Monday’s need-to-know money news

bankruptcy_formToday’s top story: How to decide between debt consolidation or bankruptcy. Also in the news: Apps that can help you save money right now, how to create an income plan from your retirement savings, and how to protect yourself against unemployment.

Debt Consolidation Vs. Bankruptcy: Which Should You Choose?
How to make a crucial decision.

These 7 apps can help you save money right away
It’s like having a bank right in your pocket.

Creating an income plan from your savings
Determining what you need to live on.

10 Steps to Protect Yourself Against an Unexpected Job Loss
Preparing for the unexpected.

Thursday’s need-to-know money news

Stress Level Conceptual Meter Indicating MaximumToday’s top story: How to pass a financial stress test. Also in the news: How smart parents teach their kids about money, the worst money mistakes made by Millennials, and what to do if your homeowner’s insurance claim is denied.

5 Tips For Passing a Financial Stress Test
How would you do?

7 Ways Smart Parents Teach Their Kids About Money
Valuable lessons for your kids.

5 Worst Money Blunders Made By Millennials
Avoid these at all costs.

What to Do If Your Homeowner’s Insurance Claim is Denied
Don’t panic.

Will You Finally Be Able to Get Rid of Your Student Loans in Bankruptcy?
Introducing the Student Aid Bill of Rights.

Q&A: The stigma of bankruptcy

Dear Liz: Someone recently asked you about whether they were responsible for their mother’s credit card debt, and at the end of your answer you suggested she talk to a bankruptcy attorney. How can you promote that kind of irresponsibility?

Answer: Some people are quite firm in their belief that bankruptcy should never be an option — even for elderly widows on fixed incomes with no hope of ever paying off their debts. But if enough things go wrong in their lives, these anti-bankruptcy folks might find themselves grateful that there’s a legal way out of the debtors’ prison that their lives would become.

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to build credit faster. Also in the news: Debunking financial planning misconceptions, the dangers of overdraft fees, and why too many people are underestimating post-retirement health care costs.

Will More Credit Cards Help Me Build Credit Faster?
Proceed with caution.

6 Financial Planning Misconceptions — Debunked
Everyone can use a little help.

How to Avoid Paying Your Bank $70 to Borrow $6 for 6 Days
The perils of overdrafts.

Too Many Underestimate Healthcare Costs In Retirement
Planning ahead realistically is crucial.

When To Declare Bankruptcy
When to make one of life’s most difficult decisions.

How much will bankruptcy hurt your credit scores?

DrowningA reader whose credit scores have already been badly damaged by late payments and charge-offs had a question: How much more would her scores drop if she filed for bankruptcy?

For years the creators of the leading FICO credit scoring formula were a bit vague about the answer, saying only that a bankruptcy filing is “the single worst thing” that can happen to your scores.

Three years ago, though, the FICO folks provided a peek into how the formula treats a bankruptcy filing as well as other major negatives. You’ll find the post that covers that topic on FICO’s Banking Analytics blog. I go into more detail about this in my book “Your Credit Score,” but you’ll see that, indeed, the impact of a bankruptcy is bigger than that of other negatives. As with other black marks, a bankruptcy hurts already battered scores proportionately less than it does those with higher scores. But in the three examples given (people who started with scores of 680, 720 and 780), everyone ended up in the low to middle 500s. Not a great place to be. Futhermore, it takes years for credit scores to recover. To get back to “good” credit of 720 and above will take 7 to 10 years.

So does that alone mean people should avoid bankruptcy? Heavens, no. Bankruptcy puts a legal end to collection efforts and the ongoing damage unpaid debts can do to your scores. If you can get your act together and start using credit responsibly after a bankruptcy filing, you can start to rebuild your scores immediately. If you continue to struggle with un-payable debt, you may never be able to rehabilitate your credit.

Obviously, if you can pay your debts, you should. Many people who can’t wind up doing themselves more damage, and throwing good money after bad, in vain struggles to pay their bills. If you’re falling behind and can’t see how you’ll catch up, you’d be smart to at least talk to a bankruptcy attorney about your options.

 

 

 

Q&A: When to file bankruptcy

Dear Liz: I’m a 33-year-old mother who lost my full-time job during the recession in 2009. I may have my “stuff” together again, but am considering filing bankruptcy. Each month I’m spending almost half (yes half!) of my income on debt payments to credit cards, loans and medical bills. Each month after all my bills are paid and groceries are bought, I have zero dollars left over to save. Even after losing my job, I made sure to always make those payments, so my credit is decent. Last I checked my credit score was hovering right around 700. I really have no reason to have good credit at this time, as I don’t have any need for a large purchase. Should I file or pay back my debts? Is filing for bankruptcy a good idea if it allows me to build a savings account and start putting money back into a 401(k)?

