’s total of $6,934.
• Further, while the average amount parents took out in college loans this year rose 27 percent to $2,261, up from $1,775 in 2009.
• The amount of income and savings students had to use for college costs jumped 16 percent to an average of $2,314.
• Student loan borrowing jumped 25 percent to an average figure of $3,396.
  In order to secure financial aid, experts advise that all families should fill out a Free Application for Student Aid form each year. Surprisingly, 13 percent of families were not aware of this form, according to the survey.

If college costs have sunk your personal finances, filing bankruptcy may help you recover from collegiate sticker shock.

Posted in Bankruptcy and the Economy, Finances, Student Loans, college costs | Comments Off

Social Security at Its Tipping Point

Social Security is at a critical tipping point—the system is paying out more dollars than it’s taking in, a recent article from CNN.com indicates. Obviously, that’s not good news for the long-term health of Social Security, or those depending on it.

The State of Social Security

The Social Security system, designed as a state-run support fund for working Americans as part of the New Deal, works on a fairly simple principle: people pay a certain amount of money into the Social Security coffers whenever they’re employed, and if and when they need more money than they’re making (based on government standards), they can collect money from those coffers.

Currently, Social Security benefits include:

• Payments to the retired and disabled;
• Payments to the unemployed;
• Funds for medical care for the aged and poor;
• Financial assistance for needy families; and
• Funds for children in need.

But, according to sources, both 2010 and 2011 will see the Social Security system pay more in benefit to needy Americans than it collects in taxes, meaning that the fund will diminish. That trend should reverse itself for a few years, but most experts apparently expect that the fund will be exhausted (that is, able to pay out only 76 percent of benefits) by 2037.

Blame the Economy

So what pushed the Social Security fund into the red? Sources note that the rough economy has played a significant role:

• High unemployment: The steady 9.5 percent jobless rate means that fewer Americans than usual are paying into the Social Security fund, which translates to less money coming into the system. Meanwhile, more people than usual are drawing unemployment benefits, which strains the system.
• Early retirement: With work difficult to find, many older Americans are opting for early retirement. This means they’re pulling money from the Social Security fund earlier than they would have normally. While early retirees are eligible for smaller payments than those who wait until their full retirement age, this still means that the system is paying out more money and taking less in.
• Government borrowing: Since the Social Security system was reformed in the early 1980s, the federal government has reportedly borrowed significant amounts of money from the trust with promises of repayment—which has yet to materialize.

So what does this mean for you? For many years now, experts have emphasized that the average American should not depend on Social Security alone to finance their retirement years. The dire state of the nation’s retirement fund reinforces that point and underlines the importance of having a personal retirement savings and/or investment fund.

Additional Resources

Social Security: Understanding the Benefits

Posted in Bankruptcy and the Economy, Social Security, government, unemployment | Comments Off

Consumer Confidence Falls to Five-Month Low

A key indicator of the strength of the American economy’s recovery shows that the recession is still rearing its ugly head. Sources indicate that the Consumer Confidence Index fell to 50.4 in July, its lowest mark in five months.

The Consumer Confidence Survey, used by financial experts to gauge the pulse of the average consumer, is determined by polling 5,000 U.S. households. The answers from this representative polling reveal pessimistic attitudes about the short-term future of the economy:

• The current Index figure, 50.4, is down from 54.3 in June and 63.3 in May. For perspective, the lowest number ever calculated by the Index was 25.3 in April of 2009, during the peak of the recession.
• Every component of the Index dropped during July. These components included negative attitudes about business and fears of a continually weak labor market.
• Only 4.3 percent of respondents said that available jobs were “plentiful.”
• Almost half of respondents said that jobs are “hard to get” in July, which was a 2.5 percent jump from such claims in June.
• The percentage of people expecting new jobs to become available in the coming months also dropped by a few percentage points, and the number of people expecting an improvement in business conditions also fell.

Effects of Lowered Consumer Confidence

These statistics seem dour, but how do they impact the real economic world? The director of the Conference Board’s Consumer Research Center, Lynn Franco, said the recent drop in consumer confidence could have a negative impact on a key period of consumer activity for business.

According to Franco, given consumers’ lowered confidence, as well as “pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season.”

Further, the lack of consumer confidence shows no signs of quickly shifting in a positive direction. As Franco said, “[c]oncerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves.”

How Accurate is the Consumer Confidence Index?

Historically, the Index has been remarkably adept at providing economic insight. During its use, when the Index has detected rises in consumer confidence, those rises are accompanied by increases in consumer spending.

