Bankruptcies Are On the Rise

According to recent news articles, bankruptcies are at their highest level since October 2005, with an average of 5,945 filings per day during the month of March. Adding to this the fact that 663,000 Americans lost their jobs last month, indications appear to be that this number will only increase during the coming months.

While this is a shame, all too many people file bankruptcy when it is not their best financial option.

Bankruptcy comes in two versions that apply to most consumers. Chapter 7 is a total liquidation of assets and near total elimination of debts. Chapter 13 is basically a negotiated repayment plan, with terms set and monitored by the courts.

Certain items cannot be discharged in bankruptcy; notably any tax liabilities for the past three years, federal guaranteed loans (i.e. student loans), and any debts incurred as a result of fraud. Other exceptions vary by state, including what assets can be exempted from bankruptcy. As each state sets its own rules in addition to the federal guidelines, I will not get into that discussion here.

The key point to realize is what exactly is being protected by filing bankruptcy. If no one is suing you or threatening to take anything away from you, then you do not need bankruptcy protection. Filing bankruptcy is a move that shields your assets and income from attachment by creditors. If creditors are not filing lawsuits or taking repossessive action against you, then you do not need to file.

Now, what if you do find yourself facing multiple lawsuits and foreclosure actions? Well, take a moment to evaluate your situation. If you are facing the potential loss of your home, take a look at the numbers before you. If you only have a first mortgage, and the property value is under water, you would likely be best served to either attempt a loan modification with your lender or walk away from the property. Many states are non-recourse states, meaning that the holder of a first mortgage who repossesses your property cannot come after you for a deficiency balance. This does not hold true for auto loans, however.

Should someone file bankruptcy to hold onto their car? Probably not. If you are holding onto a car which you cannot afford, then you do not need it. You can try to negotiate new terms with the lender, and I can guarantee that you will face a lawsuit for any deficiency balance on the sale. You would be better off to sell the car short, and then try to make up any difference. An attorney retained prior to a repossession order would likely be a good investment.

OK, so we try to hold onto the house, and we let go of the car. Now what do we do?

Next, take a look at that stack of bills that you cannot pay. If no one is actively suing you, let them sit for now. If they are suing you, then take a look at what you have at risk. If you have no equity in your house, you won’t lose that. If your car is secured by a loan, other creditors can’t touch it. Your personal property along with any property that you use in your business, trade, or profession, is off-limits in most states also. That leaves your bank accounts and your paycheck as the primary avenues of recourse for a creditor’s attachment.

If you know that judgments exist against you, keeping as little money in the bank as possible should be a given. As far as your paycheck goes, part of your pay is exempt. This varies by state, but you are protected to a minimum of $5.15 (Federal minimum wage) x 30 hours per week. This money cannot be touched. After that, depending again on your state of residence, only 10% to 25% of the remaining Net Pay can be attached for ALL of your garnishments. It does not matter how many judgments or garnishments you may have against you, the limit is what it is.

Many Chapter 13 bankruptcy plans and many plans negotiated by CCCS for their “clients” require payments that can be much higher than that amount. You likely pay more than that now for your unsecured debts, if you are actually in financial trouble.

The problem comes when people facing hard financial times ask a bankruptcy attorney what they should do, and never consult anyone else. Now, I don’t want to upset the legal establishment, but I would venture to guess that at least one bankruptcy attorney out there recommends bankruptcy as the answer almost every time. Just consider how it is they earn their living: If you file, they get paid. If you don’t file, they don’t get paid. What would you recommend in their position?

Some items are not subject to the previously quoted exemptions. They include back taxes owed to the IRS, Federal Student Loans, spousal and child support, and some others that may vary by jurisdiction. However, bankruptcy won’t protect you from these either, so you are stuck with them.

By all means, if you are having financial difficulties, you should consult an attorney. You should also consult an accountant and a financial planner. I would personally do everything in my power to keep you away from CCCS, because they work for your creditors and not for you. That is why I put “clients” in parenthesis earlier. You are not their client, just their potential victim.

Other ways out of a financial crisis include loan modification, debt negotiation, and debt settlements. You can do an Internet search to get information on these types of programs, and I will caution you that a great number of people and companies are employed in these areas of expertise, and not all of them are trustworthy. Tread carefully, and try to deal with reputable firms and organizations for this type of help.

