bankruptcy

7 Tough Questions About Debt, Answered

Denise Hill — Wed, 11 Apr 2018 08:30:09 +0000

We've all heard the tales of financial woe that befall people who fail to pay their debt, die without a will, or go through a nasty divorce. But what is the truth? Is there a such thing as credit jail? Can filing bankruptcy give you a clean financial slate? Are you responsible for an ex spouse's debts?

We're answering some of your most pressing debt questions. As always, it's important that you do your own research — each situation is different and laws and regulations change on a case-by-case basis. This is your jumping off point. Now, let's get started.

1. Is failing to pay debts ever a jailable offense?

The quick answer to this question is no. And to take it one step further, according to the Federal Trade Commission (FTC), it is against the law for debt collectors to threaten you with incarceration.

You can be sued for the debt, your wages can be garnished, your bank accounts frozen, your assets seized, and a whole slew of other nasty things can befall you for failing to pay, but going to jail isn't among the list of possible consequences.

The caveat and exception to this rule is if you owe child support or taxes. The IRS usually doesn't impose jail time for nonpayment. Incarceration is reserved for those who lie, cheat, and try to defraud the system. In both cases — tax evasion and failure to pay child support (technically contempt of court) — you have options. You can, in most cases, maintain your freedom while you catch up — but you have to be proactive and compliant. (See also: Here's What Happens If You Don't Pay Your Taxes)

2. Should I borrow from retirement to pay off debt?

This is a tricky question and the answer can vary based on your situation. In most cases, the answer is no.

Most financial advisers will tell you there are a plethora of options you should explore before tapping your retirement accounts. You should seek to exhaust these options before borrowing against your 401(k) or raiding your IRA. You may be hit with early withdrawal fees and you could seriously derail your future earnings.

Borrowing from your retirement is usually a quick solution to a deeper issue. You will treat the symptom, but fail to fix the problem. And, if you do it once, chances are you'll do it again. Don't use tomorrow's resources to pay for today's mistakes. Find another way. If you feel that this is the only option, please consult a financial adviser before you do. (See also: 6 Foolish Ways to Pay Down Debt)

3. If I divorce my spouse, am I responsible for their bills?

The answer to this question is a firm, "It depends." Here's where you have to do some research and may need to seek legal advice.

Your level of responsibility as it pertains to an ex-spouse's debt depends on a few key factors. Your state's laws and whether or not you signed the credit contract are the top two issues. In most cases, if your John Hancock is on the contract, you are liable.

During the divorce process, couples should agree on who owes what and who will pay, and have it outlined in their divorce decree. The important thing to note here is that the decree establishes who should pay — however, from a legal standpoint, if you signed a credit contract, you are liable if your ex-partner fails to make payments. (See also: How to Protect Yourself Financially During a Divorce or Separation)

4. Is there a statute of limitation on debt?

Every state establishes its own statute of limitations for debt. Each type of debt has its own time-frame. It can be as few as three years, or as many as six. You need to research the laws for your state and for your particular debt to determine the expiration period.

That said, the fact that time has expired doesn't erase the debt. The statute of limitation limits the creditor's ability to sue you and to gain a court order for repayment. The creditor can still pursue repayment of the debt past its expiration as long as it adheres to the Fair Debt Collection Practices Act. The only way to eliminate or erase a debt is to pay it, have it canceled by the lender, or have it discharged in bankruptcy. (See also: What to Do When a Creditor Sues)

5. I have defaulted on a payday loan. What happens now?

You already know this, but I must state it for the record: Payday loans are bad news. They are expensive, and defaulting is going to cause you massive amounts of financial heartache.

Payday lenders aggressively go after borrowers who don't pay. And if you are sued, it's not just the debt you are on the hook for — you can also be held responsible for the legal fees and additional interest that accrues during the process. It's a web that could take you a lifetime to untangle.

If you do have a payday loan, you've got to attack it. You should prioritize it over all your other debt. Time is your enemy, so you must rush to get rid of it as quickly as possible. Work with the lender to keep the debt in good standing. Get a second job, cut all unnecessary spending, and save every single dollar to pay it off. (See also: How to Protect Yourself From Predatory Lending)

6. Does filing for bankruptcy absolve all debt?

No. There are two common types of bankruptcies most people file:

A chapter 7 bankruptcy liquidates all of your nonexempt assets to pay off creditors. It's the advisable option if you have massive amounts of unsecured debt, such as credit cards and medical bills, and very little or no income.
A chapter 13 bankruptcy adjusts your debt using a repayment plan. This option is advisable if you have stable income and secured debt such as a home or car loan, but are so far behind on payments that you are facing legal action (foreclosure or repossession of valuable items).

Making your debt magically disappear may seem like a great idea, but bankruptcy has a dark side. It doesn't (except in rare cases) get rid of mortgages, student loans, taxes, alimony, or child support. And the court could order that some of your property be sold to help pay off the debt. Declaring bankruptcy also wreaks havoc on you credit score for years to come. Once you file, chapter 7 remains on your credit report for 10 years and chapter 13 stays for seven.

Before plunging into bankruptcy, you should consult a CPA or other certified financial fiduciary, and an attorney. Ensure you fully understand and consider the long-term impact bankruptcy will have on your financial life. (See also: 11 Steps to Take When Bankruptcy Is Your Only Option)

7. If a family member dies, am I responsible for their debt?

The short answer is no. According to the FTC, family members of the deceased are not obligated to pay the debts of a deceased relative. The deceased's estate owes the debt, not you. This means before the estate is liquidated and divvied up according to your relative's will, all debts must be paid.

If the estate isn't sufficient to cover the debts, the debts go unpaid. Family members are not obligated to pay. However, for every rule, there is an exception. You could have to pay the debt if you co-signed the debt, live in a community property state such as California, or were married to the deceased. It should also be noted that if you are the executor of the estate, you must make sure all of your loved one's debts are satisfied before you liquidate it. If not, you could be held responsible for the debt. (See also: Who Pays When Loved Ones Leave Debt Behind?)

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Times to Hire a Lawyer Immediately

Paul Michael — Tue, 13 Mar 2018 09:30:19 +0000

Lawyers have a bad reputation in this country. And while hiring a lawyer can certainly be expensive, it doesn't mean they aren't a worthwhile investment. To be sure, most legal professionals get into the business to see that justice is done and people get the representation they need. If you have been putting off calling a lawyer for any of the following situations, rethink your actions. A good lawyer is well worth the money.

1. A messy or complicated divorce

Divorce is extremely common these days. Research shows that in the United States alone, one divorce occurs every 13 seconds. Even more sobering, an estimated 80 percent of couples are headed toward divorce within the first four to five years of marriage. If your marriage fails, you will hopefully be able to come to terms amicably using a mediator. But if that's not the case, and you are both butting heads over the separation of property, custody, and money issues, you need to lawyer up as soon as possible.

The terms you agree upon during the divorce are binding, and can only be changed by going back to court. To avoid this, and even more legal fees later on, find a great lawyer as soon as things look bleak. A lawyer can also help with a restraining order if things get really out of hand. (See also: How to Protect Yourself Financially During a Divorce or Separation)

2. You're being sued

For most of us, a lawsuit is something we see in movies and on TV, and that's about as close as we want to get. For the unlucky few, a lawsuit can bring the whole world crumbling down. Lawsuits can be frivolous, like patent trolls or blatant cases of opportunism, but sometimes they can be frighteningly serious. If you find yourself being sued, don't hesitate to call several lawyers and find the one best suited to your specific case. Many offer a free 30-minute consultation.

3. An injury resulting from an automobile accident

Whether you're injured, or someone else is (including a driver or pedestrian), you should get yourself a lawyer as soon as possible. For the most part, insurance companies want to get this all wrapped up quickly and efficiently, and that will mean a lowball settlement that could leave you seriously out of pocket due to medical expenses.

Again, talk to a lawyer that specializes in these kinds of cases. They will know the going rate for any injury you have sustained, and will fight to make sure you get what you're owed. Some of these lawyers won't even charge a fee upfront, but if they win, expect them to take a significant chunk of your payout. (See also: 10 Steps You Must Take If You've Been in a Car Accident)

4. An unjust workplace termination

This covers the gamut. You may have been let go due to a misunderstanding, or some kind of corporate political maneuver. Perhaps you were wrongly accused of theft, harassment, or any other kind of "termination with cause." You may have been laid off and are left hanging without the severance package you feel you are owed. Whatever the reason, if you feel you were unfairly dismissed, get yourself a lawyer and fight the decision. In most cases, you'll be much better off fighting this with an expert than on your own.