Since consumer spending is an integral part of the American economy, accounting for almost 70 percent of the country’s total GDP, rising consumer confidence generally leads to more spending, which invariably boosts our economic health.

As the economy continues to sputter, more and more people are finding it necessary to consider personal bankruptcy. If your confidence is down due to financial ills like debt or home foreclosure, consider contacting an personal bankruptcy attorney.

Posted in Bankruptcy and the Economy, Consumer spending, consumer confidence, economic trends | Comments Off

Ripple Effects of the Gulf Oil Spill

Anyone who has listened to the news in the last few months likely knows that the oil spill in the Gulf of Mexico is wreaking havoc on the environment and costing BP obscene amounts of money. But the disaster could also affect Americans in less obvious ways. Here are a few things to watch out for in the coming weeks and months.

Oil-Spill-Related Scams

The Federal Trade Commission has released warnings that unscrupulous scammers have taken to targeting those interested in helping with oil-related jobs. These are the signs of a scam disguised as part of the relief effort:

• Appearances all over: The FTC reports that offers for fake jobs have appeared online, in newspapers and in email inboxes. Many of these offers appear to be from BP itself, but are in fact well-designed scams.
• Application process or training: The scams often ask for upfront fees, whether for an application process or for training materials and courses. In general, the FTC cautions to regard with suspicion any company that asks for money up front, before providing you with any good or service.
• Fake authorization: Some scammers are apparently claiming that they’ve been authorized by BP to train and hire cleanup crews, but it’s generally a bad idea to take such claims at face value.
• Volunteer and paid positions: Note that scams are not limited to cleanup jobs advertised as paid. The FTC mentions that some scams advertise themselves as volunteer opportunities, but still charge certification, application or similar fees.

The FTC web site also outlines attributes common to many online job scams and also offers links to legitimate work and volunteer opportunities for those interested in contributing to cleanup efforts in the Gulf.

Oil-Spill-Related Bankruptcies?

One hot debate in the news right now seems to be whether or not BP will have to file for bankruptcy as a result of losses linked to the oil spill. But a more likely scenario is that small businesses (and potentially individuals that own and work for those businesses) may require bankruptcy protection as a result of losses stemming from the spill.

Because so much of the economy in the Gulf Coast area depends on oil and/or water industries (like fishing and tourism), many Americans stand to lose serious money as oil contaminates more and more of the region.

A recent article from the Wall Street Journal notes that various Gulf Coast companies, particularly those in oil- and gas-related fields, could be in need of the serious financial restructuring that a Chapter 13 or Chapter 11 bankruptcy filing might offer.

Posted in Bankruptcy and the Economy, bankruptcy protections, bp bankruptcy, gulf of mexico, oil spill | Comments Off

May Bankruptcy Filings Down from April, Up from 2009

Personal bankruptcy filings for the month of May have increased compared with a year ago, but dropped slightly compared with a month earlier, the American Bankruptcy Institute reported last week.

Here’s a breakdown of the data.

• Total filings: In May 2010, 136,142 personal bankruptcy cases were filed, a nine percent increase from May 2009, when 124,838 cases were filed.
• Month-to-month change: May’s total marked a six percent drop from April of this year, when 144,490 cases were filed.
• Distribution: Of the cases filed, 26 percent were under Chapter 13 of the U.S. Bankruptcy Code, and most of the remaining 74 percent were under Chapter 7.
• Projected total: Based on figures collected so far this year, most sources estimate that personal bankruptcy filings this year will total about 1.6 million, a 10 percent increase over the 1.44 million filed in 2009.

So what can these numbers tell us about the economic situation in the U.S.? Let’s take a look.

The Effect of Unemployment

While the decrease in filings from last month can be seen as good news, the increase from this time last year could be read in just the opposite way, meaning that these bankruptcy figures provide no clearer picture of the economic situation than any other economic indicator.

• Long-term unemployment: The year-to-year increase we see in bankruptcy filings could be one of the effects that the nearly consistent unemployment rate has had—people who have been out of work for several months may have depleted their cash reserves and be turning to bankruptcy for financial relief.
• Chapter 7 vs. Chapter 13: Another indicator that unemployment is hurting the country is that Chapter 7 cases outnumber Chapter 13 cases nearly two to one, indicating that most people in financial distress cannot afford repayment plans to resolve their outstanding debts and have relatively little income.
• The role of mortgages: In addition to the problem of unemployment, mortgage costs may be pushing more filers toward Chapter 7. Despite the Obama Administration’s Home Affordable Modification Program (HAMP), millions of Americans with unaffordable mortgage loans have not been able to have their loans modified, meaning that they’re stuck with expensive (and, in many cases, too expensive) mortgage payments.

