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Take Time for a Financial Tune-Up

Saturday, May 22nd, 2010

Many people know that it's important to maintain healthy credit, particularly in a bad economy. But “maintaining good credit” is a vague concept at best. Here’s a look at some concrete steps you can take to improve your finances—even if you only have a few minutes to spare.

Fifteen-Minute Finance Boosters

This post from WalletPop.com outlines a few ways you can bolster your financial situation in a mere quarter hour. Here’s a look at the suggestions.

  • Set up an emergency fund: Most experts advise having some money set aside for unexpected expenses (like car repair, illness or even job loss). This can be as easy as figuring out how much money you’d like to have in your fund (experts generally recommend anywhere from three months’ to one year’s expenses), setting up a high-interest savings account and starting regular contributions.
  • Look at your credit report: One essential part of maintaining healthy finances is keeping current with how the authorities view you as a credit risk. And, thanks to the Fair Credit Reporting Act, doing so is as easy as visiting www.annualcreditreport.com and following the prompts. All Americans are entitled to one report per year from each of the big three reporting bureaus. If you space them out, you could check up on your credit once every four months.
  • Review your bills: Take a look at the goods and services you pay for each month (utilities, cable, phone, insurance, etc.). Then do a little research online or by calling your providers and see if you can get a better deal somewhere else (or from your current provider). Bonus: the money you save each month can be funneled into your emergency fund.
  • Draw a map: In order to stay on top of your finances, you should be able to understand them fairly easily. Take out a sheet of paper and outline your accounts, debts and credit cards. Making a visual representation of your finances should help you see any unnecessary duplications and help you determine what you can eliminate to streamline things.
  • Think about retirement: Even if you already have a retirement account through your job, you can start a Roth IRA, which would grow tax-free. The government has instituted contribution limits, though, so do a little research before you commit.

One of the most important things to remember about improving and maintaining your finances is that you don’t have to do everything at once. A little work at a time can make a big difference in the long run.

Additional Resources

Fair Credit Reporting Act

Posted in Credit Report, Credit Score, Financial Literacy, Personal Finance | Comments Off

Wednesday, April 28th, 2010
bankrupt debt
Steve Rhode asked:


Struggling with debt is now a common occurrence in the UK. You are not alone with the feelings of stress and despair it can cause.

When debts become overwhelming, it is common for thoughts of bankruptcy to be seen as the only solution. However, there is an alternative which is far less restrictive but can be just as beneficial for the debtor, the Individual Voluntary Arrangement.

An IVA, which was established by the Insolvency Act 1986, is a legal contract between you and your creditors. It is a legally binding arrangement supervised by a Licensed Insolvency Practitioner, the purpose of which is to enable you to reach a compromise with your creditors and avoid the consequences of bankruptcy. Insolvency Practitioners are accountants and they will present your IVA case to the Creditors.

The IVA enables you to cut your debts to an affordable level and clear them over a fixed period. The compromise should offer a larger repayment towards your debt than could otherwise be expected were you to be made bankrupt.

You can even take out a fresh mortgage while in an IVA. What’s more, it is a totally private arrangement nobody needs to know about it apart from you, your advisors and your creditors (people you owe money to). An IVA ensures that your home is protected and your job is not at risk.

You make one single manageable monthly payment, based on your budget, for 3-5 years. After that the remaining debt is wiped clean, leaving you completely debt-free. This means that an IVA can write off up to 75% of your debts.

However, under the terms of the agreement you undertake to contribute as much as possible within your budget. So in reality, an IVA presents an opportunity for you to pay whatever as you can in a manageable way in a way you can afford.

The advantages and disadvantages of an IVA compared with other debt solutions are particular to a debtor’s individual circumstances and professional advice should be sought to decide on the best option.
Advantages

You only pay back a percentage of your debts. If you follow the agreed terms, you will be debt free in 5 years time. Up to 75% of your debt may be written off.

This is a legally binding solution so no further interest or charges can be added to the debt. Enforced by law creditors can’t change their mind once they’ve agreed. You also get protection against possible court action.

Agreed monthly payment plans will remain fixed unless your income level dramatically increases.

It is a private agreement and only you, your advisor and your creditors need know about it. There is no publicity in the local papers, as is the case for bankruptcy.

You can continue to practice as a professional person (i.e. accountant, solicitor, doctor etc) or as a director of a company and can hold public office, as an IVA does not affect your professional status.

You can open a regular bank account, without an overdraft facility and have no/fewer credit restrictions than if you go bankrupt.

You can safeguard your property, as the proposals can be made flexible to suit personal circumstances.

Disadvantages

If you have equity in your house, an endowment policy linked to your mortgage, or valuable assets you may be required to release them in to pay your creditors. (This is usually done near the end of the arrangement). However this is preferable to repossession and enables you to safeguard and retain your home.

