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Credit will Heal

heal

I try really hard to give good news on this blog.  Bankruptcy isn’t nearly as scary as people make it out to be.  Unfortunately, everything can’t be rainbows and unicorns.

Bankruptcy will most likely hurt your credit. It’s a fact.  In the days immediately following your bankruptcy, your credit score will take a hit. 

So…knowing that, does that mean I shouldn’t file bankruptcy?

ABSOLUTELY NOT

I frequently meet with clients who are literally drowning in debt but are worried about their credit report.  They put a miserable little report ahead of their own financial and likely personal health

They have a misguided belief that once they have damaged their credit, it will never heal or be the same again.  

That’s simply not true. 

A credit report is a snapshot of a period in time.  

It WILL recover, probably quickly. 

A credit hit is like a scratch, it will heal

No matter your choice, whether it be debt settlement, debt management or bankruptcy, your credit report will get dinged in the short term. 

Instead of worrying that it will be a death knell, think of it more as a scratch. 

It bleeds, you clean it and bandage it (think of bankruptcy as this part), it scabs over and eventually heals . 

Once it heals, there may be a scar…but that fades over time, just like the damage to your credit report.  

Debt is like a disease

When you can’t actually pay your debts off, it’s like a chronic disease.  

There are symptoms that just don’t go away, sometimes getting worse and worse. 

Debt causes stress, which causes a whole array of problems that the medical community still doesn’t quite fully understand.  

But know this, debt will drain your energy, consume your thoughts, limit your opportunities and make you mentally unhealthy. 

Additionally, if you’re already in this much debt, chances are, your credit report already tells a much different story than you like to think. 

In fact, it may not be doing you any good at all. 

The balance sheet matters most

Like I said before, your credit report is a snapshot of a period in your life.  It is, by its very nature, limited. 

As time goes by, things fall off, never to be heard from again. 

If you use the bankruptcy code, you will change the balance in your favor. The balance sheet that is. 

Bankruptcy has the ability to wipe out your debts, on the spot. 

It stops collections, eliminates unsecured debts and clears your balance sheet in one fell swoop. Immediately.

Yes, the bankruptcy filing will show on your credit report, but the further down the road you get, the less it matters to lenders. Also, with your old debts gone for good, you’ll look like a much more creditworthy individual. 

When you take the steps to get financially, emotionally and physically healthy, the credit health will come and your credit report will heal.  

When you’re ready to take that step, call me

 

Ruining your FICO score

fico

We’ve covered credit (FICO) scores in depth.  It’s one of the most talked about things in bankruptcy and on my blog.  

People worry about their FICO score and almost every person I meet with believes that bankruptcy will ruin their FICO score.  

They think that once they file bankruptcy they’ll have a scarlet “B” tattooed on their forehead for all time, like they’re some kind of criminal…or worse.  

“I’ll never be able to function again” is a line I often hear.  

Because of this fear, people stagger on, scratching and clawing, burdened with debt and the fear of getting out of it. 

Many people who actually take the time to get to know debtors and what actually drives their financial situation often come to the realization that they aren’t a bunch of deadbeats who are trying to game the system.

They’re normal people who struggle and endure trying times and difficult financial situations.  

That said, I want to shout this from the rooftop:

RUIN YOUR FICO SCORE, DON’T RUIN YOUR LIFE

The financial talking heads constantly beat the drum that your life and your self worth are wrapped up in a miserable little score, which is very odd considering that we don’t even understand what that score really is

That score is something that even I as a bankruptcy lawyer of more than a decade don’t even quite understand. I’ve written about it and I have a good grasp on what it does but there are nuances of the scoring system that even I don’t know. 

All the while, we are told life will end, the world will stop rotating, the sky will fall if our credit score (which is derived from notoriously inaccurate information) declines.  

That’s horse squeeze. 

It’s that fear that keeps consumers in America struggling to get out of debt.  They keep trying to repay debts that they’d never get paid off in this life or the next, just to preserve a “score” that ultimately doesn’t mean much. 

Credit scores are dynamic.  In fact, the CFPB states that your credit score starts increasing the day you file bankruptcy

The biggest thing you can do is focus on your overall financial heath. You do this through getting rid of dischargeable debts, saving for retirement, living beneath your means and having an emergency fund. 

That fear keeps American consumers struggling to pay debt that they can never repay, in this life or the next.  In order  to preserve their credit score, they appear resigned to a lifetime of minimum payments rather than a fresh start in bankruptcy

Don’t spend your life just struggling to stay afloat. 

When you’re ready to take a step in the right direction, call me

 

The Real Cause

A talking head recently stated that the root cause of bankruptcy was irresponsibility and financial fraud.

It’s a #@mn good thing I couldn’t reach through the screen and grab this guy by the neck.  

Fraud! Irresponsibility! Robbing Peter to pay Paul! 