5. Starting a significant business venture

If you're just incorporating yourself for an Etsy store or some freelance writing, you'll probably do fine using an online service like LegalZoom. However, if you're entering into a partnership, have plans for rapid expansion, or see potential issues with copyrights and patents, you need to get a lawyer on board as soon as possible. There are lawyers out there that specialize in this kind of legal representation, and they know the business world inside-out. Spending a little money upfront can save you a fortune later on, especially if you hit a massive roadblock with a competitor or have a falling out with a partner.

6. Legal issues as either a tenant or a landlord

Whether you're renting out your own place, or you're renting as a tenant, you can get into some tricky and expensive waters. If you're a landlord and have awful tenants who are damaging property and not paying rent, get a lawyer. If you have a landlord that is ignoring serious issues with the property, including safety hazards and potentially life-threatening problems, get a lawyer. A skilled attorney that knows this area of the law can quickly help you resolve the problems. (See also: What Happens to Your Apartment When Your Landlord Gets the Boot)

7. Preparing an estate plan

No one likes to think about their own death, but creating a will, trust, power of attorney, or a complete estate plan is the only way you can guarantee that your final wishes are carried out. There are plenty of websites offering this kind of service — all automated, of course — but this can be a minefield that you may have trouble navigating. If you have some complex wishes for your estate, and a large family that will be depending on the assets you leave behind, you should bring in a professional attorney to help you create a plan that is buttoned up. Otherwise, you could leave a massive legal mess behind that could take years for your loved ones to battle in court. (See also: Here's What Happens If You Don't Leave a Will)

8. Declaring bankruptcy

Filing for chapter 7 bankruptcy (or chapter 11 if you own a business) is a scary proposition. It's also something you should not do without the help of a legal professional. You'll need to undergo credit counseling, pass a means test, and file all the required paperwork that will restructure your debts and get your creditors off your back. One wrong move can lead to the whole case being thrown out, so find a good attorney as soon as you realize you have to declare bankruptcy. (See also: 11 Steps to Take When Bankruptcy Is Your Only Option)

9. Trouble with the IRS

Make no mistake, if you have any kind of issue with the IRS, get help and get it fast. Very few people escape the vast and powerful reach of the Internal Revenue Service. Whether it's unpaid back taxes, major tax debts, oversights on your returns, or anything else that brings the IRS breathing down your neck, only a skilled tax lawyer will do. (See also: 10 Reasons You Should Really Fear an IRS Audit)

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Do When a Creditor Sues

Dan Rafter — Tue, 06 Mar 2018 09:30:14 +0000

Sometimes life gets in the way, and it can be easy for debt to pile up. But what if you miss so many payments that your creditors file lawsuits against you to collect your unpaid debt?

If you have missed enough payments, creditors can sue you to pay up. Being targeted by such a lawsuit can be scary, but you do have the right to contest the lawsuit. Either way, you should always respond to a notice that you're being sued. If you don't, the court will likely issue a judgment against you and may hold you responsible for collection costs, attorney's fees, and interest.

What should you do if a creditor sues you for unpaid debt? Here's what you can expect to happen. (See also: 5 Things Debt Collectors Don't Want You to Know)

The process

Most times, creditors would prefer to work out an arrangement with the person who owes them money. Filing a lawsuit is time-consuming and expensive.

But if you owe a lot of money, have missed multiple payments, and haven't been in communication with your creditors, you might receive a written complaint in the mail stating that your creditor or a debt collector has filed a lawsuit against you. You will also receive a summons, a written notification stating that you are scheduled to appear in court on a certain date to answer the complaint.

Do not ignore these documents. If you do, the collector or creditor may automatically win its case when you fail to show up in court. And if your creditor wins, it might gain the right to collect your unpaid debt by garnishing your wages. Think of the financial damage that a smaller paycheck could cause.

Responding

The rules vary by state, but you will usually have between 20 and 30 days to respond to a complaint. You can work out your response on your own or with the help of an attorney.

Again, you should respond even if you agree that you owe the money. This way, you can increase your odds of working out a more favorable settlement. Your debt won't simply disappear, but if you respond and are cooperative, the collector might be more likely to forgive a portion of your debt, garnish your wages at a lower rate, or work out a monthly repayment schedule that you can more easily afford.

When you file your written response to the complaint, you should either admit to or deny the debt that you owe. If you deny the debt, your response must include the reasons why you are not legally obligated to pay what your creditors say you owe.

If you instead agree that you do owe the debt, your response should include the reasons why you were unable to pay. Maybe you lost a job, an illness ate away at your savings, or you were involved in other legal action that cut deeply into your income.

When it's time for your court date, don't miss your appearance. You'll need to be there to either argue against your debt or work out a settlement that is the most favorable to you.

Defenses

If you do try to fight the lawsuit, you'll need to know what counts as a legitimate defense in the view of the court. Maybe the statute of limitations on your debt has expired. Debt does come with an expiration date, though it varies by state. In some states, creditors must file a lawsuit to collect unpaid debt within three years. In others, creditors have six years to file a lawsuit. If you can prove that the statute of limitations expired before your creditor filed its lawsuit, the case should be dropped.

Creditors must also be able to provide written documentation proving that they have ownership of the debt. This can get complicated when creditors sell your debt to collections agencies, which happens often. If the creditor or debt collector suing you can't prove that they have the right to collect on your debt — with written documentation — they will lose the lawsuit.

Creditors suing you must also be able to provide the original signed agreement on your account and a history of your balance on it. If the creditor can't provide this, that's another reason it could lose the suit.

Other viable defenses include identity theft, fraudulent charges, or a debt that should have been discharged in a bankruptcy. You should have the necessary documents on hand to verify your claims.

Bankruptcy

If you lose your lawsuit and the amount you owe is too high for you to pay, you might consider filing for bankruptcy protection. When you file for this protection, collection efforts against you will be automatically halted.

Be aware that bankruptcy should be a last resort. Filing for bankruptcy can send your credit score tumbling by 200 or more points. And a bankruptcy filing will remain on your credit report for seven to 10 years. (See also: 11 Steps to Take When Bankruptcy Is Your Only Option)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Happens to Your Store Credit Card When the Store Closes?

Dan Rafter — Fri, 02 Feb 2018 09:30:08 +0000

The year 2017 won't go down as a banner year for retailers. Big-name companies such as The Limited, Toys R Us, RadioShack, and Gander Mountain all filed for bankruptcy protection last year.

With bankruptcy comes the closing of hundreds of stores, and that means the company behind one of your store credit cards could shutter the locations nearest you. That retailer might even go out of business entirely. That leaves two questions: Should you close a store credit card if it's unlikely that you'll ever use the card again? And if a store goes completely out of business, what happens to the credit card it issued you? (See also: Should You Sign Up for That Store Credit Card?)

When a retailer goes out of business

Let's tackle this predicament first. When a retailer goes out of business, your credit card account with that merchant will usually be canceled, and will be reported as canceled on your three credit reports (maintained by Experian, Equifax, and TransUnion).

What won't go away, though, is the balance on your store credit card. Most store credit cards are not actually owned by the retailers whose names are printed on the front. Instead, they are owned by banks or large credit card companies. When a retailer goes out of business, you must keep making payments on its branded credit card until the debt you accrued is paid off.

If you stop making payments, you will damage your credit score. A single late payment of more than 30 days past due could send your score falling by 100 points or more. A missed or late payment also remains on your credit reports for seven years.

If a retailer goes out of business, any rewards you've earned on that store credit card will also disappear. If you know that the store behind your credit card is on the verge of shutting its doors, you should redeem those rewards before it's too late.

When a retailer closes its nearest locations

If the store that issued your card isn't going out of business completely, and is instead just closing the brick-and-mortar locations nearest to you, keep in mind that you may still be able to use that store card for online purchases. But if you truly don't think you'll ever use the card again, you might decide that it's pointless to hold onto it and cancel the account.

This is the wrong move. Closing a credit account, even one you don't use anymore, will hurt your credit score.

You have something called a credit utilization ratio, which accounts for 30 percent of your credit score. This is a measure of how much of your available credit you are using at any given time. The more of your credit that you are using, and the higher this ratio, the lower your credit score will be.

Closing a store credit card, even if you no longer use that card, will automatically lower your credit utilization ratio. Say you have three credit cards — one with a credit limit of $10,000, a second with a credit limit of $5,000, and a store card with a credit limit of $3,000. That gives you $18,000 of available credit. Now, say you owe $7,500 total on these credit cards. Your credit utilization ratio is about 42 percent, or $7,500 divided by $18,000.