As with any advice you may read in articles, and especially online, keep a discerning eye out for your own best interest. Nothing herein should be regarded as legal advice, and it is not intended as such. Should you need any legal, accounting or financial planning advice, seek the counsel and recommendation of a competent, licensed practitioner in your area.

Special: Bailout Update

Early edition this week. I just received information on where some of the early bailout money went, and how it is allocated. I seem to recall hearing that the monies were to be invested in such a way that taxpayers would be repaid as quickly as possible by those to whom help was given. I didn't believe it then, and given the new information that I have found, I certainly don't believe it now.

Here is a partial listing from the original $350 billion in allocations:

• $250 Billion for purchases of Senior Preferred Shares under the Capital Purchase Program (This is the money we are supposed to get back right away, when things turn around)
• $ 20 Billion to Bank of America - The government is to share in the losses on a $118 billion package of assets. (If we are sharing in the losses, how do we get this money back later?)
• $ 20 Billion to Citigroup, same as BofA above, where the government (you and me, folks) will share in losses on a $301 billion package of assets. (Again, same question as above.)
• $ 5 Billion to Citigroup to cover additional losses with TARP funds.
• $ 40 Billion to AIG Insurance. (This is certainly money well spent!)
• $ 21 Billion to prop-up the US Auto Industry. (Of course, the industry doesn't have to make any substantive changes, but GM is offering $20K buy-outs to ALL employees and a $15K new car voucher, if they will retire or quit early. Why not just offer $20K to every taxpayer to buy an American-made car?)
• $ 20 Billion to the Federal Reserve to improve consumer access to credit. (Really? Do we need this? Isn't loose credit what got us into this mess in the first place? Also, doesn't the Fed already control all of the money supply?)

This just explains where about $376 Billion of our dollars went. With over $1.5 Trillion to $2.0 Trillion in total bailout money, which will be added to our current $1.0 Trillion deficit; where, when, and how will we ever pay this money back?

The answer is, we won't! The Fed will have to print new money in order to make these payments on behalf of the government. They are trying now to sell $2 Trillion worth of Treasury Securities in order to fund these programs. Who still has money left, and who is going to lend to the US government now? Good luck with that!

This is just another example of your government screwing you big-time! While you can't fight back against the government, you can use the bailouts of financial companies to your benefit.


The National Consumer Rights Alliance (NCRA) offers the following services, all of which will help you to lower your outstanding debt, reduce your interest rates, improve your cash flow, and potentially save your home:

• Mortgage Modification / Forbearance / Short Sale / Recission - These are all tools offered by the association to help protect you from your mortgage lender. You may qualify for a reduction of principle in your mortgage, a reduced interest rate, postponement of late payments and penalties, conversion from an adjustable to a fixed rate, a short-refinance, or other concessions from your lender. The NCRA offers these services at much lower costs to its members than you will find anywhere else.
• Debt Settlement / Renegotiation / Bankruptcy - Debt Settlement can reduce your unsecured debts by 50% or more, and enable you to become debt free within three years, in most cases. Renegotiation can help you lower your interest rates. If you absolutely cannot pay your bills, or you have judgments or extended liabilities that have wreaked havoc on your finances, or if you just have no other way to save your home, the NCRA can refer you to a local bankruptcy attorney who will represent you at drastically reduced rates. We rarely recommend bankruptcy, but if it is your only way out, at least we can save you money.
• Credit Restoration / Secured Credit Lines / Bank Accounts - NCRA now offers NO-COST Credit Restoration services to its members. They used to charge a $5.00 fee per deletion, but they have now waived this charge, in order to further assist members in the current economy. NCRA can also provide referrals to secured credit accounts, which will help to reestablish credit, and if you have found yourself in the ChexSystems database, NCRA can refer you to a local financial institution that will let you open a checking account without a ChexSystems verification.

Since the Federal Government is giving so much money to financial institutions, they have been mandated to work closely with debtors to work out arrangements for debts. Since the government has agreed to cover the losses, it only makes sense for an intelligent consumer (that would be you, dear reader) to take advantage of this situation for your own gain. After all, it is OUR tax dollars that these companies are receiving. Take advantage of the help that is being afforded you. Until next post, I wish you well, and I hope that this information will help you. Spend wisely, and sleep well!

Here is a Special Offer from the NCRA for my readers, so listen up! 