The agony and pain felt by creditors (i.e. Bank of America or J.P. Morgan Chase) knowing they’d been hoodwinked and bled dry (note the sarcasm). 

It’s absolutely nauseating to listen to this drivel because it is a bald faced lie. 

The mere assertion that someone would go through the bankruptcy process just to deal with a few “lifestyle choices” is frankly an insult to the hard work that my clients and my team put into every single case.  

The *Actual Cause of Bankruptcy

Nonsensical spending is rarely the cause of bankruptcy.  Does it happen? Absolutely! But that’s maybe 5% of cases. 

The need for bankruptcy arises most often under the following circumstances:

  • Loss or downsizing of a job
  • Health problems
  • Failed businesses
  • Having to support adult children, grandchildren or elderly parents
  • Divorce
  • Covid-19

Carried balances on credit cards are usually a result of living expenses, not a trip to the Louis Vuitton store. 

The gig economy hasn’t helped, nor has pandemic related closures.  People are finding themselves more responsible for calculating tax withholdings, finding their own insurance and funding their own retirement. While gig jobs are a good supplement, they often don’t provide reliable enough wages to keep people afloat long. 

How People Actually Get in Trouble

Most of the people I see are in my office because they were trying to do the right thing.

  • They bought a house
  • They started businesses
  • They cared for relatives
  • They fought hard to not have to renege on their debts.

At some point the inevitable will catch up. 

It often starts with a tax problem.  You’ll have reduced your withholdings because you needed extra cash. Suddenly April 15th rolls around and you owe hundreds or even thousands more than you thought you would.  

Maybe you’re sick and can’t work.  If you don’t have paid sick leave at your job, you’re stuck holding the bag.

Even if you do have paid sick leave, do you have insurance? Even if you do it can cost thousands to get sick.  Hospitals and doctors will sue you and garnish your wages.  

Are you trying to keep you home? Are you behind on your mortgage or did you have a significant increase in rent? 

Everyone has a different story, but most of them don’t start with, “Ms. Barrett, I spent $5,000 on purses at Saks Fifth Avenue.”

In reality, its circumstances in life that often catch up.

That’s why we’re here. 

If you need help, don’t wait until it’s too late.  The sooner you act, the better your outcome will be.  Call me, I’m here waiting to help you get your finances sorted out.

What is a beneficiary in a will?

A beneficiary is a person you designate to receive property from your estate after your death.  You can name specific beneficiaries to inherit specific things (like a car, real estate or jewelry) or you can leave them everything in one fell swoop. 

Types of beneficiaries

In your will, you can leave specific instructions about the order you want people to inherit your assets.  There’s three different types of beneficiaries you can specify.

  • Primary beneficiary: this is the person or organization you want to receive your assets first. 
  • Secondary (Contingent) beneficiary: for lack of a better term, this is the backup beneficiary.  This person or organization would receive the assets of your estate if your primary beneficiary can’t.  This could be because the primary beneficiary predeceased you or they chose not to receive that assets you left. 
  • Residual beneficiary: This person will receive any assets in your estate left over after all other benefits have been distributed.  You can leave multiple residual beneficiaries and designate the percentage of your estate that each of them should receive. 

 

Who can be a beneficiary?

The long and short of it is, you have options.  

Your beneficiary can be any of the following:

  • Any person, including a husband or wife, partner, children, extended family members or just a friend you met last week.  Basically, it’s your stuff you can leave it to whoever you want. 
  • A charity or nonprofit: you can donate any or all of your estate to a charity or nonprofit like a church, a college or school, a charity like St. Jude or the ASPCA or even your own foundation if you have one.  The options are almost limitless. 
  • A trust. If you have a trust, you’ll likely want it to be the beneficiary of your will, otherwise, what was the point.  

When you do choose a beneficiary, remember, minor children (people under 18) generally can’t own property.  In other words, if you have or wish to leave property to minor children, you’ll probably want to name a financial guardian to watch over them and manage their inheritance until they are of age.  If you plan on passing along a substantial amount of money, you may want to consider setting up trusts to manage the money until children reach an age that you deem “mature.”

Finally, if you’re married at the time of your death, almost all states have laws that mean your spouse should inherit a minimum amount of your estate.  If you want to give a larger part to someone other than your spouse, you’ll need to discuss that with an attorney that specifically handles large estates.  

Having a will is extremely important in Georgia. You’re ready to make the first step on your estate planning journey, give us a call today.  

 

Covid and Your Divorce: what now?

Be Patient

Divorce proceedings, including uncontested divorces (which are usually the quickest and least expensive way to get divorced) are taking an extended amount of time because of Covid. Courts are closing intermittently, staff is working in shifts or from home, judges are taking their time getting through civil matters when more pressing criminal matters are also occurring at the same time. 