If you close that store card with a credit limit of $3,000, your available credit instantly falls to $15,000. Even if you don't make any more charges, your credit utilization ratio has automatically increased to 50 percent ($7,500 divided by $15,000).

So even though you didn't add to your credit card debt, your credit score could still take a hit if you close that store-branded credit card.

Store credit cards are a hassle when a retailer closes stores or goes out of business. But opening a store credit card might not be a smart move in any circumstance. Store cards that can only be used at one retailer aren't flexible. Why not instead open a non-store credit card that comes with a solid rewards program and that you can use anywhere, including at your favorite retailer? Such credit cards are far more useful than single-retailer brands. (See also: 5 Store Card Pitfalls to Watch Out For)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Bounce Back From a Bankruptcy

Mikey Rox — Tue, 05 Dec 2017 10:00:06 +0000

Whether you've filed Chapter 7 or 11, bankruptcy is not ideal — but it's also not the end of the world. You've made some monetary missteps along the way, sure, but if you learn from those mistakes, you'll emerge from the ashes of financial ruin stronger than ever. Heed this advice on how to bounce back from bankruptcy and start your life anew. (See also: 11 Steps to Take When Bankruptcy Is Your Only Option)

Adopt this mantra: "This is not the end, but a new beginning"

Bankruptcy is not only financially devastating, but there are psychological effects to losing nearly everything. You may experience feelings of loss, shame, and anger as a result of filing for bankruptcy, but it's important to remember that this is only a temporary situation. It's also helpful if you look at it as a solution. This solution may have been a last-ditch effort — and it probably cost you much of what you've worked for thus far — but it's a solution nonetheless.

This is not the end. Rather, it's a new beginning, and you'll get your life back on track faster if you get yourself in that mindset.

Obtain your full credit report to ensure everything is clear

Once your bankruptcy paperwork is filed and the proverbial wheels are in motion, it's your duty to double-check that all the I's have been dotted and T's crossed so you can start rebuilding your life. One of those starting points is making sure your credit report accurately reflects your bankruptcy status.

Personal finance and banking expert Alex Gerard, founder of CardsMix, suggests requesting the annual free copy of your credit report from AnnualCreditReport.com and cross-referencing your information from all three major credit bureaus — Equifax, Experian, and TransUnion — to ensure that everything is up to date and reported exactly the same.

"Check that all the accounts that were included in a bankruptcy are noted as having zero balance and are not in default/derogatory status," he says. "For every account that is not correct on your credit report, file a dispute with all three credit agencies."

The discrepancy — if there is one — may take some time to resolve, but it's necessary to do your due diligence so a technical error doesn't continue damaging your credit.

Recognize and accept where you went wrong with your money

A big part of the transition from bankruptcy to getting back on your feet is recognizing where you went wrong and accepting responsibility for what was in your control. Think of this stage as a self-induced rehabilitation program. The hardest part is admitting you had a problem and pinpointing where you went wrong, so you don't make the same mistakes again. It's also wise, if your spending was out of control, to identify your spending triggers so you can avoid those in the future and increase your chance of success.

Make amends with your previous financial habits and vow to change

What's done is done — you can't change the past. You are, however, in complete control of the future. Make amends with what went wrong that led to your bankruptcy and put those issues to bed; no reason to beat yourself up over it now. Instead, focus on the future and commit to changing those habits that put you in this predicament.

Get a new credit card to start reversing your circumstances

Getting a new credit card after you've just filed for bankruptcy might seem counterintuitive to rebuilding your financial foundation, but, in fact, you've probably never needed a credit card more than right now.

Usually, options are limited to secured credit cards which require a security deposit, but there is an overlooked option to get a retail store card since many store cards are, in fact, bankruptcy-friendly. Their high APRs, low credit limits, and for store-use only limitations allow them to approve those with lower credit scores.

Use this card to pay for expenses that you can turn around and pay back in full every month. The habit of paying in full and on time will gradually start to rebuild your credit.

Be wary, however; fresh plastic in your hand doesn't mean it's time for a spending spree. That may be how you got into trouble in the first place, and you don't want to fall back into old habits. If you don't think you can handle the pressure of having a credit card in your pocket all the time, leave it at home in a safe place and use it sparingly with the intention of paying off the full balance each month. If you can't afford to pay in full whatever you're charging, do not use it. (See also: Best Credit Cards to Rebuild Credit After Bankruptcy)

Consider a credit builder loan

A credit builder loan, sometimes also called a "fresh start" loan, can be another smart way to boost your credit score after a bankruptcy. These small loans, usually offered by credit unions and community banks, approve borrowers' applications even if they have no or poor credit and can be for as little as $100. Often, the lender will deposit the loan amount into a locked savings account that can only be accessed by the borrower when the loan is repaid in full — which, in turn, protects both parties. If you pay the loan as agreed, a good report is sent to the credit bureaus.

Live on less to save more

Now it's time for some truth telling: If you've filed for bankruptcy, you're broke, and your lifestyle should reflect that. I'm not suggesting you live in a box under a bridge, but you will need to reevaluate your expenses and find ways to reduce your overall cost of living so you can start rebuilding your savings, emergency and retirement funds, and whatever other financial resources you've recently depleted. Taking the time to restructure your budget while simultaneously cutting the fat from it is a positive step forward, but there are many other ways to start living on less.

Redefine your worth

As I said in the beginning of this article, bankruptcy isn't the end. Millions of people have bounced back from bankruptcy to great success, and so can you. Dedicate yourself to becoming a success story instead of a victim of your own undoing and the rebuilding process won't be as arduous as it may seem. This is your life, after all — your one and only, for that matter — and you owe it to yourself and your family (if you have one) to be financially stable while practicing good money habits so you can live a happy life. You're worth at least that much.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Are We Headed Toward a Bull or Bear Market?

Tim Lemke — Mon, 15 May 2017 08:00:09 +0000

The stock market has been on a roll over the last year. Since the winter of 2016, investors have enjoyed a delightful bull market that has seen the S&P 500 index rise by more than 25 percent.

Whenever there is a lengthy run-up like this, investors always want to know how long it can last. Are we due for a big correction or even a record-breaking crash? Or will we see the markets continue to rise?

Trying to time the market's movement is a fool's game, but it's always smart to look at the various indicators that may foreshadow future performance. With the current market, there is evidence to back up both bullish and bearish predictions.

Indicators of a bull market

The good times won't end anytime soon.

Most economic indicators are strong

For the most part, the American economy is stable. Unemployment is at its lowest point in a decade. Inflation is not out of hand. Manufacturing output is up, along with consumer confidence. There are some concerns about overall growth and productivity, but nothing that spells immediate doom for American investors at this point. Generally speaking, if the underlying foundations of the economy are sound, a sudden drop in stock prices is unlikely.

Interest rates are still historically low

We've seen interest rates creep up a bit, but they are still very low by historical standards. If you're placing money in a bank account, don't expect to receive much in the way of income. Bond yields are also very low. Thus, there's a good chance we'll see people continue to invest in stocks, as they have recently offered much better returns than most other options. As long as interest rates remain low, demand for stocks will be high.

Technical analysis supports it

Many analysts and financial planners prefer to examine a technical analysis of the stock market's performance, which looks at long-term trends that have historically repeated themselves. Most observers of these trends believe we are halfway through a growth cycle that began around 2010 and will continue another five to 10 years.

Corporate earnings are good

The stock market has been known to take a dive when stock prices are high, based on the underlying earnings of companies. In other words, when stocks are overvalued, the market will eventually find out, and you'll see a big correction. Recent earnings reports suggest that the stock market growth is justified. Earnings reports for the first quarter of 2017 look to be among the best in more than five years, so there's no indication that stocks are generally overvalued as a whole.

Lawmakers are pushing pro-business policies

President Trump was elected in part because of promises to lower corporate taxes and reduce business regulations, and he has the majority support of Congress. These are policies that are generally favored by the business community, and investors have responded positively. As long as businesses remain optimistic about policy changes, the stock market will be propped up.

Indicators of a bear market

On the other hand, maybe the good times are about to end.

Companies are heavily leveraged

U.S. companies have more debt than ever, and a lot of it comes due in the next few years. Moody's Investors Services estimated that a record $2 trillion corporate debt will come due between now and 2021, and warned that the market's ability to absorb all of these maturities is "below average." Few analysts are predicting a massive wave of corporate bankruptcies, but an inability to refinance debt could curb corporate profits and cause stock prices to fall.

