Credit and Credit Cards

Read Tips in Our Blog

Categories:

8 Things Finance “Experts” get Wrong

Personal finance “experts” love to run around spouting off about bankruptcy and other issues they don’t know much about.  While many of them do promote best practices when it comes to finance, many of them share blatant falsities about bankruptcy like this guy does.  

Number one, they often don’t even know basic facts about bankruptcy.  It’s complicated, so many people just spew what they think they know about bankruptcy and pass it off as legitimate advice.  

Number two, these so called “experts” make bankruptcy sound like it should be your last choice.  We have written about why bankruptcy should never be treated as a last resort. Instead, bankruptcy should be considered alongside a number of tools to help you improve your financial position.  Instead, they just continue to spread misconceptions and myths.   

So, considering I’ve been practicing bankruptcy for 11 years and I’ve handled more than 2,000 cases, I’ve got a few things to discuss that these finance “experts” should know.  

1. In 97% of bankruptcy cases the debtor loses nothing. 

Chapter 7s are considered a liquidation bankruptcy.  In theory, if you have a valuable asset that is unencumbered by liens, the trustee can sell that asset to recover money for your creditors.  The problem is, most Chapter 7 clients, don’t have enough assets to sell for two reasons.  First, most assets either have liens on them or aren’t really worth much and second, you have generous exemptions here in Georgia.  

2. If you have any assets, you can just file a Chapter 13 and keep them. 

If you do have assets and they could potentially be at risk in a Chapter 7, you can just file a Chapter 13 and then they’re protected.  You simply repay the value of the items you wish to keep at an extremely low interest rate and then you emergen from your bankruptcy with a discharge.

3. The means test just determines which chapter you are eligible for.

The means test doesn’t keep you from filing bankruptcy. Period. It’s just there to make sure that wealthy or high income people don’t abuse Chapter 7s. Even if the means test determines you don’t qualify for a 7, you can still do a 13 and pay back only a fraction of your debt. 

4. Credit scores improve immediately. 

We have written about this and we want to state it again.  Studies by the Consumer Financial Protection Bureau have shown that your credit score starts going up the month you file bankruptcy.  Yes, a bankruptcy can stay on your credit report for up to 10 years, but as we say so often, time heals all wounds and your bankruptcy will matter less and less as time goes on. 

5. You can get a loan, even in if you’re still in your bankruptcy

Filing bankruptcy changes how much you’ll pay for credit.  It doesn’t mean you can’t get credit at all.  People in Chapter 13s routinely take out (court approved) debt to buy cars in the event of an accident.  Just because you’ve filed bankruptcy doesn’t mean you’re not able to get credit at all. 

6. Stress is a health risk

We have only recently begun taking mental health seriously in our country. Stress, particularly stress related to money, can take a substantial toll on our mental and PHYSICAL health.  Stress leads to bad choices, mental health problems and unhealthy habits like drinking or drug use to cope.  Bankruptcy can help you get your financial house in order and lowers stress, immediately. 

7. Bankruptcy frees up cash to pay debts that can’t be discharged

Some debts can’t be discharged.  It’s just the way the bankruptcy code is written.  The bright side of this is, you’re freeing up cash you can use to pay off those debts by filing bankruptcy.  

Bankruptcy isn’t the last resort. ever.

Bankruptcy offers a quick, legal and certain fix for debts that have swamped you.  Every day we see people who have spent their retirement savings or strung along debts that have kept them from being able to start over.  Bankruptcy should always be in the discussion when it comes to eliminating overwhelming debt.  After all, cutting $5 lattes is a good practice to keep yourself on a budget but it isn’t going to fix a mountain of uncontrolled debt, no matter how many “experts” try to claim it will.