Normally, an IVA cannot be used if your total debts are under 15,000.

You must be able to afford to make an offer of repayment to your creditors. Generally you need to be able to afford monthly payments of 200 or more.

If you fail to keep up the payments set out in the agreement, your creditors WILL be able to take other action against you, which could result in bankruptcy, and your home could still be at risk if not specifically excluded from your IVA proposals

In their bargain to allow you to avoid bankruptcy, IVAs are expected to be for a longer period than bankruptcy (ie 5 years). People who go bankrupt can be discharged from bankruptcy within between 1 and 3 years. So it takes longer to be debt-free.



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Monday, March 15th, 2010
bankrupt debt
Benjamin Brook asked:

When it comes to the word bankruptcy it normally leaves a bad taste in anyone’s mouth. For those that do no know what bankruptcy is it is the only way out financially if you are stuck in loads of debt and have no way to pay creditors.

There are three ways a person can go into bankruptcy which are:

1) Voluntary assignment. This is were insolvent persons make an assignment of all their assets for the general benefit of creditors.

2) Involuntary assignment which is when a creditor files a petition in a provincial court for a receiving order against the debtor’s assets.

3) Deemed bankruptcy which is when a proposal in bankruptcy under the Bankruptcy Insolvency Act has failed

Relief from Bankruptcy

Bankruptcy is definitely a serious thing and can cause an array of problems, but bankruptcy debt relief is possible. One of the first steps to bankruptcy debt relief is to understand what happens to your life after bankruptcy. Specifically in terms to how long bankruptcy lasts, if a person has been declared bankrupt before, within the past fifteen years, then they will not be automatically discharged.

If it is the first time for being declared bankrupt however, then discharge may be automatic, what this means it that there will be a release of the bankrupt from most of your debts owed at the date of the bankruptcy. There are a few exceptions to this though including debts coming from fraud and fines.

Also on the topic of bankruptcy debt relief is the issue of assets that were obtained before discharge. This is important because this will largely determine how much money is going to be available after bankruptcy. When discharged there may still be assets that were owned either when the bankruptcy began or which were acquired before discharge. This may include property of insurance for example.

Think About the Future

Bankruptcy debt relief is a very important topic to discuss, but more than anything it is important that people are aware of how to stay out of debt in the future. After all, many people go to incredibly hard work to get out of debt but then just fall back into the same hole again in the future. This is not only going to be frustrating and devastating to a credit report, but also it is much harder to get out of debt the second time around.

Debt does not bring anything positive, and can really be repressing on a person’s life, because it means that they may not be able to do many of the things that they would like to.



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Tuesday, March 9th, 2010
bankrupt debt
Neil Robertson asked:


If you are considering going bankrupt, then you are obviously in a very serious debt situation. Bankruptcy may not be the best solution for you, so it is very important to consider the alternatives and get qualified debt advice.

What are the Consequences of Going Bankrupt

In the UK, the consequences for bankrupts are quite severe. You will have your bank accounts frozen, you will have to sell any major assets that you own (house, car etc.), and you may have to pay some money each month out of your income to the insolvency service (this is quite rare). Certain professions do not allow you to be a bankrupt, e.g. accountancy or police.

You will not be able to obtain credit whilst you are bankrupt and you will find it extremely difficult to obtain once you have been discharged from your bankruptcy.

There is a risk of a criminal conviction if the investigation into your finances finds that you were reckless in the way that you got into debt (e.g excessive gambling etc.) and had no intention of paying it back. These types of convictions are quite rare and will only be applied in the most serious of circumstances.

What are the Benefits of Bankruptcy

Bankruptcy is the quickest route to becoming debt free. Once you have presented your petition and been declared bankrupt you will immediately be free of all your unsecured debts. This compares favorably with the timescale for an individual voluntary arrangement that can take 5 years or more to clear your debts.

Alternatives to Bankruptcy

If your situation is serious enough to consider bankruptcy then the only realistic alternative that will resolve your debt problem in a reasonable time is the Individual Voluntary Arrangement (IVA). This is suitable for people that have a profession that will not allow bankruptcy and also makes it more likely that you will be able to keep your home. As previously noted it will take longer to resolve your debt problems (5 years is the standard period but this can be shortened by making a lump-sum payment from a remortgage). There will be no investigation into your finances other than the proposal that the Insolvency Practitioner puts forward to your creditors.

Making the Decision Between Bankruptcy and an IVA

You should always seek qualified advice when deciding between bankruptcy and an IVA. The following is offered as guidance only:

You should try to arrange an IVA if: You have significant assets that you want to protect. You are in a profession that doesn’t allow you to be bankrupt. You are worried that your conduct might leave you open to criminal conviction.