There's a possible epidemic of auto loan defaults

When the stock market last suffered a big crash in 2008, it was largely due to a flurry of defaults on mortgage loans. Many Americans obtained home loans that they ultimately could not afford, and ended up in foreclosure when home values dropped.

These days, it appears that there may be a similar concern facing the quantity and quality of auto loans. It may not be as big a crisis as the housing bubble, but Americans ended 2016 with a record $1.2 trillion in auto loan debt, an increase of 9 percent from the previous year. Nearly one-fourth of these outstanding auto loans are considered subprime, and the delinquency rate from these loans is at its highest in seven years. This doesn't pose the same systemic risk as the mortgage crisis, but the auto industry is a key part of the American economy.

Europe is facing uncertainty

The United Kingdom is in the process of leaving the EU. There are rumors that other countries (France?) may follow suit. There are lingering concerns over terror attacks in the region. On one hand, economic trouble in the EU may benefit U.S. companies, but many American firms operate in Europe and are impacted by geopolitical uncertainty anywhere.

Political concerns

President Trump and members of Congress have been pushing pro-business policies, but eventually, they will have to deliver the goods. Their struggles in passing a repeal of the Affordable Care Act has been viewed as a sign that they may not have the wherewithal to accomplish big things, such as tax reform. A failure to follow through on any of these major promises could eventually cause a pullback in the markets.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Things You Should Know About Debt Relief Lawyers

Dan Rafter — Tue, 25 Oct 2016 10:00:13 +0000

Is your combined monthly debt so high that you can't afford to pay your mortgage, utility bills, and car payment?

If so, a debt relief lawyer might help. These legal professionals specialize in relieving the debt problems of their clients. And while hiring one won't make your money problems magically disappear, it could be the first step to easing your financial pain.

Hiring a debt relief lawyer should not be a quick decision, though. These attorneys usually don't work cheap. Here are five facts you need to know about debt relief lawyers, how they operate and how much working with one will cost you.

1. What They Do

Debt relief lawyers take on a number of tasks for their clients — tasks that will vary depending on how much debt these clients face.

An attorney might negotiate with credit card companies, auto lenders, and other creditors, hoping that these creditors will forgive some of the debt their clients owe. They might work with creditors to set up a payment plan in which their clients only pays an amount that they can realistically afford each month.

In more severe cases, debt relief lawyers will help their clients negotiate the bankruptcy process, helping them close either a Chapter 13 or Chapter 7 bankruptcy filing.

2. Chapter 7 versus Chapter 13

If you and your debt relief attorney determine that bankruptcy is the best solution to your debt woes, you'll then have to decide whether to file for Chapter 7 or Chapter 13 bankruptcy.

In a Chapter 7 bankruptcy filing, most of your unsecured debt is simply eliminated. Because most debts disappear, many consumers facing debt problems prefer this type of bankruptcy. But a Chapter 7 bankruptcy isn't pain-free. You might lose some of your most valuable assets. Say you have a car, the bankruptcy trustee — the individual who is overseeing your bankruptcy on behalf of the court in which you file — might order that car sold. The profits from the sale would then be passed out to your creditors.

In a Chapter 13 bankruptcy, a judge sets up a repayment plan that allows you pay back your creditors at a pace and payment level that you can afford. Depending on your bankruptcy agreement, you might have to pay back less than what you owe, but your debts won't be eliminated. You'll have to pay at least a portion of them back.

On the positive side, you will be able to keep your possessions — such as a home and car — during a Chapter 13 bankruptcy filing.

3. Bankruptcy Won't Resolve All Your Debts

Debt relief attorneys can provide you with a way to ease the burden you face because of your debt. But even if you work with one to file for bankruptcy, they can't magically make all of your debts disappear.

The National Association of Consumer Bankruptcy Attorneys says that bankruptcy, even Chapter 7, won't eliminate student loan debts, alimony debt, tax debt, and any debt obtained through fraudulent activities.

4. Debt Relief Lawyers Don't Negate Bankruptcy Consequences

Working with a debt relief attorney to file for bankruptcy could leave you with a fresh financial start. But it won't come without consequences.

Both Chapter 13 and Chapter 7 bankruptcy filings will cause your three-digit FICO credit score to plummet, often by more than 100 points. This is significant because lenders rely on this score to determine who qualifies for mortgage, auto, and personal loans. They also rely on the score to determine the interest rates they charge to borrowers.

If you have a low score, you'll be stuck with a far higher interest rate, which will make your monthly payment higher, too. The negative pull that bankruptcies have on your credit score will lessen over time. If you pay your bills on time each month, your credit score will gradually recover. Doing so, though, can take years.

Even worse, bankruptcy filings remain on your credit report for a long time. A Chapter 13 bankruptcy filing will remain on your credit report for seven years. A Chapter 7 filing will stay there for 10. Every time a lender pulls your report during this time, it will see your bankruptcy filing.

5. Debt Relief Attorneys Aren't Cheap

How much a debt relief attorney charges you depends on the amount of money you owe and what services this lawyer tackles on your behalf. The legal website Nolo says that you might spend from $700 to $2,500 if your debt relief attorney files Chapter 7 for you, but $2,500 to $6,000 if your attorney instead has to file a Chapter 13 bankruptcy on your behalf.

If you are paying an hourly fee for the services of a debt relief attorney, you can expect to pay from $125 to $350 an hour, according to Nolo.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Still Without Health Insurance? Here’s How Much the Penalties Will Cost You

Andrea Cannon — Mon, 11 Jul 2016 09:30:35 +0000

Health insurance is something we all need. While it may seem like an unnecessary expense at times, not being prepared for a medical disaster can completely devastate your finances. In fact, being plagued by enormous medical bills is the number one cause of bankruptcy filings. There are financial, medical, and psychological costs associated with having no health insurance. Here are just a few:

Steep Penalties

If you don't have health insurance, the Affordable Care Act (ACA) dictates that you pay a fee or penalty called the "individual shared responsibility payment." Any Americans who fail to have minimum essential coverage will be charged this penalty.

The penalty is calculated in two ways, and you will pay whichever of the figures is higher: It amounts to either 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, to a maximum of $2,085. This fee has steadily risen since 2014, so it only makes sense to remain covered. For 2017 and beyond, the percentage will remain at 2.5%, but the flat fee will be adjusted for inflation. If you have health coverage for part of the year, you will only need to pay 1/12 of the annual fee for each month you weren't insured.

The penalty is equivalent to the national average cost for a bronze-level health plan, so you would be paying the same amount whether you have health insurance or not. Therefore, it likely won't save you any money to avoid getting health insurance.

What If You Don't Pay the Penalty?

If you don't pay the penalty during tax time, you will not be subject to jail time or any additional fines. However, the IRS can withhold money from your tax refund at the end of the year.

Possible Exemptions

There are certain health coverage exemptions to the individual mandate charged when you file your federal tax return. For instance, certain life events or financial status may qualify you for an exemption.

With the short gap exemption, if you have health insurance throughout the year, but neglected to have coverage for only one or two months, you may be exempt from the fee. However, even if you only missed one day of coverage in a month, the government will deem that you did not have coverage for that whole month. For instance, if you are insured all year, but didn't have coverage June 30 through July 1, the government declares that you missed two months of coverage.

The Statistics

According to the NY Times, a person between the ages of 25 and 34 has a 5% chance of incurring medical bills of at least $27,000 and a 10% chance of incurring medical bills that exceed $13,000. For Americans under the age of 65, there is approximately a 10% chance of incurring more than $30,000 in medical bills in only one year. A very unfortunate 1% of the population incurs more than $115,000 in medical bills in a single year.

This is a significant risk and can spell financial ruin and a potential bankruptcy filing. According to the Harvard Medical School, "Unless you're a Warren Buffett or Bill Gates, you're one illness away from financial ruin in this country." Having health insurance will not necessarily prevent these startling statistics, but they can help protect you from certain catastrophic medical events.

The Psychological Aspect

There is a very defined psychological benefit of having health insurance. Dan Bailey, a consulting health care actuary and a fellow of the Society of Actuaries, found that people who have health insurance are more likely to pursue necessary services than those who don't have health insurance.

You are also more likely to take advantage of preventative medical services if you have health insurance. After all, if you're already paying for it, why not take advantage of the free annual physical? In fact, most people don't have health insurance because they can't afford it, not because they think they're invincible.