The Cure

We hear them every day and we have written extensively about get out of debt schemes and what an absolute scam most of them are.  People sit there and pitch the most unimaginable garbage to people who are struggling with debt.  They’re just like the snake oil salesmen of the wild west with all of their ridiculous cure all solutions.  “Buy my book and learn how to get out of debt fast” barks the salesman from his multimillion dollar radio perch or the best one is, “we’ll get your credit card company to settle for pennies on the dollar.” They’re selling you snake oil and without a proper diagnosis, you’ll get exactly…nothing. Except for a lighter wallet. 

You don’t treat a medical problem without a proper diagnosis.  Is it gas pains or colon cancer, a headache or an aneurysm?  You wouldn’t let someone start cutting or taking a dangerous therapy if you only needed to take a tylenol or quit eating so many beans. 

Much like medical problems, for a proper cure, your finances need a proper diagnosis too.  Do you have a temporary problem that will work itself out with a little discipline or are you throwing your hard earned money into a bottomless money pit. The answer is a big step in diagnosing and treating your debt problems. 

Rx for Debt

Any good physician needs to know things about you.  Your age, your medical history, family history, etc. 

An attorney assessing your financial situation will have similar questions.  We need to know your age, whether you have dependents, what your assets are, who and how much you owe as well as what your income is.  All those are questions we have to have answers to in order to recommend a good plan to get you out of debt.  

If you’re about to retire, you don’t have the luxury of time to get out of debt by just cutting a few frills but if you’re young and single with a good job, maybe selling that expensive car for a more frugal model and cutting back on the dinners out will help you get your financial house in order.  

The old, “cut out the lattes” line doesn’t exactly work if you’re staring retirement squarely in the face like it would for a 22 year old. Sometimes “buckling down” is:

Too little, too late

Most of the better known and more respectable “debt gurus” have advice that is better suited for how to live AFTER you cure your debt issues or if you have plenty of time and discipline and not much debt.  You have to start by comparing your income to your debt load.  Otherwise known as a Debt to income ratio.  If you’re using all your income just to service the bare minimums of your debt, you need a lot more help that someone who just spent a little too much this month.  

You have to assess your situation.  If you’re hunting squirrels, you don’t need a howitzer, but if you’re taking on a grizzly bear, you better come with some powerful options. 

How risky is the cure

The last question we need answered to give you a proper diagnosis is, how risky is the treatment.  In medicine, you don’t want to have brain surgery for a headache.  Think about the side effects of the medicine you take.  Every medicine has them and you don’t want to take something dangerous unless you have to.

When you are talking about curing debt though, you risk having to live with no safety net, especially if you’re doing it the “radio show” way. We have talked about how nearly half the country can’t cover a $1,000 emergency without having to borrow money from somewhere.  $1,000 isn’t much in this economy and don’t fool yourself into thinking that you can put your hands on a grand in a matter of minutes or that you’re not one of those people.  

One thousand dollars isn’t much in this economy.  Yet a $1,000 expense would imperil a huge swath of our citizens.  This list details more than 30 different everyday situations that could require you to spend at least $500.  None of those reasons are all that crazy or out there.  It could happen to any of us at any time.  Not long ago, we wrote about what to do when you’re in serious debt and I’ll link to that here.  It goes into greater detail and will help you understand more of your options.  

 

The “Last Resort”

last resort

If you find yourself in a financial pickle, there are three times when it makes sense to look at bankruptcy.  The first is in a crisis, the second is when you’re looking at the totality of your financial situation and the third is when you’re so worried about your finances that you’re literally making yourself sick. If you’ll notice however, none of those are called, “last resort.”

All of the financial gurus out there, and I mean all of them, love to sit around and talk about how bankruptcy should only be a last resort.  While I enjoy listening to some of these “gurus” I prefer to take some of their advice with a grain of salt.  Using bankruptcy as a last resort often keeps people from getting the help they need, when they need it.  It can often lead to people throwing good money after bad by trying to repay debts when it’s obvious you can’t.  That kind of thinking delays the inevitable, costs you more and absolutely makes you more stressed. 