You should consider bankruptcy if: You don’t own you own home. Your job is not money related and there are no known restrictions on you becoming bankrupt.



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Friday, February 19th, 2010
bankrupt debt
Neil Robertson asked:


Bankruptcy is the debt resolution of last-resort in the UK, and still carries with it a stigma. It is also the debt solution that has the most devastating affect on your ability to get credit or a mortgage in the future. It is difficult to separate fact from fiction in the area of bankruptcy, so what happens if I declare myself bankrupt?

It is important to note at this point that declaring yourself bankrupt is not something that you should do lightly, and you should seek qualified advice.

A very important point concerns your home if you own it jointly. There may be steps that you can take to sell your share of your home to your partner/another family member which would remove the risk of it being sold. Get specialist advice on this.

You will need to get a form from your local court that you will have to present when you declare bankruptcy. You should also check at this point what the current fees are for declaring yourself bankrupt (485 at the time of writing, or possibly 335 if you are on income support). This form will need to be filled in before you petition for bankruptcy.

Before visiting the court you need to be aware that any bank accounts that you have an interest in will be frozen. You therefore need to make sure that you have enough cash to provide for your basic needs until you are next paid.

You would normally make an appointment at the court to declare yourself bankrupt. In actual fact if you turn up with the correct forms and the payment without an appointment during normal court hours you have to be seen, but normal practice is to make an appointment. You will need to take the bankruptcy fees in cash (no cheques accepted). The court appearance will normally be a formality, and you will then be free of your unsecured debt immediately.

After you are declared bankrupt your bank accounts will be frozen and you will need to attend an interview to discuss your financial situation and the reasons for your bankruptcy. The insolvency service will want to find out whether you have any assets that can be sold to pay money into your bankruptcy. Also, they will go through your budget to see if you can afford to pay any money from your earnings towards your bankruptcy. All of this detail needs to be discussed with a qualified adviser, but it is worth pointing out one key fact. If you are part of a couple, then the insolvency rules do not apply to your partner, i.e. they cannot insist that your partner pays anything towards mortgage/rent or utility bills etc. This is very important since if you fill in the forms showing that you pay half of the mortgage/rent this may result in you having a monthly excess. If so, you will be ordered to pay some of this money to your creditors for up to 3 years (continuing after your bankruptcy is discharged). If you don’t have any excess then you will be relieved of any responsibility for paying your creditors when you are discharged, which could be after only 6 months but certainly within a year.

The insolvency service will want to know if you have any assets that can be sold. They will only be interested in high value items such as your home, cars, boats etc. Current practice in the UK is that bankrupt’s homes are very rarely visited to assess whether there are any personal items that can be sold. The time and effort is simply not worth the small amounts of money that would be raised (unless your home is full of antiques).

Your car may be at risk of being sold unless you can prove that you NEED it for work (i.e. you cannot travel to work by public transport).

If you live with a partner/family and own your own home (and haven’t already taken steps to sell your share to someone else) then the insolvency service will not sell it for at least a year from the date that you are declared bankrupt. This can give time for your partner or another family to buy back your share.

Once your bankruptcy is discharged (normally in less than a year) you will be free to start re-building your life debt free. You will probably find it almost impossible to get unsecured credit for a number of years. Mortgages are more available, but the rates will be higher. It pays to shop around, because the rates on adverse credit loans can vary widely.



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Recession Causes Bankruptcy Boom

Monday, February 15th, 2010
bankruptcy file
David B. Zwiefelhofer asked:


According to a report released by the National Bankruptcy Research Center, personal bankruptcy filings are up 34 percent in January 2009 as compared to January 2008. Compared to the previous month, December 2008, filings were up 4.5%.

These increases are no doubt a consequence of the current economic crisis. The National Bureau of Economic Research (NBER) reports that the United States’ economy entered recession in December of 2007.

Traditionally, recession has been defined as two quarterly declines in gross domestic product, but the Business Cycle Dating Committee of the NBER has taken a more comprehensive approach to defining recession. "A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."[i]

Justin Berton, San Francisco Chronicle staff writer, wrote an article titled "Economic Woes Lead to Bankruptcy Boom," in the January 13, 2009 edition. He reports that membership in NACBA, the National Association of Consumer Bankruptcy Attorneys, has increased by one third in 2008 to 3,200 practicing attorneys.

In 2005 bankruptcy filings skyrocked to over two million non-business filings, due mostly to anticipation of the Bankruptcy Reform Act of 2005, which took effect on October 17, 2005, making filing bankruptcy much more difficult.

Those who were in poor financial shape had a strong motivation to file bankruptcy before the new law went into effect, rather than to try to work their way out of debt, since they would no longer have the insurance policy of bankruptcy after October 2005.