For a limited time, just for readers of my blog, the NCRA will give you a family membership for the same price as an individual membership, for full payment upfront. This is a savings of up to $800 over the price of purchasing a family membership under their payment plan! 

Again, this is only for readers of this blog. In order to avail of this special, send an email to administrator@ncramembers.org, mention that you are a reader of this blog, and that you would like this special pricing. NCRA accepts PayPal, bank check, and credit card. Your benefits will begin immediately upon joining. This special pricing is not noted on the website, so be sure to request this special via email. This offer is good for the month of February 2009, and is subject to revocation without notice. In other words, this is a limited time offer. NCRA has promised this pricing for the first 100 readers who sign-up for the special. I suggest you send your email today!

Your Way Out - Personal Economic Recovery

Judging from the record number of comments that I received from all of you this week, I realized two things:

1) I have a lot more readers than I suspected.
2) You are an impatient bunch! OK, perhaps it was cruel to make you wait, but the last post was so long that I wanted to ensure that it got enough time to be read, and I didn't want to put so much into one post, that no one would read it all the way through.

The Four "I"s

This topic has nothing to do with wearing glasses. Last week, I asked you to gather all of your financial data from the last year. Since most of you didn't do it, do it now.... I'll wait....   

Welcome back! Now, the Four "I"s consist of Income, Investments, Insurance, and Interest. In order to succeed financially, you must have all four of these items in place in your life. Most likely, you don't, but we can fix that.

Income consists of all inflows to your household, regardless of source. Primarily, this consists of profits from your business or your salary or wages from employment. You may also have income from investments or savings, hobbies, and avocations. You need to maximize this aspect of your life. To the extent that your income derives directly from the "amount of time" you spend on an activity, you need to maximize your return on that time (i.e. Become more efficient).

Investments consist of continuing returns on prior income. In other words, first you worked for your money, and now your money is working for you. To the extent that you are successful with your investing, you are now using time to compound your return on your original labor.

Insurance is the method by which you protect everything that you have accomplished in your life to date. Some methods are obvious, while others are not. I have written a few articles about insurance, which you may peruse. The less obvious insurances may include unemployment insurance and workers' compensation, which protect your income. Life insurance protects your family by replacing your income, while property and casualty insurance protects your accumulated assets. Liability insurance protects everything you own against the claims of others.

Interest will either work for you, or it will work against you. You may derive interest on savings or investments in debt securities (bonds or corporate notes payable) and you may lose interest on borrowing (mortgages, auto loans, credit cards, etc.). Albert Einstein said something along the lines of "Those who understand compound interest will be investors, and those who don't will be borrowers." Which of these describes you?

Using the Current Situation to Your Advantage

At present, financial institutions in the United States are reeling. They cannot possibly keep up with all of the issues that they face. Approximately 16% of mortgages will foreclose this year. This will keep real estate prices low, which contributes to foreclosures. Yes, this is a vicious cycle. As people see their credit ratings destroyed due to non-payment of their mortgage obligations, they will tend to care less about paying for unsecured debt (credit cards), which will take away the banks' most profitable income center. A record number of bankruptcies is expected this year (well over two million cases).

Since I do not wish to create a forty page blog posting, I will lightly cover the areas that you need to address in order to solve your financial issues. This is not a do-it-yourself posting, as I cannot give you all of the information, skills, and tools needed to solve this problem yourself, in the space of a single blog posting. I will ask that you contact this week's sponsor, as they are in a position to help you accomplish all of these tasks, and as an advocacy organization, can do it much more efficiently and more cost-effectively than you can handle them yourself.

National Consumer Rights Alliance, Inc.

The NCRA is an advocacy organization dedicated to the protection of Consumer Rights for all Americans. They provide a number of benefits to their members, including credit repair services, a nationwide legal network, IRS Audit Defense, debt settlement assistance (not bankruptcy), mortgage modifications, and mortgage attainment assistance. They also assist with second chance bank accounts (no ChexSystems verification) and second chance (secured) credit cards. I believe so much in this organization that I have accepted a position as its President, in order to help drive their mission forward. I know of no better organization, public or private, that is in a better position to assist consumers in the ways that I suggest below. Of course, you may take all of these steps on your own, but I think you will find better results by allowing their experts to work on your behalf. Even if you were a skilled surgeon, you still wouldn't perform your own appendectomy, would you? Save time and money by joining the organization today.