That said, let’s talk about when it’s a good time to file bankruptcy.  Remember, none of these situations are a “last resort.”

1.  You’re in crisis

You just got a notice that your car is going to be repossessed, you were told at work about a garnishment that would hit soon or you got a foreclosure notice in the mail from your mortgage lender.  Without a roof over your head, your whole paycheck or a car under your rear end, you’re going to have a hard time making day to day living manageable.  It’s going to threaten the whole foundation of your financial house.

Filing bankruptcy can stop all of those actions dead in their tracks.  It can allow you to keep assets that you may otherwise lose to creditors without bankruptcy.  It gives you a chance to reassess your situation, effectively calling a timeout on collection efforts while you sort through what you need to do to survive. 

Remember, bankruptcy triggers an automatic stay and that’s like pulling the emergency brake on a train.  Everything comes to a screeching halt. It stops all collection actions against you including suits.  

Lawsuits aren’t automatically a crisis, even though it seems like one at the time.  It’s more of a wakeup call that your finances are not in a good place and you need to do something to get your finances back in order. Remember, the lawsuit is just one creditor knocking at your door.  If you’ve got one that’s upset, chances are there are more and they can sue you too. 

Bankruptcy gives you a time out to breathe, assess and figure out where to go from here.  Not to mention that it wipes out many of your unsecured debts.

2.  You finally see the forest through the trees

It doesn’t necessarily take a crisis for you to take a look at your balance sheet and realize that you’ve dug yourself into a hole you aren’t likely to get out of. Making decades of minimum payments just to keep creditors away isn’t a way to live and it certainly isn’t a way to get out of debt.  I know you see the part of your credit card bill that tells you when you’ll get out of debt if you only make your minimums AND don’t spend anymore money.  It’s a long time, even for small debts.  

Having a healthy financial situation includes having an emergency reserve and a good chunk of change saved for your retirement. If you keep throwing all your money at Discover and American Express, you’ll be eating dog food when you turn 75. 

Lawmakers created bankruptcy because they understood that the economy is better when people are able to be self sufficient.  It doesn’t matter how you got into debt, you’re not a bad person.  Most bankruptcies result from things that are out of our control. Job losses, illness, divorce, death of a loved one and the list goes on and on.  Whether you are in a bad financial situation because of bad luck or bad choices, getting the fresh start you need can certainly be a refreshing thought. 

3.  You’re killing yourself with stress

Stress is a major driver of physical and mental health issues in our country.  It is unfortunate that we tend to deify those people who struggle to pay off their debts.  While that’s all well and good, we truly need to remember one thing.  Stress kills.  Stress makes us less likely to be able to make good decisions and forces us into choices that can have ramifications for years to come. 

When money worries have an impact on your ability to sleep, work, or have healthy relationships, it’s worth looking at bankruptcy as an option.  Even for people who are older and protected from collection by exemptions, you may look into bankruptcy for the sake of your heirs even if you won’t do it for the sake of your health. 

These reasons for seeking help via bankruptcy often overlap but the idea that bankruptcy should only be a last resort is just patently untrue.  Filing bankruptcy shouldn’t be taken lightly but it also shouldn’t be the last option.  The sooner you examine your situation the sooner you can start looking at getting the help you need before you go out and do something crazy like borrow against your house or your retirement savings to pay off some dischargeable debt. 

When you’ve determined that you need to seek help, call the attorneys at Harmon and Gorove.  We have helped thousands of people escape the burdens of debt and get a fresh start.  We offer 100% free consultations and will always tell you the best course of action, even if it doesn’t make us a dime.  

Collection Threats: What’s real?

When you think about debt collectors, you usually think of someone that isn’t very nice.  They call, they harass and they threaten.  In reality though, what threats to take seriously and what threats to ignore is something most people don’t understand.

The reality is, most of them are empty threats.  

