To “B” or Not to “B”: Bankruptcy That is the Question

Bankruptcy is like putting a bandaid over a wound. The wound goes away but if you fall again and hurt yourself you will need another bandaid.  Over a million Americans file for bankruptcy every year.  To file for personal bankruptcy you must reside in a state for 90 days prior to filing and have total unsecured debt less than $290,525 or secured debt less than $871,550.  Americans who earn less than the median income in their state are entitled to file under Chapter 7.

Approval depends on your salary and the family size.  Income limits are based on the state you live in www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm. 

Those who earn more than the median income and have the ability to repay at least $6,000 over 5 years would have to file under Chapter 13, which requires a repayment plan. You must attend financial counseling 180 days before filing for bankruptcy.  

To file for bankruptcy you can do it yourself which will cost between $200 - $600 in court fees and filing fees or you can hire an attorney which will cost between $1,000 - $3,000.  You must provide proof that you are unable to pay your bills and proof that have sought additional help in the past.  You must provide documentation such as:  tax returns, paystubs, bank statements, mortgage statement or rental lease agreements, detailed list of monthly expenses including, a list of all debt including judgments and tax liens, amount owed, interest rates, canceled checks and credit card statements, retirement accounts, business income and debt, and child support.  

Once you file for bankruptcy you will receive a slew of credit cards offers in the mail because companies receive alerts on recent filings and want you to get in debt again so they can make money off of you.  If you file for bankruptcy it remains on your credit report for 7 to 10 years.    

Bankruptcy should be a last resort.  Sell any assets, sell new or unused items, adjust your tax withholdings for six months and then set back to your original withholdings.  You can rent out a room in your home or downsize or downgrade your car or home for a cheaper one.    

The alternative solution is to reduce your monthly expenses by 30-50%, create a budget, get a part-time job or go to back to school to increase your salary.   Here are 5 tips to consider before filing for bankruptcy:

1. Do not make any large purchases before filing because this will decrease your chances of being approved.
2. Don’t file Chapter 7 bankruptcy if your income exceeds your expenses.
3. Don’t transfer credit card balances or make payments on any debt because this may decrease your chances of being approved.
4. Don’t file your tax return if you expect to get a large refund because it will be assumed your refund can be used to pay down debt.
5. Don’t apply for any loans or open any new credit accounts. 

Here are 8 ways to increase your credit score after your bankruptcy is discharged (approved):

1. Open a secured credit card account.
2. Open a department store credit card with a small limit of $300 - $500.  Purchase a small item each month for 6 months and pay the balance in full each month to establish a payment history.  
3. Use a debit card or get a prepaid credit card to make purchases.
4. Work with banks that have programs for people with bad credit such as BB&T, Bank of America, Household Bank, Wells Fargo.
5. Open an online bank account.
6. Open a checking with Account Now  www.accountnow.com.
7. Use banks that don't use ChexSystems http://chexsys.tripod.com/goodbanks.html.
8. Open a bank account with a credit union. 

5 Tips to Make Your Credit Score Soar

Your credit score is one of the most important factors in your financial life.  There are lots of benefits to having good credit:  you don’t have creditors calling harassing you for payment, you get approved on the first try, you get good interest rates and terms and you get discounts and notifications about specials.

If you have good credit and a good relationship with your local bank or lender you also have more negotiating power to get the best rates possible. 

Unfortunately, many Americans are still feelings the effects of the recession and have bad credit.  This makes it difficult to get employed and get approved for credit or a loan. 

If you are already in debt, don't have an emergency fund, savings account or retirement account you need to reevaluate your spending habits. Order a copy of your credit report at least once a year from the 3 major credit bureaus: Experian, Equifax, and TransUnion at annualcreditreport.com or call 877-322-8228.

Seventy-five percent of Americans have at least one mistake on their credit report and seventy-percent of Americans have at least one major mistake on their credit report which can lower your credit score. 

While you are working on improving your spending habits you can also follow these 5 tips to help make your credit score soar so when the time is right you can make a purchase and get the best deal possible.

1. Change your mindset. You have to change the way your currently spend money and develop good spending habits so you make good choices when making purchases, buy in terms of needs vs. wants. Spend less than you earn.