If you’re struggling with unwieldy debt, an unmanageable mortgage or other financial burdens, you may want to consider consulting with a bankruptcy attorney from your area to see whether personal bankruptcy protection is right for you.

Posted in Bankruptcy Statistics, Bankruptcy and the Economy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy | Comments Off

The Challenge to Get Americans to Save

Many Americans find themselves filing for bankruptcy when an unexpected expense (like an illness, death in the family, divorce or layoff) leaves them in the lurch. Unfortunately, what that means is that too many people don’t realize until too late how important it is to have a financial safety net.

A savings cushion can make the difference between managing during a crisis and being overwhelmed—that’s why building a savings fund is an important part of any bankruptcy recovery.

Think, Save, Win

A recent story from the New York Times tells about how asset manager TIAA-CREF, founded by philanthropist Andrew Carnegie, has decided to challenge the country to start saving more.

Here’s the deal:

• Think of ways to save: TIAA-CREF has initiated a contest that challenges Americans to think of a way to increase our country’s savings rate (which, in the recent past, dipped to below zero, meaning we were spending more than we were making) to ten percent of income in two years.
• Get creative: As the Times article points out, the savings plan can be anything – a government program, an online tool, a business, a game, and so on. As the contest’s guidelines state, the idea must be original, workable and inspire U.S. citizens to begin saving more in the next two years.
• Get paid: The prize offered for the winning idea is $50,000—no small sum for most of us. Plus, several runners-up will receive cash prizes as well.

Saving some of the money you make is one of the most effective ways to prepare yourself for a crisis, whether economic or otherwise. Even getting minor car repairs can be a huge financial stressor if you don’t have adequate funds set aside.

This potentially lucrative contest requires that ideas follow these guidelines:

• Creativity: The winning idea will, according to contest rules, be original. That could mean using tools in a new way or developing entirely new tools to get people to start saving.
• Feasibility: In order for an idea to win, it must be realistically possible—in other words, the various social structures we have in place must be able to execute the plan.
• Effectiveness: Needless to say, an idea won’t win if it doesn’t actually work. The winning concept will function in the real world.
• Clarity: Remember that you need to communicate your idea to strangers who will be judging you, so be as direct and concise as possible.

When you’ve come up with your winning idea, enter at TIAA-CREF's Facebook page.

Additional Resources

The Decline in the U.S. Personal Savings Rate (PDF)

Posted in Bankruptcy and the Economy, savings, savings challenege, savings rate | Comments Off

The Latest in Unemployment & Consumer Prices

The Labor Department has released unemployment data for May and the numbers suggest no significant improvement in the nation’s employment landscape—in fact, last week’s numbers marked the largest rise in unemployment since February.

Here’s a look at some of the numbers and how they relate to previous weeks.

• Initial claims: For the week ending May 15th, initial unemployment claims rose to 471,000 from 446,000, an increase of 25,000 from the previous week. The four-week average, too, rose by 3,000.
• This time last year: In this week of 2009, 540,925 initial unemployment claims were made; this year, that number was down slightly, to 407,940, suggesting that the employment situation has improved somewhat since a year ago.
• High & low claim rates: States reporting the highest rate of initial unemployment claims include California, Michigan, New Jersey, Georgia and Puerto Rico; the lowest reported rates came from New York, Kentucky, Connecticut, Missouri and New Hampshire.

The numbers surprised some analysts, who reportedly expected job growth last week. The increase in unemployment rates points to continued uncertainty in the job market, even as the economy generally seems to be recovering.

Possible Explanations

The news may not be all bad, though. In April, as the economy expanded, the official unemployment rate actually grew, not because more jobs were lost, but because more people began actively looking for work, as they perceived the job market was strengthening.

Consumer Price Index for April

The Bureau of Labor Statistics released data this week that show the Consumer Price Index for April 2010 decreased by 0.1 percent, largely fueled by a 1.4 percent decrease in the energy index. Here’s how some other sectors fared:

• The food index rose by 0.2 percent in April, spurred by rises in the price of meat, fish, poultry and eggs.
• The index for all items excluding food and energy remained unchanged.
• The indexes for recreation, airline travel and medical care rose last month, but were balanced by decreases in the indexes for apparel, household furnishings and services.

During the last year, the index for all goods and services has risen by a modest 0.9 percent, which the BLS reports is the smallest 12-month increase seen since 1966.

Additional Resources

Consumer Price Index: April 2010

The Unemployment Situation: April 2010

Posted in Bankruptcy and the Economy, Economy, consumer prices, unemployment | Comments Off