  1. You’re not going to jail.  Debtors prisons are a relic of the distant past.  
  2. They’re not going to send people to pick you up.  That’s kidnapping and that’s illegal. 
  3. Chances are, they’re not going to “ruin” your credit. 
  4. So what if they, “refer it to an attorney to look at.”

 

The three threats with teeth

There are only three things you really need to be concerned about.

  1. They have a court judgement against you and they know where you work.  They can then file a garnishment and take your pay. 
  2. There is a lien against your house by your Homeowners Association or your  mortgage lender and they are threatening to foreclose on your house.  You need to be concerned about that and you need to take action to stop it.
  3. You’re behind on your car and they’re threatening to repossess it.

 

That’s what you need to be concerned with.  The rest, well, is just crap. Let’s be honest, the lender would really just rather make a deal. It’s cheaper, cleaner and keeps everyone happy.  

The debt collector who is legitimate will reach out to you in writing or dials you from a number that is from a real debt company. That said, just because they are from a “real company” doesn’t mean they won’t lie to you, call you at work, tell your loved ones about your debt or do other illegal things

If you find yourself drowning in debt and being harassed by legitimate debt collectors, reach out to us at Harmon and Gorove.  We can help you get your finances in order and bring some peace to your life.  Contact us today to learn how bankruptcy can help you achieve financial freedom and peace.  

Credit score increases rapidly after bankruptcy, says by the CFPB.

Our clients are often so very concerned about their credit score.  That’s natural, and frankly, we are too.  I check my credit score at least once every two weeks.  It’s a point of pride for many people.  For others however, it can be the difference in being able to get ahead in life or not being able to afford those things we need. 

We have some very good news to report for people who are worried about the impact that bankruptcy will have on their credit score. The good news is, and I say it boldly;

AFTER BANKRUPTCY, CREDIT SCORES GO STEADILY UP

That’s right.  All these years you’ve been lied to by people who have no idea what they’re talking about.  Telling you that if you file bankruptcy your finances are toast and you’re dead in the water. You’ll never get another loan again.  We’ve all heard it and it’s usually coming from the slime ball that charged you 97% interest on a $2,500 car loan.

We didn’t just make this up either, although we already knew this to be true, this is a report from the Consumer Financial Protection Bureau.  The study, which you can read here is completely legitimate and has been researched over the last 17 years. Another finding from the study is 

A PERSON’S CREDIT SCORES START IMPROVING THE SAME YEAR AS YOUR BANKRUPTCY FILING

Take a minute and absorb that.

How Creditors Use Fear

Creditors and all their hack buddies scream from the rooftops about bankruptcy trashing your credit score.  The data shows just the opposite.  In fact, there’s usually no dip in your score after filing.  The overwhelming amount of people who file bankruptcy see an IMMEDIATE increase in their score. Don’t believe us, just read what the CFPB says: 

Median credit scores increase steadily from year-to-year after consumers file a bankruptcy petition.

Median scores for Chapter 7 filers recover more quickly than those for Chapter 13 filers possibly due to the much quicker and more likely discharge of Chapter 7 filings.  

Bankruptcy improves your Financial Health

When it comes to your financial health, let’s get one thing straight. Your credit score is a vastly inadequate indicator of your financial health.  What really matters is your balance sheet.

A credit score is a distraction

In the grand scheme of loans and credit, lenders look at your balance sheet as much or more than your credit score.  In essence, they look at your net worth which is comprised of assets minus liabilities.  If you eliminate the liabilities you have via bankruptcy, your net worth looks even better. 

A credit score is just a number, most banks prefer a measure called the Debt to Income ratio or DTI.  If you wipe out unsecured debts, your DTI goes down as well, improving your likelihood of getting approved for a loan.  

Boost your credit score

You can take actions that can boost your score.  One of the best ways to do that is to check your credit report.  Not just your score, but what’s listed on your report.  When you look into credit reports, you’ll find that credit reports are notoriously inaccurate. Nearly 1 in 4 credit reports had factual inaccuracies that could negatively impact your credit score. That’s why its very important to check your credit report often, even more so than your score itself.  