Answer: A bankruptcy filing would devastate your credit scores, and that may create more problems than you think. Credit information is used by insurers to determine premiums, by landlords to evaluate applicants and by wireless carriers and utilities to set deposit requirements.

At the same time, it makes little sense to continue to struggle against a mound of debt if you’re not making a dent in the pile. If it would take you five years or more to repay what you owe, you should at least consider filing for bankruptcy. Why five years? Because that’s how long you’d be required to make payments under a Chapter 13 repayment plan.

Most people, however, qualify for Chapter 7 liquidation bankruptcy, which is typically preferable since it’s faster (three to four months, versus five years) and erases credit card and medical bills. An experienced bankruptcy attorney can advise you and help you understand the ramifications of filing.

If lower interest rates might help you pay off your debt within five years, you also should consider an appointment with a credit counselor associated with the National Foundation for Credit Counseling (www.nfcc.org). These nonprofits can set you up with debt management plans that may offer lower rates on your credit card debt.

Most people feel an obligation to pay what they owe, but that often leads to fruitless struggles against impossible debts. Bankruptcy laws allow individuals a fresh start so that they can take care of themselves and their families. Among your many financial obligations is the one to support yourself in retirement, and every year you delay saving will make it that much harder to accumulate a reasonable nest egg.

Thursday’s need to know money news

Q&A: Bankruptcy and credit reports

Dear Liz: In February 2015, it will be seven years since my bankruptcy. I have worked hard to rebuild my credit, and my credit score is 735. What do I need to do to make sure my bankruptcy drops off at the seven-year mark?

Answer: By federal law, most negative marks must be removed from credit reports after seven years — but bankruptcy is one of the exceptions. A Chapter 7 bankruptcy, which is the most common, can stay on your reports for up to 10 years from the date you filed. Chapter 13 bankruptcies are typically dropped after seven years. In either case, you shouldn’t need to do anything. Credit bureaus should delete the information automatically. If they don’t, contact the bureaus and request the deletion, but that usually isn’t necessary.

If you have to live with bankruptcy on your reports for a few more years, you shouldn’t be discouraged. It seems you’ve done a good job rebuilding your credit, and your scores should continue to rise as long as you handle credit responsibly.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Deciphering the different types of credit scores. Also in the news: The mysteries of financial aid, authorized credit card users and bankruptcy, and how to plan your retirement regardless of employer contributions.

Which Credit Score Should I Check?
Understanding the different species of credit scores.

9 Things You Probably Didn’t Know About Financial Aid For College
Clearing up the collegiate confusion.

What Happens If Authorized User Goes Bankrupt
What impact will it have on your credit rating?

Don’t depend on your employer for retirement
Planning your retirement regardless of employee contribution is essential.

5 Money-Saving Tips for Small Business Owners
Save money and stress with these tips.

Erasing student loans in bankruptcy court

Help at financial crisisEducation debt typically isn’t erased in bankruptcy court. That doesn’t mean it can’t be.

Ask Michael Hedlund, an Oregon law school graduate who repeatedly failed the bar and then went to work as a juvenile counselor. A federal appeals court decided he didn’t have to pay $53,000 of the $85,000 in student loans he still owed.

Or Janet Rose Roth of Nevada, who was freed from over $95,000 in federal student loans even though she was employed for most of the time she owed the money and never made voluntary payments on the debt.

Or Carol Todd, who dropped out of the University of Baltimore School of Law and was allowed to erase nearly $340,000 in education debt. A bankruptcy judge ruled her Asperger’s syndrome made it impossible for her to hold a job that would allow her to repay the loans.

These three court decisions, all made within the past two years, challenge many misconceptions about who can and can’t get relief in bankruptcy court.

The cases have something else in common: the debtors didn’t, or couldn’t, pay for help. Roth represented herself in court while law firms represented Hedlund and Todd in their appeals pro bono, or without a fee.

My Reuters column this week (“Bankrupt? How to get student loans erased“) discusses how few borrowers actually try to get their loans discharged in bankruptcy, and whether cost is a factor. You can read it here, and get all my Reuters columns here.