Cost vs. Value

The Kaiser Family Foundation found that a young man between the ages of 28 and 32 can buy a typical silver plan for about $2,800 in annual premiums. While this may end up costing you more than the penalty would, it's not by much. When you consider how much you may end up spending out-of-pocket for something as simple as a back injury, you can clearly see how imperative health insurance really is.

Do you know of any other monetary or psychological costs of not having health insurance? Please share your thoughts in the comments!

This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Debt Management Questions You're Too Embarrassed to Ask

Paul Michael — Tue, 10 May 2016 10:30:04 +0000

There are some questions that we're too embarrassed to ask anyone, particularly friends or family. We certainly don't like the idea of letting others know that we have financial hardships. And all too often, we avoid asking the questions at all, preferring to bury our heads in the sand.

This, of course, is never a good idea. So here are five of the most common questions about debt that people are too embarrassed to ask, with answers that shed a little light on the subject.

1. When Do I Declare Bankruptcy?

It's a word that strikes terror in our hearts: bankruptcy. It is interpreted as failure. Destitution. The end of the line. However, bankruptcy is not as bad as it sounds. Many famous and wealthy people have declared bankruptcy, and they do just fine. It provides a means to restructure your debts, working with creditors to pay what you owe whilst getting a level of protection that won't leave you penniless.

When to declare bankruptcy? Well, that's different on a case by case basis. But, if you can only make minimum payments on credit cards, and are using them to pay minimums on other cards, that's a big warning sign. If you are living paycheck to paycheck, can't pay bills, are about to be evicted, and have absolutely no savings, you're in trouble.

However, a simple test is to add up all of your assets, and compare them to all of your debts. If you have way more debt than assets, and creditors are hounding you day and night, it may be time to declare bankruptcy.

2. How Do I Declare Bankruptcy?

If you have decided that, yes, bankruptcy is the only option, the next logical step is to go and do it. But again, that can be a daunting prospect. You first need to know what type of bankruptcy to declare. You hear talk of Chapter 11, but that's a very complex solution usually reserved for businesses. You will most likely want to file a Chapter 7 or Chapter 13 bankruptcy, instead.

Chapter 7, also called a straight bankruptcy, is the simplest. This plan liquidates your current assets, if you have any, to pay off as much of the debt you owe as possible. The remaining debt is then haggled over. Some can be forgiven, and the remainder is put into a repayment plan that you can handle. The big drawback with Chapter 7 is that you may lose almost everything you own, including your home, car, and possessions of value. It's a fresh start, but it really does rip the Band-Aid off.

Chapter 13 is therefore a better choice for anyone with property. This option is known as a reorganization bankruptcy, and you may well need to do this, anyway, if your annual income is too high to qualify for Chapter 7. Both options have many rules and regulations.

Once you determine the type of bankruptcy you prefer, the process begins by filing a two-page petition to your district bankruptcy court, alongside supporting forms and a fee of about $300. The best thing to do is search for a bankruptcy attorney in your area, as you likely don't want to navigate these waters alone.

3. How Do I Deal With My Massive Credit Card Debt?

Credit card debt can be crippling. Sadly, many people take on more and more credit cards to help cover costs, and before they know it, they are buried in minimum monthly payments they cannot make. If you find yourself in major credit card debt, you have options.

First, do you have any way to take that debt and transfer it to loans or other cards with significantly lower rates? A HELOC usually has a much lower rate than a typical credit card, and the repayment terms are much easier, too. Some credit cards offer zero percent interest on balance transfers, with a small fee (2%–3% of the balance), or sometimes, no fee at all. Shop around.

Can you cut costs elsewhere to apply more money to your credit card payments? Is your gym membership being used? Do you need all those cable channels? Can you cut down on meals out, or subscriptions to magazines? Find ways to cut everywhere, and apply all of that to your debt.

Finally, try the snowball method: Apply as much money as you can to pay off the card with the smallest balance, while making minimum payments on the others. Once that balance is at zero, take all of the payment and apply it to the next card down the line. You get a feeling of accomplishment, and the payments get bigger and bigger on each card, snowballing to create a huge payment by the time you get to your last card.

4. How Can I Improve My Poor Credit Score?

Having a low credit score is not only a little embarrassing, it's also very costly. Your credit score directly influences the kind of financial deals you are going to get. If you want to see better percentage rates on loans and credit cards, or avoid being turned down for any kind of credit, you'll need to address the issue.

Now, this is not something you can fix overnight. A low credit score takes years of behavior into account, and it will take more than a few weeks to reverse your past misdeeds. But, you can start taking steps to improve it immediately. (See also: 7 Ways to Increase Your Credit Score Quickly)

First, get a copy of your credit report from AnnualCreditReport.com. It's free, and you can see exactly what you're dealing with. Ensure there are no mistakes. And as mistakes do happen to a lot of people, you can begin correcting those errors. Any faulty late payments or delinquencies can be addressed, and your credit score will rise when they're removed.

Next, look at all your credit card balances. Do you have small amounts spread over lots of cards? If so, you'll want to consolidate those debts onto just a few cards, and use only those cards going forward. However, DON'T close out the other cards. That can actually hurt your score. Leave them open; they are a history of good credit and they improve your credit utilization ratio, which measures how much of your available credit you have free to use.

In the future, you will want to make sure you pay every single bill on time. Technology is a wonderful thing, so use it. Create a calendar on your phone or computer that lets you know when bills are due. And, use auto-pay when you can to avoid any kind of late fees.

5. What's the Difference Between Good and Bad Debt?

Some people even wonder, "How can debt ever be a good thing?" Well, there is a significant difference, and if you know what it is, it can have a real impact on what you spend your money on, and how you spend it. (See also: 8 Signs You've Crossed From "Healthy" Debt to "Problem" Debt)

Let's start with good debt. This is anything that creates value over time. Most people consider buying a home good debt, because the investment will grow in value, and will ultimately lead to more money at the end of the day. Other examples include student loans, which are an investment in yourself and future income, and business loans, which should ultimately lead to greater revenue. Of course, all of those examples have been marred by things like the collapse of the housing market, or the lack of well-paying jobs after graduation, but as a general rule, they are still considered good debt.

Bad debt, on the hand, doesn't create any value. It's money spent on disposable items, high-interest rates, and anything else that contributes to "spending without eventual financial gain." For instance, putting a $1200 clothes spending spree on a credit card is bad debt. A new car loan is actually bad debt, because cars depreciate in value. Even dining out is bad debt if you keep ringing it up on the credit card, and only pay off the interest each month. So, be careful. You may think it's good debt to put a new suit for work on your credit card, but if it isn't leading to a legitimate financial payoff, it's actually bad debt.

What are you too embarrassed to ask about debt reduction?

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

11 Steps to Take When Bankruptcy Is Your Only Option

Andrea Cannon — Fri, 11 Mar 2016 10:30:33 +0000

Filing for bankruptcy can provide a welcome solution for anyone who simply cannot keep up with their debts and credit obligations. But it's never something that should be taken lightly. Bankruptcy can remain on your credit for up to 10 years, making it nearly impossible to apply for credit in the meantime. Having a bankruptcy on your record can even affect your ability to get a job.

That's why we've covered the main steps you'll need to take if you're filing for bankruptcy. Consider them before deciding whether bankruptcy is right for your situation.

1. Get Serious About What Bankruptcy Means

Before making the decision to file for bankruptcy, make sure you've explored all other options, like debt consolidation or credit counseling. You will also need to determine if Chapter 7 bankruptcy is right for you (as opposed to Chapter 11, 12, 13, or 15). Most individuals choose Chapter 7 bankruptcy, which will release the debtor from some, or all, financial obligations.

According to LegalZoom, the entire bankruptcy process should take four to six months to complete. However, keep in mind that a discharge is not guaranteed. Even after filing your petition in bankruptcy court and going through all the motions, your creditors can still object to your discharge. You might also not receive a discharge if you don't fill out all the necessary documents correctly and on time, if you fail to attend any required credit counseling courses, or if you did not fill out the paperwork truthfully.

2. Complete the Means Test

It is important that you complete what's known as the means test. This standard test will compare your income to your debts to help you determine if you should file for Chapter 7 or Chapter 13 bankruptcy.

3. Hire an Attorney, if Necessary

A bankruptcy lawyer can be invaluable when you're filing your case. A lawyer can explain your options, answer your questions, make informed recommendations, and even fill out the forms for you and make sure they are filed before the court deadlines. At the very least, call a bankruptcy attorney for a free consultation. You will definitely have questions throughout the process and probably need some form of advice.