Is bankruptcy right for me?

Just because you can file bankruptcy, doesn’t mean you should. It’s just one of the things you should consider if you find yourself needing to file.  Lots of different factors influence whether you should file bankruptcy.  We discuss those factors in one of our recent blog posts

If you’re ready to discuss filing bankruptcy with an experienced bankruptcy attorney, contact our office today for a free, no obligation consultation.  

 

 

Hold it, fold it or run

You’ve got to know when to hold ’em,

know when to fold ’em;

know when to walk away,

know when to run…

Thus is the advice that is given to a young protege of the Gambler in the hit Kenny Rogers song. This advice is also good for people who are facing problems with debt to consider.  One of the toughest things for people who are facing uncertainty about their finances is knowing when to fold and get the financial help they need. 

We often play a bad hand

Almost everyone wants to repay their debts. We feel like it’s the “right” thing to do.  Paying your debts fits the narrative of the hard working hero who scrimped and went without to pay your debt in full.  Lord knows the creditors who push these massive debt loads onto people with the false assumption that they’ll be able to pay want you to think that not paying your debts will be the financial ruin of you until the end of the world. 

If you’re in debt, it’s hard to know what your choices are and to know which debts are the best to get rid of and which ones you need to keep. 

The problem is that no one talks about the actual cost of paying off burdensome debt.

Nobody talks about people who have such a strong commitment to pay burdensome debt, get blinded to other needs and other financial pitfalls.

Certainly, no one mentions good people who sacrifice and still fail to find a way to pay off their debts.

Nobody seems to care about the elderly; drowning in debt with no hope of better times ahead.

So how do you know how to play your hand, so to speak, when choosing the best way to succeed at getting out of debt?

Just like the cards you have, the decision about what to pay (hold) or file bankruptcy on (fold) depends on a number of factors. 

What’s the amount you owe?  

HOLD:  the lower your total debt, the more likely you can succeed in paying it off.

FOLD:  If you have a very large amount of debt it will take longer to pay off and will likely cause other events to interfere.

What’s your age?

HOLD: If you’re young, you have more time, theoretically, to pay off your debts due to the amount of time you have left in life to work. 

FOLD:  If you’re close to retirement, now’s the time to seriously start looking at cleaning up your finances

Do you have critical debts?

HOLD:  Do you owe taxes, have a mortgage or owe some kind of domestic support? These critical kinds of debts should take priority over unsecured or other debts that could be discharged. If you don’t owe these types of debts, a payment plan for other debts can often succeed.

FOLD:  paying unsecured bills when you owe these critical types of debt is EXTREMELY risky.

What does your retirement savings look like?

HOLD: IF you have a pension or a substantial amount of money saved for retirement, you can try to get your debts paid.

FOLD:  If you’re way behind on saving money for your golden years, wouldn’t it be better to use that money to save for retirement instead of paying back unsecured creditors?

Do you have an emergency savings fund?

HOLD:  If you have a big enough cushion to sustain a loss of income, try to pay off debt.

FOLD:  If you’re like the majority of Americans and have very little saved, you make yourself even more vulnerable diverting money to existing debt.

How to succeed

The number one thing you want to avoid is spending money you don’t have on old debts when you have no reasonable chance of succeeding.  Living paycheck to paycheck with no savings isn’t a good way to live and it makes life very tough. The young protege got some good advice for that taste of whiskey.

Kenny Rogers’ gambler told him:

That the secret to survivin’

Is knowin’ what to throw away

And knowin’ what to keep

Keep paying on old debts only if you have the ability to succeed.  Otherwise… well you know how the rest of the song goes. 

If you feel lost and are unable to find a way out of debt, contact the attorneys at Harmon and Gorove.  We have helped tens of thousands of people get the help they need in order to get the fresh start they so desperately need.