The Bankruptcy Reform Act of 2005 increased the amount of work it takes to file and decreased eligibility. Filers are also now required to take credit counseling and debtor education classes. Filings in 2004 had actually decreased to 1.56 million filings from the 1.625 million filings in 2003.

In 2006, predictably, bankruptcy filings crashed. Two effects were causing downward pressure on filings. First, filing demand had been cannibalized because many of those who would have, in the absence of the reform act, waited to file in 2006 were motivated to file in 2005 to avoid the restrictive new laws. Second, the restrictive new laws simply made many who previously were eligible to file ineligible.

What the credit card lobby took away through the Bankruptcy Reform Act, the tanking economy has given back. Many more United States citizens are now eligible to file bankruptcy, though no doubt, they’re not happy about it.

[i] NBER, Determination of the December 2007 Peak in Economic Activity, December 11, 2008



Bankruptcy Questions

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Cash for Cutting Greenhouse Gases

Saturday, January 2nd, 2010

CNNMoney.com reports that a new proposal before the Senate could mean big news for how energy is bought and sold in the U.S. – and for how much average consumers pay.

Proposed Money Saving Measures

Currently, Congress has made little headway toward passing legislation that would limit production of greenhouse gases, despite various attempts. The new bill offers an alternative to the now familiar cap-and-trade model that could potentially lower energy costs for average Americans.

If successful, the measure would work like this:

  • Permits required: Each month, coal, oil and natural gas companies would be required to buy permits to sell their greenhouse gas-emitting products to Americans.
  • Money comes back: Naturally, higher costs for energy distributors would mean higher prices for consumers, but the proposed measure would return 75 percent of the companies’ fees to consumers. The remaining 25 percent would apparently go to development of sustainable energy sources.

Supporters have reportedly claimed that this cap-and-dividend program, as it’s called, would provide a much simpler way for energy providers to meet new emissions standards than the oft-discussed cap-and-trade proposals would.

Opponents, on the other hand, fear that removing Wall Street investors from the equation would dry up a significant source of revenue that could otherwise be invested in explorations of new technologies.

One of the most easily understandable explanations of the differences between cap-and-trade and cap-and-dividend reportedly comes from an analyst of the energy sector, who noted that this proposed bill would essentially shift money around within the U.S. economy, whereas cap-and-trade could potentially inject new capital.

How Your Energy Bill Could Change

Sources indicate that the rebate part of the bill would likely translate to about $1,100 returned to each household annually. Of course, some of that money would be funneled directly into covering higher energy costs.

But, it seems, as much as 80 percent of the U.S. population would either save money from this proposal or see no change in their expenditures. The other 20 percent, according to CNNMoney.com, would be wealthier consumers who use more energy (in the form of multiple residences, frequent air travel, etc.) and essentially pay for that privilege.

While energy costs are a big part of any budget, these changes shouldn't cause anyone to file bankruptcy.

Because the effects of the bill would vary in each state, you may want to contact your local congressional office for details.

Posted in Bankruptcy News and Events, Financial Literacy, Personal Finance, green living | Comments Off

I want to file for personal bankruptcy. How will this affect my membership in an LLC?

Tuesday, December 29th, 2009
file bankruptcy
Cheryl asked:


I want to file a personal bankruptcy (chapter 13) due to personal debts. I also happen to be a managing member of an LLC. The LLC is doing ok, and is not involved in the bankruptcy. There is nothing in our LLC operating agreement as to what happens if a member files bankruptcy. Given that, can I still continue to be a member of the LLC after filing for bankruptcy? Also, how do I determine the value of the LLC as an asset in my bankruptcy filings?

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What is a low cost way to file bankruptcy?

Thursday, December 24th, 2009
file bankruptcy
Jason E asked:


I live in Michigan and need to file bankruptcy. However, even doing that costs money that I really don’t have. I know that I can file it myself and save on lawyer fees, but I don’t know how hard the paperwork is to do.

I don’t own any real property, nor do I have any mortgage debt. I currently do not have any income - I’m going to school. Mostly its credit card and various other stuff thats almost 5-8 years old now.

Has anyone done this before? And how difficult was it?

Or if I should pay to have it done, does anyone know of a low cost way to go?

Thanks ahead of time!
The debt amount is around $20,000

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What exactly happens when filing Bankruptcy? Can a person file it under these circumstances?

Wednesday, December 23rd, 2009
file bankruptcy
Maggie asked:


If the family is on welfare (government-assisted apartments & food stamps) but has much unpaid medical bills? Husband has only VA insurance but apparently they won’t pay much of the bill because he reported it past 90 days (or something close to that). Not sure what bankruptcy entails but I know it means “start from scratch” but we also don’t have anything to give….so can a person on welfare file?

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