But you don't necessarily need a bankruptcy attorney for the entire process, and many people are able to successfully file for bankruptcy on their own. Filing on your own can save money on attorney's fees, but first consider whether it's the best course of action in your case.

Filing for bankruptcy on your own can be very difficult and confusing. There are a number of complicated legal concepts and terms, as well as regular court requirements that you need to keep up with. A bankruptcy attorney can help you get through the process in far less time and stress. Use a free consultation to determine whether you'd benefit from hiring a bankruptcy attorney.

4. Pay the Fees

While bankruptcy can help to eliminate your debt, it can be an expensive process in and of itself. For starters, you'll be responsible for filing the application fees. On average, debtors who file for bankruptcy on their own can expect to spend approximately $300–$500 filing for bankruptcy. On the other hand, debtors who file for bankruptcy with an attorney usually spend around $2,000 total. Once you schedule your free initial consultation, you can get more information on the fees and when you would be responsible for paying them.

5. Assemble Your Information

Regardless of whether or not you hire an attorney, you'll need to have all of your financial information gathered and organized. You need to analyze your income, expenses, assets, and debts, and determine your property exemptions. You will also need to have basic information like your average monthly income during the previous six months.

In order to have a debt discharged, it needs to be listed on your bankruptcy forms. If it is not listed, you may still be responsible for it after the bankruptcy. This is why it's so important to carefully assemble your financial information before you ever file paperwork or attend any credit counseling programs.

6. Determine Which Debts Are Excusable

Bankruptcy can wipe the slate clean when there is simply no way you can pay off your obligations. However, there are still some debts you may be responsible for, such as student loans, child support, and tax debt. It is also important to keep in mind that anyone who cosigned or guaranteed a loan for you will still be obligated to pay.

7. Attend a Credit Counseling Program

Within six months before filing your petition, you will need to attend a credit counseling program at a court-approved agency. The counseling can usually be completed online or over the phone and will only take about an hour or so. There is a fee for credit counseling, but it is usually under $100. When you file your petition, you will need to provide proof that you have completed this program.

8. File the Forms

There are a number of bankruptcy forms that need to be correctly filled out and filed on time. Once the packet of forms (also known as a bankruptcy petition) has been filled out, the debtor will normally receive a discharge of their debts approximately a few months later (if your petition is accepted).

9. Automatic Stay

Once you have filed all the necessary paperwork, an automatic stay will go into effect. This prohibits almost all creditors from continuing collection actions against you.

10. Attend the Meeting

Chapter 7 bankruptcies rarely go to court. However, you will need to attend a mandatory meeting (also known as a 341 meeting) with the creditors and court-appointed trustee. During this meeting, your trustee will ask questions pertaining to your bankruptcy petition and finances. Your creditors may also choose to attend the meeting to question you or the trustee, but this usually doesn't happen. If all goes well, you can expect a bankruptcy discharge within approximately 60 days after the meeting.

11. Post-Bankruptcy Obligations

Once you have successfully filed for bankruptcy, you will need to attend post-bankruptcy credit counseling. This is to help you more successfully manage your debts going forward so that you are not in the same position again. They can also help you rebuild a healthy credit history. Once you have completed the debtor's education course, you will get your discharge. At this time, the automatic stay will end and your case will be closed.

Do you have any other advice for debtors considering filing for bankruptcy? Please share your thoughts in the comments!

This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Times Bankruptcy Is the Right Move

Dan Rafter — Mon, 09 Nov 2015 13:15:44 +0000

Filing for either Chapter 13 or Chapter 7 bankruptcy will cost you, lowering your credit score by 100 points or more. This will make qualifying for new credit cards, a mortgage loan, auto loan, or personal loan nearly impossible, at least for several years after you file. But that doesn't mean that filing for bankruptcy is never the right decision.

"We look at bankruptcy as a last resort," said Leslie Tayne, a debt-relief attorney and founder of Tayne Law Group in Melville, New York. "But sometimes I do advise people to file for bankruptcy. When paying off debt would leave you with no money left over to put food on the table, if it means you can't pay your mortgage, if there is nothing left over, that's catastrophic, and then it makes sense to file for bankruptcy."

But Tayne warns that filing for bankruptcy shouldn't be taken lightly. Doing so will damage your credit for up to 10 years. But if there are no other options? There are three times when filing for bankruptcy protection does make sense.

Chapter 13 or Chapter 7? Know Before You File

Before you do file for protection, you need to know the consequences. There are two main types of bankruptcy protection that consumers can typically access: Chapter 13 and Chapter 7.

In Chapter 7, you don't repay your debts under a payment plan. Instead, a bankruptcy judge handles the selling of your nonexempt assets to raise enough money to pay back at least some of your debts. Your home might be protected under Chapter 7 bankruptcy, but it's important to check with an attorney first.

Under Chapter 13, a bankruptcy judge sets up a repayment plan. Under this plan, you pay back some or all of your debts, but at a rate — and with monthly payments — that you can afford.

Both forms of bankruptcy will usually drop your credit score by 100 points or more. But Chapter 7 bankruptcy stays on your credit report for 10 years, while Chapter 13 falls off after seven.

Lenders will see your bankruptcy filing every time you apply for a credit card, mortgage, car loan, student loan, or any other form of debt. You will struggle to get lenders to approve your applications — at least for the first several years after filing for bankruptcy protection — and will often have to pay higher interest rates when lenders do decide to loan you money.

When, then, does taking this credit hit make sense?

1. Your Liabilities Are More Than Your Assets

Tayne says that bankruptcy is often the best option when consumers owe so much that their liabilities are far higher than the value of their assets. In such cases, it can be nearly impossible for consumers to catch up with their debts.

"If income is far less than expenses, if there is no end in sight even if I help them cut their expenses, then bankruptcy might be the only option," Tayne says. "If their income will never let them meet the requirements to pay even the minimal amount of what they owe each month? Then bankruptcy might be their only choice."

2. Negotiations Didn't Work

Before filing for bankruptcy, you should always try to negotiate with your creditors. Many might be willing to reduce the amount of money you owe them if you can prove that you are struggling financially. To prove this, you might have to send your creditors copies of your most recent paycheck stubs and bank statements, anything that will prove that your income has fallen or that your savings are depleted.

But if your creditors won't negotiate with you, you might have no other option but to file for bankruptcy protection. Once you do file, a bankruptcy trustee will take over the task of negotiating with the people you owe. These professional negotiators might have more success convincing creditors to forgive at least some of your debt.

3. A Job Loss or Serious Illness Makes It Impossible to Pay Your Bills

Often, people fall into financial troubles because of a catastrophic event, whether a job loss or a serious medical emergency. Bills and debt can pile up quickly when one of these setbacks slashes your ability to generate a monthly income.

If a job loss, medical emergency, or other financial disaster has eliminated all or most of your monthly income, and you can't see any way to catch up on your mounting debt, filing for bankruptcy protection might provide you the relief you need on the way to bouncing back from your financial setbacks.

Have you ever considered bankruptcy?

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Cities You Never Knew Went Bankrupt

Paul Michael — Thu, 06 Aug 2015 13:00:18 +0000

We all know about the massive Detroit bankruptcy of 2013. The once great "Motor City" entered the record books as the biggest U.S. city ever to file for protection. The problems that caused the financial meltdown were numerous, and included a declining population, low tax revenues, high crime, massive unemployment, and of course, the Industrial Age giving way to the Information Age.

But what about other cities in the U.S.? You may not know it, but many more have filed for bankruptcy. Whether it came about through bad governance, or bad luck, the following nine cities all did the unthinkable, and filed for Chapter 9 bankruptcy.

1. Prichard, Alabama

Nicknamed "The City of Champions," Prichard did nothing to champion the cause of the South when it filed for bankruptcy in 2009. The problem was the city pensions fund. Back in 2003, the powers that be hired an actuary to do a full analysis of the city's pension plan; they were told, in no uncertain terms, that the funds would be depleted in the summer of 2009. By October of 2009, the city filed for bankruptcy, and the next few years became a living hell for city employees and pensioners. Budgets were not passed, pension checks were not sent out, and Prichard became the embodiment of mismanaged money and ineffective government.