Assemble a team

We have talked about this before but having a team is so important.  Having an attorney (which is likely why you’re here), a group of reliable friends, close family, a therapist or counselor (we can’t overstate how important this is) and a financial advisor.  All of these people will help you with what is sure to be an enormous change in your personal life especially during a global pandemic like Covid. 

Plan for the Unexpected during Covid

There’s a commercial that says, “Life comes at you fast.” That’s extremely true but more so after a divorce.  You’ll need to update things like medical directives, wills, life insurance and pension/retirement beneficiaries. These things are increasing important because of Covid. 

If you have a medical emergency where someone else will have to make decisions for you, you’ll need to work that out before the divorce is finalized, especially if you have minor children and/or your parents are deceased. You’ll need to appoint a new power of attorney for your affairs and your medical care so there’s no question about your wishes should the unthinkable happen. 

You’ll also want to remove your spouse from your will unless your divorce decree specifically leaves property to your spouse in the will.  While you don’t have to wait until the divorce is finalized, it’s usually best so everyone has time to work out the finer points of the decree. 

Changing beneficiaries is also important.  It doesn’t matter who you are married to, beneficiaries on life insurance policies and retirement accounts go to who they are designated to go to and it’s extremely difficult to undo that after someone passes. 

Of course if you have minor children that adds other considerations as well. You can likely hash that out in the divorce decree. 

Because of Covid, Work the numbers

One of the things you’ll need to look at is how you’re going to pay for your lifestyle now that you’re going to be all on your own.  If you’ve been working, you’ll need to ensure that your income will meet your needs since you’ll likely be dropping a source of income. If you haven’t, will the alimony and/or child support be enough or will you need to work as well?  Will you be able to afford the house, car, boat, motorcycle, etc. that you’ve been accustomed to.  If the answer to that is no, we can help, but that’s a different topic for a different day. 

In the end, divorce is hard on everyone, even if it’s uncontested.  It’s a major lifestyle change and we encourage everyone to take the necessary steps to come out better on the other side.  If you and your spouse have decided that your marriage has run its course but you want to end things in an amicable way, call me.  I’ve helped hundreds of people end their marriage with dignity and civility.  

Does my bankruptcy go in the newspaper?

newspaper

THE VAST MAJORITY OF BANKRUPTCIES DO NOT GO IN A NEWSPAPER

One of the main concerns people have is whether or not people will know about their bankruptcy.  The long and short of it is, they COULD find out, but it won’t be in the paper or splattered all over the internet.  

While it’s true that bankruptcies were occasionally published in the distant past, (think 40-50 years ago) today bankruptcy is so common that newspapers can’t possibly devote that much space to outing those people who seek bankruptcy protection.  

In some jurisdictions, business bankruptcies are published but that’s generally to alert any creditors that may not get notification through the bankruptcy court.  There are so many personal bankruptcies that it would be both space and cost prohibitive to publish them.  

WHAT ABOUT INDEPENDENT CONTRACTORS?

Maybe you’re a 1099 employee. Uber drivers, multi-level marketing consultants (think Avon or Rodan and Fields), Realtors and truck drivers.  They also don’t get published in the newspaper.  If you’re worried that you might end up in the newspaper of that the town crier will be singing it out in front of the courthouse steps, come see us.  We’ll be happy to answer all your questions about the bankruptcy process and give you HONEST answers about what you will and won’t encounter.  

Maybe you are wondering about independent contractors like Uber or Lyft drivers, multi-level marketing consultants, realtors or some truck drivers?  They don’t get listed in the Star Tribune either.

HOW DO PEOPLE GET INFORMATION ON BANKRUPTCIES?

I know you probably ask this question because you’ll see it splattered all over the news when companies like GM or Chrysler or major celebrities like Donald Trump, Michael Vick or 50 Cent file bankruptcy.  One reason why you see it is…these are huge multinational corporations and celebrities who live lavish public lifestyles, not someone who’s just a little behind on their bills. 

As I stated in the opening paragraph, people COULD find out about your bankruptcy. The federal government has a website called Public Access to Court Electronic Records (PACER) which shows all federal court filings including bankruptcies.  Here is a link if you want to peruse the court filings (hot tip: it’s very boring).  

To search bankruptcies or any other federal court filing, you first have to have a username.  You can get one but it’s a little cumbersome.   Then you have to pay $.10 per page to access the court filings.  Additionally, a lot of people file federal court cases so a generic name search isn’t going to necessarily turn up your name. So unless they have your Social Security number (they probably don’t) it’s going to be hard to find your information.  

So, long story short, there’s a really good chance that no one will ever know you filed bankruptcy outside of your creditors and anyone you tell yourself.  If you have questions about the bankruptcy process, call me.  I’ve been doing this a long time and I’ve helped thousands of people get out of debt.