Your Personal Recovery Steps

Income - You need to find ways to increase and diversify your income. In the current job environment, changing jobs is probably not the best option. In fact, you may be doing all you can to hold onto the job you have. Perhaps, you have lost your job, and find yourself in a very difficult spot. Try to find ways to supplement your income. Most online methods are scams, so be careful. It is possible to make money on E-Bay or Google and with certain blogging opportunities, but most people fail. NCRA has a referral program that can provide a good second income, so that might be worth investigating. 

Investments - Assuming that you still have some money invested, you need to find a way to build back up. If you are still able to invest each month, I suggest that you continue to invest. In most cases, the companies in which you are invested lost value due to the overall market, and not due to anything directly related to the performance of the company with respect to its peers. If this is the case, continue to invest in the same companies, and allow dollar-cost averaging to work for you. If you need to realign your investments, speak to your investment advisor.

Insurance - Be sure that your insurance policies are up-to-date. Is your life insurance protection adequate to replace your income for at least twenty years? If not, reevaluate. Be sure you are getting the best value for your health insurance as well. Many individual and family policies now provide benefits as good or better than your workplace may provide. Oftentimes, these policies are cheaper if your family is in good health, due to the elimination of "adverse selection" that exists with group policies. 

Interest - Good news! This is the area in which you have the most control at present. These are the areas that we can address here, which will help you to solve the majority of your financial problems. Of course, if you have no income, that is a severe issue, but you can still work on alleviating much of the pressure you face by addressing these issues.

Reducing Interest and Credit Liabilities

Mortgage Modification is a great way to reduce your mortgage liability, payments, interest rate, or a combination of the three. I highly recommend that you NOT DO this yourself. Even if you are not behind on your mortgage, you may be able to renegotiate your mortgage into a better interest rate, longer terms to lower your payments, reduction in pricipal, and other options that can help you save your home and/or lifestyle. I have seen instances where individuals have lowered their monthly obligation by as much as 75%, reduced interest rates to as low as 3%, and had tens of thousands of principal balance forgiven. This is not an area for do-it-yourself. Help will cost you one mortgage payment on average, but you will have one month in which you will not owe a mortgage payment to your lender, so it is a service generally provided at no net cash flow loss to you. NCRA can connect you with a law firm to handle this for you. 

Debt Settlement is another way to greatly improve your cash flow. What would it mean to you if you could slash your total outstanding debt by 50% or more, reduce your interest rates to single digits, be debt free in 36 months, and actually come out of the process with excellent credit? Even if you have good credit and can afford to pay your debts now, this may be a great way to free up money for investment. Again, this is a service provided by attorneys, and you don't want to play this game on your own. 

Credit Repair/Restoration can help you qualify for much better terms on mortgages, auto loans, and credit cards. Do you have old collection accounts, chargeoffs, or even some late payments showing on your credit report? These items can cost you dearly when it is time to obtain financing for any purpose. NCRA provides attorney-assisted credit services at almost no cost to its members, as a benefit of membership. You only pay $5 per deletion obtained. 

Mortgage Refinancing is available if you can prove your income, have a debt-to-income ratio of 45% or less, including your mortgage, and have a credit score higher than 720. If you have these attributes, then you can probably refinance in the low 5% range on a 30-year fixed mortgage. If not, then take some of the steps above before trying to refinance. A mortgage modification may be a better deal anyway, as the cost of modifying a mortgage may be much lower than the cost of obtaining a mortgage. 

Margin Account Borrowing is available to investors who have active trading accounts with the major wirehouses. If you have been purchasing stocks without borrowing against them, you can open an account, which will allow you to borrow up to 80% of the value of the shares at rates as low as 2%-3% per annum. If you take this money, and payoff your high interest credit cards, your savings could be significant. If you will take this tact, I advise that you only borrow 50% of what is available to you, and then repay the monthly payments that you would have made on the credit cards back to your margin account. In the alternative, you can take that monthly payment to reduce the liability on other high interest accounts, but be sure that as you accumulate these payments that you eventually pay off the margin account. 

That's all for now. Once you take these steps, keep me apprised of your results. Of course, I am always here to help, so keep those comments coming. If you need individual help, let me know. If I receive similar questions from a number of readers, I will post my comments, so that we can all benefit. See you soon!