2. Jefferson County, Alabama

Strike two for Alabama. Okay, so it's a county, not a city. But once again, very shoddy mismanagement of government funds, plus a whole lot of unnecessary expenses, led to the most populous county in the state of Alabama filing for Chapter 9 bankruptcy. First, the county authorized a massive and sweeping overhaul of the sewer system in 1996. The updates were needed, but the project was plagued with corruption, overspending, bribery, and a whole host of other problems. There was also meddling with some very risky bond-swap agreements, resulting in a huge amount of debt being piled onto an already heavily-burdened government. By 2008, Jefferson County debt was lowered to "junk" status by Standard & Poor's, and that led to outright bankruptcy in 2011. Of the $4.2 billion in debt, over $3.14 billion was directly linked to the disastrous sewer project.

3. Mammoth Lakes, California

A beautiful mountain town in the Sierra Nevada, this popular hotspot for skiers was forced to declare bankruptcy after a huge property deal became nothing short of an avalanche. It was all over the development of an airport, which was obviously supposed to be a big help for the town's tourism industry. But, after the deal with the developer turned sour, Mammoth Lakes was sued… and in turn owed the developer some $43 million in restitution. Considering the annual municipal budget for Mammoth Lakes was less than $20 million, they had no choice but to declare bankruptcy in 2012. However, it appears a settlement was reached after the fact, and the town is back on its feet, hopefully with no further plans for a massive airport.

4. Bridgeport, Connecticut

A victim of the deindustrialization of the United States (much like Detroit), Bridgeport suffered from heavy job losses during the '70s and '80s. As the jobs left, the urban center was abandoned in favor of suburban developments, and the decline spiraled from there. After several major upheavals, including a 19-day strike by Bridgeport teachers (over 270 of them were subsequently arrested and sent to jail), things started looking bleak. In fact, it got so bad that a proposal was outlined getting Las Vegas developer Steve Wynn to build a huge casino; how that would have helped is beyond comprehension. But, it fell through, and in 1991 the city filed for bankruptcy. However, despite the filing, the federal court declared the city to be solvent. A kind of "Sorry, deal with it" verdict.

5. Stockton, California

The housing bubble's burst left many towns, cities, and municipalities in dire straits; Stockton was one of those cities. However, there was also a great deal of government excess and financial mismanagement at the center of the Chapter 9 filing. But it was the massive decline in home prices, as much as 70% in some areas, that wiped out the tax base and left the city struggling to pay its debts. Over $1 billion of red ink was stacked up, including money owed to pension plans, civic improvements, and health care benefits. In 2013, the city filed for bankruptcy. Recently, an exit plan was formulated for Stockton and its 300,000 residents. If you have some time to kill, you can read about Stockton's Bankruptcy Plan of Adjustment.

6. Gould, Arkansas

One of the smallest places on our list, this modest town in Lincoln County, with just over 1,300 residents, filed for Chapter 9 Bankruptcy protection in 2008. At the time, the government owed over $900,000 to its creditors; a tiny sum, in comparison to the billions of dollars in debt accrued by the likes of Detroit and Jefferson County. But, with only $10 in petty cash, Gould had to declare bankruptcy. Finger-pointing began, and Gould mayor Juanita Stephens claimed the filing came as a result of poor bookkeeping, past lawsuits, and "an employee not having submitted payroll taxes." That's quite the burden to put on one employee.

7. Central Falls, Rhode Island

For the smallest city in the smallest U.S. state, the 2011 Chapter 9 bankruptcy filing was big news. It had been under state control since July of 2010, but could not find a way to resolve its bulging $80 million unfunded pensions and retiree health liabilities. Considering that the city had an annual budget of just $17 million, that's hardly surprising. And of course, the timing was right after the recession, making it even harder to rebuild and raise funds. "Everything was done to avoid this day," said state-appointed receiver Robert Flanders, Jr. "We tried in vain to persuade our retirees to accept voluntary reductions in their benefits." That's a tough pill for anyone to swallow.

8. Harrisburg, Pennsylvania

Perhaps the strangest case for a bankruptcy is the one of Harrisburg. It happened in 2011, but the wheels were put in motion in 2003, when the city borrowed over $125 million to rebuild and expand the city's already enormous trash incinerator. It had been shut down by the federal government due to toxic air pollution, but instead of simply starting afresh, the rebuild plan was put into action… and it started burning money faster than it ever burned garbage. After big delays, contractor problems, cost overruns, and of course, financial mismanagement, the incinerator was finally finished… but at a cost of over $288 million. It was too big a burden for the city to take, and Chapter 9 protection was the only course of action.

9. San Bernardino, California

Not many people in public office will come out and make definitive and unpopular statements. But two years before San Bernardino filed for bankruptcy, city manager Charles McNeely made a presentation to the council warning of impending financial ruin. "You're headed for trouble, it's a train wreck, you can't keep doing business this way," said McNeely. He was staggeringly accurate in his predictions, and yet everyone chose to ignore his warnings and go on doing the same old thing. That involved spiraling employee pay, benefit costs, and budgetary gimmicks, coupled with a sharp and continued decline in tax revenues. In August 2010, around two years after the McNeely prediction, San Bernardino had a $40 million budget deficit for the fiscal year, and filed for Chapter 9 protection. McNeely told everyone, and no one listened.

Has your town gone bankrupt? How'd it affect you?

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's What to Do If You Can't Afford Your Mortgage Payment

Dan Rafter — Tue, 14 Jul 2015 09:00:09 +0000

We know the scenario: Maybe your spouse lost a job, dropping your household income. Maybe your hours at work have been cut. Or maybe your own job has disappeared. Whatever the financial emergency, your monthly mortgage payment has become unaffordable.

What can you do if you want to keep your house? There are steps you can take to relieve your burden. But be warned: Most of them involved a sacrifice on your part.

"Being faced with the threat of losing your home can force you to make some real serious financial decisions," said Kyle Winkfield, president and chief executive officer of the Winkfield Group, a financial planning firm in Rockville, Maryland. "There are few things that can keep you as focused on how you are spending your money."

Here are four possible strategies to keep your home when that mortgage payment becomes too much of a financial burden.

1. Bring in a Tenant

Rent a room and reduce your expenses. Do you have an extra room in your home? Maybe you have a finished basement that you rarely use. Depending on your municipality's regulations, you might be able to rent out that room. If you're fortunate, that extra income can be enough to help you cover your mortgage payment.

Be sure to check with your local government first. You don't want to violate any local ordinances by renting out that extra room on the third floor of your home.

If renting a room isn't an option, look carefully at your monthly expenses. Is there anything you can cut to provide some extra dollars for your mortgage payment? You might consider eliminating cable TV subscriptions or gym memberships. Maybe you can cut out restaurant meals and trips to the local movie theater.

"Taking a hard look at your budget might be more productive than you think," Winkfield said. "Depending on how much of a burden that mortgage payment is, you might save enough each month to be able to keep your home until you can somehow boost your income."

2. Find Part-Time Work

This isn't always ideal, but maybe you can find a second part-time job to bring in enough extra income to help reduce the burden of your monthly mortgage payment.

You don't want to spend all of your time at work, and holding down two jobs can be stressful. But so can losing your home to foreclosure. If a second job can help you cobble together enough income to cover your mortgage each month, sign up, and hold that part-time job until you can overcome whatever financial crisis damaged your household budget.

3. Modify Your Mortgage

As soon as you notice that you are struggling to pay your mortgage, call your lender. This can be embarrassing, but it's a necessary step. Ask for help. Ask for a loan modification.

In a loan modification, your lender can take several steps to reduce the size of your monthly mortgage payment. It can decrease your loan's interest rate, forgive a portion of your principal balance, or extend the term — the number of years you have to pay back your loan — of your mortgage. All of these steps will result in a lower mortgage payment.

Be warned, though, that your lender doesn't have to accept your request for a loan modification. You must first offer proof that you have suffered a financial hardship. This can be in the form of bank account statements showing a drop in available funds, paycheck stubs showing that your monthly income has plummeted, or medical bills showing how much you owe because of a recent illness and injury.

You must also have the right household income. This can be tricky. Winkfield says that if you earn too much money each month, your lender will deny your modification request because it thinks that you make enough to pay your mortgage. But if you make too little money, your bank will deny your modification request because even after it modifies your loan, you still won't have enough funds to cover your monthly payment.

Finding that sweet spot in the middle? That's no easy task.

4. Declare Chapter 13 Bankruptcy

You might be able to keep your home by declaring Chapter 13 bankruptcy protection. But Winkfield says that this should be a last resort. Declaring bankruptcy can hurt your credit score by more than 100 points. And a Chapter 13 bankruptcy filing sits on your credit report for seven years, making it a challenge to qualify for a new mortgage loan or any form of credit.