2. Get current on late bills. Pay old or late accounts immediately such as collections, tax liens, and judgments. Setup payment plans for late bills that cannot be paid in full.

3. Establish credit. Open a secured account if you have bad credit or no credit to re-establish credit history.

4. Keep balances low. Keep credit card balances at 20% or less of the credit limit. This shows you have good spending habits are not seen as a credit risk.

5. Don't open new accounts. Don't open any new accounts more than once every year when trying to improve your credit score. You will be seen as a credit risk and this will lower your credit score.

Are You Stealing From Yourself

                                                   

Are you a thief? If you are in debt and have no savings or retirement you are a thief and are stealing from yourself.  According to a new report by the Consumer Federation of America and the Certified Financial Planner Board of Standards, 38% of Americans are living paycheck to paycheck.  One out of every 7 Americans has 10 credit cards.  According to the Federal Reserve Bank of New York, more Americans owe money on student loans than on credit cards. 

The Consumer Financial Protection Bureau (CFPB) estimates that 30 million Americans have debt with collection agencies. 43% of Americans spend more than they earn.   According to a new University of Michigan report 1 out of 5 families owes more on credit cards, medical bills, student loans and other unsecured debt than they have in savings. 

Many Americans have no emergency fund and little or no retirement savings. According to EBRI's 2012 Retirement Confidence Survey 60% of employees state that the value of their savings and investments is less than $25,000.  Due to the recession and its after-effects many Americans were unemployed for long periods of time and exhausted their savings and retirement accounts and racked up mounds of debt.  

Each time you swipe your credit card interest is accruing on the credit card balance.  If you don’t pay the balance off at the end of the month your credit card balance will continue to grow.  Paying for an item with a credit card on average costs 110% more than the original cost of the item.  Owing credit card debt makes the credit card companies rich and makes you poor.

Many Americans are so focused on paying down debt they forget about saving money.  No matter how much debt you owe you should also contribute to a savings account. Invest in yourself by contributing to a savings account.  You should have enough in an emergency savings account that covers your total monthly expenses and bills for 9-12 months.  You should put yourself first and follow the “Pay Yourself First” principle by putting money aside towards a savings account even if it is $1 a week then pay everyone else.   

If you are living paycheck to paycheck find a way to reduce your spending such as bring your lunch to work, skip the Starbucks and bring your own coffee from home, shop at discount grocery stores and discount stores such as Aldi’s, Save-a-Lot, Wal-Mart, Target, Bottom Dollar Food, Grocery Outlet and buy store brands, use coupons. You may prefer to buy meat, dairy products and fruits and vegetables at a local farmers market or a regular grocery store. 

Buying items you cannot afford it simply stealing from yourself.  Buying a car that costs more than your annual salary, owning a home that is upside down, owing student loans with a balance of $50,000 or more is not practical and causes extreme financial hardship.  If you make sacrifices earlier in life and do research to find the best offer for a loan or credit card, contribute regularly to a savings account and educate yourself about interest rates, credit card and personal finance you will be in a better financial position.  You will have to make hard sacrifices to get yourself out of debt.  Here are 13 ways to stop stealing from your yourself.

1. Pay in full. Pay balance in full each month to avoid paying finance charges.
2. Pay bi-monthly. Pay half of the balance with 1^st paycheck of the month then pay the remaining balance with 2^nd paycheck of the month.
3. Pay weekly. Pay the minimum monthly payment the 1st week after you get the bill, and then each week pay as much as you can toward the monthly balance. Repeat this every month.
4. Pay extra. Pay as much as you can when you get the bill, and then pay more towards the bill when you get extra money.
5. Automate. Set up automatic payments from your checking account the day you receive your paycheck or the day after you receive your paycheck to pay down debt.
6. Use unexpected income. Use your income tax refund, economic stimulus check, bonus check or sell new or used items on eBay.
7. Negotiate. Negotiate for a lower interest rate, get fees waived or request a settlement to help reduce the balance owed to make it easier to pay down debt.
8. Create a budget.  Balance your checkbook and create a budget to identify what you owe, what you earn and what you spend to find areas where you can reduce spending. Pay no more than 35% of your total monthly income towards housing, pay no more than 15% towards transportation, pay no more than 10% towards debt excluding mortgage, pay 10% towards savings and pay no more than 25% towards remaining expenses to create a balanced budget.
9. Live Below Your Means.  Buy needs vs. wants; buy only the things you need, delay the things you want until you have the money to purchase the item.
10. Pay with cash. Use credit cards for emergencies only and purchase items with cash.
11. Purchases. Avoid making bad decisions such as buying rent-to-own furniture or buying a big screen television and other items that have no value. 
12. Pay on time. Avoid paying late fees whenever possible. If you know you will pay a bill late contact the company to setup payment arrangements.
13. Keep balances low. Keep credit card balances at 20% or less of the credit limit. 

How to Overcome the Sting of Buying a New Car

There are many expenses people have to pay but one expense that is frequently overlooked or not thought about is car repairs due to road conditions.  In many states when it snows or rains the conditions of the roads get worse and it seems to take forever for them to be repaired.  According to the Federal Highway Administration in 2010, 45% or 150,000 miles of the roads in the US were not in good condition and 12% or 71,000 of the bridges were in poor condition. 

Deficient road conditions cost U.S. drivers $67 billion a year in car repairs and operating costs or an average cost of $335 per driver. The federal gas tax has remained unchanged at 18.4 cents per gallon since 1993 and has not been adjusted for inflation. Revenue from the federal gas tax is used to pay for road repairs. Studies show the damage being done to roads from lack of maintenance is costing drivers more than actually paying a slightly higher tax for gas. The states with the worst road conditions are: Kentucky, Alabama, Pennsylvania, New Jersey, Hawaii, Arkansas, West Virginia, Oklahoma, North Carolina and Louisiana. Some cities with the worst roads are Houston, Philadelphia, Atlanta, Detroit, Queens, and Washington DC.

According to the annual CarMD Car Health Index if you live in the West from Alaska to Wyoming you will pay more per year for car maintenance.  The states with the highest car repair costs are: Alaska, Oregon, Colorado, California and Idaho.  The states with the lowest car repair costs Mississippi, DC, Vermont, Indiana and Montana.

According to Consumer Report.org average car maintenance and repair costs are 4% of ownership costs over five years.  According to a study by the Automotive Aftermarket Industry Association (AAIA) car repairs cost an average 34% more at car dealerships than at independent repair shops. Car repairs for parts and labor averaged 34.3% more at dealerships, foreign repairs averaged 36.8% more at dealerships and domestic repairs averaged 31.5% dealerships.

The cost to repair a car after hitting a pothole, a bump, a water sewer cover, unlevel roads, debris, etc. can be as high as thousands of dollars.  According to The Road Information Program, the annual average repair cost per car due to potholes and bad pavement is estimated at $402.  According to the Post-Journal wheel balancing: $10-$20 per wheel. Wheel replacement can range from $50-$500, suspension from range from $1230-$2,000, shock/strut replacement can range from $150 to $1,200 and a wheel alignment can range from $90 - $150 per wheel. The average cost to fix an axle is $350.

Hitting a pothole can result in suspension, wheel, and undercarriage and tire damage.  Check to see if pothole damage is covered under car insurance before paying out of pocket for the repairs because the deductible which in some cases may be less than the cost of the repair.  Here are some tips regarding potholes:

1.  If you hit a pothole stop as soon as possible for a quick check of your car including tires and wheels.
2.  If you hit a pothole, document where it is, size and depth if known and take a picture.
3.  Report potholes to the county, local or state highway authority.
4.  Listen for sounds of damage such as “clonking sounds from the steering and suspension, a slight pull to the left or right in the steering, the steering wheel not centering properly when the car is travelling in a straight line or braking feeling uneven or the steering wheel or entire car vibrating.
5.  If you hit a pothole, take your car to a repair shop as soon as possible to verify if there is any damage.
6.  Keep all receipts from damage repair to support a car insurance claim.
7. Stay alert for potholes or other road damage and conditions.  Use extra caution during rain, snow and road construction. Debris in the roads such as gravel and stones on the road might indicate the presence of a pothole.