"This should only be used if you have absolutely no other option," Winkfield said.

In a Chapter 13 bankruptcy, a bankruptcy judge drafts a payment plan that allows you to pay back your creditors on a schedule that you can afford. This plan will include more affordable payments to your mortgage lender each month. You'll also get to keep your home.

You might also file for Chapter 7 bankruptcy, in which some or all of your debts are permanently wiped out. But this form of bankruptcy protection comes at a steeper price. First, it remains on your credit report for 10 years. Secondly, you might have to sell your home, and other assets, anyway as part of your bankruptcy agreement.

Being unable to cover your mortgage is stressful. But being proactive and budgeting creatively can maximize your chances of keeping your home.

What steps have you taken to overcome mortgage troubles?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Cool Stores We Miss

Paul Michael — Fri, 10 Jul 2015 13:00:17 +0000

It is sadly the way of life that all good things must come to an end. And retail stores are no exception. When we look back at the places at which we loved to shop, we may have thought they would be around forever. Who could have known that, just twenty years ago, the Internet would come along and change everything.

Here are eight of those cool stores that are now just a memory.

1. Sharper Image

Founded in 1977, just 38 years ago, Sharper Image was the brainchild of Richard Thalheimer. Originally a catalog business for jogging watches, it grew into a retail giant known for selling the latest cool gadgets and gizmos designed to help us live better lives (or spend a ton of money on birthday presents). How many of us stopped into a Sharper Image when we were shopping at the mall to sit in the latest massage chair, or test-drive some remote-controlled car or plane?

Of course, the Internet took its toll on Sharper Image, with everything in the stores available in some form or another on Amazon, eBay, and a bunch of other online outlets. In 2008, the company filed for Chapter 11 bankruptcy, and closed every single retail store. You can still shop online at Sharper Image, but it's just not the same. The retail stores were an experience, not just a place to pop in and buy something.

2. Wild Oats Market

Founded in 1987 in Boulder, Colorado, Wild Oats was at the forefront of bringing natural foods to the masses. From humble beginnings, with just one store, it became the third largest natural food chain in the USA. Wild Oats Markets were a treasure trove of goodies that supplied everything from fresh organic fruit and veg, to coffee beans, canned and jarred goods, snacks, and a whole lot more. But, they were no match for Whole Foods, who tried to acquire the company in 2007. That deal went sour, and as is the case with many stores in the list, Walmart became the reason for the closure of the Wild Oats stores around the country.

Now, the only way you can get Wild Oats products is to buy them at a Walmart or a Fresh & Easy store. It's a shame that a store that had its roots firmly planted in delivering the freshest, most natural ingredients ended up being swallowed by the retail giant that is Walmart.

3. Tower Records

There was a reason some people (cool people) loved Tower Records, and others couldn't stand to be in the store. It was claustrophobic; stacked from floor to ceiling with amazing finds, cheap CDs, bizarre DVDs, and a ton of vinyl. Every trip to Tower Records was another chance to broaden your horizons.

Started in 1960 by Russell Solomon, it was named after his father's drugstore in the same building as the Tower Theater. It grew into a giant, with stores from the UK to Colombia and the Philippines. But it grew too fast, and too far, and acquired massive debt from the expansion. Chapter 11 bankruptcy couldn't save it, and Tower Records closed the last of its physical locations in 2007.

4. Borders

Once upon a time, when you wanted a book, you went to a local bookstore. Then along came Borders, and combined the humble bookstore with music, coffee, DVDs, and everything else the entertainment enthusiast could want. It was great. But it did have a slight drawback; everything was really overpriced.

Sure enough, Borders became a place where you would browse for a half hour, or more, but just never bit the bullet because you could find it cheaper online. And that flaw became the reason the big book chain went under in 2011. Its biggest rival, Barnes & Noble, had a much better pricing model, and the member perks also helped. Not to mention, the big bargain book section as you enter the front of the store. But for some reason, not having a Borders around seems sad.

5. KB Toys

As a kid, seeing the KB Toys logo in the malls and outlets shopping centers was awesome. Although it was no Toys 'R Us, you could always find something cool and affordable in there. As well as name brands, KB Toys carried a lot of the cheaper versions of popular items, and always had special deals and sale items to help stretch your allowance. Having started in 1922, founded by the Kaufman Brothers (KB), it seemed like KB Toys would be around forever.

So, what changed? You guessed it. Walmart's buying power and locations meant that KB Toys couldn't compete with the retail giant. They struggled to stay afloat after a bankruptcy in 2004, and then finally closed down in 2009. Toys 'R Us scooped up what remained of the company.

6. Woolworths

Originally known as F.W. Woolworth Co., named after its founder Frank Winfield Woolworth, this was the first "five-and-dime" store in America. Opened in 1878, and re-opened in 1879, "Woolworth's Great Five Cent Store" sold a variety of household goods at discounted prices…usually at five cents. This pricing model became five and 10 cents, where the term "five-and-dime store" came from. And it was a very successful business for over 100 years, expanding its reach across the U.S. and the world, until the rise of the K-Mart and Walmart brands.

Woolworths (or Woolies to those of us who grew up in the UK) became the cheap cousin to those giants, even though we all enjoyed the low pricing and eclectic mix of products. The stores were also much smaller than the big marts, meaning you could find one in a high street or strip mall. On July 7th, 1997, Woolworths closed its last stores in the USA, and changed its corporate name to Venator. Never heard of them? You're not alone.

7. Filene's Basement

If you're a fan of Ross and T.J. Maxx, you were no doubt in love with Filene's Basement. Also known as simply "The Basement," it was founded in 1908, and was America's oldest off-price retailer. One of the reasons everyone loved Filene's was the annual "Running of the Brides," which gave future wives the chance to pick up a bridal gown for an insanely low price.

You would think any kind of economic crisis would actually help a store that sells clothing at discounts, but for some reason the troubles of 2009 wreaked havoc with the chain. In 2011, the last Filene's Basement closed its doors for good. You can still shop at Filene's Basement online, but the experience is nowhere near the same. And of course, you can't really run anywhere when you're hunkered in front of a computer screen.

8. Hollywood Video

Unlike Blockbuster Video, a store that dominated the movie rental world and abused us with horrendous late fees and big rental prices, Hollywood Video had a much more friendly approach to movies. The store was way cooler inside, opting for a darker, more industrial look, and staying away from the insipid bright lights and nasty carpeting of Blockbuster. They also had $1 rental deals on movies and games, and their pre-viewed purchases were priced to sell. Even when the last Blockbuster store was closing, their old DVDs and Blu-rays were priced higher than new ones on Amazon. It was always fun to pop into a HV and peruse the Friday night films or new releases.

Of course, not even a decent chain like Hollywood Video could compete with Netflix, and the many streaming services offered online. It was just impossible for them to stay afloat, and in 2010 the last of its stores closed for good.

What stores do you miss?

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Reasons You're Bad at Money — And How to Fix It ASAP

Andrea Karim — Fri, 26 Jun 2015 13:00:09 +0000

Perpetually broke? Always holding your breath when you run your credit card, worried your balance has finally tipped over the limit? Living paycheck-to-not-quite-the-next-paycheck?

Some people are bad at money. (I should know — I used to be one of them.) But you don't have to be that way forever. Here are eight reasons you suck at money — and how to fix them.

1. You're an Impulse Spender

A little retail therapy is fine and dandy, if it's not a chronic issue that causes you financial distress. Had a rough week? Sure, a splurge on a new pair of running shoes or a shade of lipstick that is inappropriate for work can offer a quick (and temporary) pick-me-up, assuming you have the cash to spare. But if you don't, then retail therapy is a bad idea. Actually, spending just to make yourself quickly feel better is almost always a bad idea.

If you just had a baby and hate the way your body looks (I know nothing about this, shut up), then an expensive haircut and a bottle of self-tanner aren't actually going to fix the problem, although they may distract you from the issue for a day or two. If you hate your job, binge-buying a ton of video games may entertain you in your off-time, but won't actually make your working hours any more bearable.

How to Fix It

Check yo'self before you wreck yo'self if retail therapy is a regular habit. At the very least, try to determine exactly what the problem is, find the root of it, and address it head-on. If you need more education to land your dream job, then you should be focusing your finances on that, rather than on needless entertainment.

2. You're Unprepared or Lazy

I waste a lot of money on take out. It's not that I don't like cooking — because I do — but that I am truly terrible at meal planning and buying groceries accordingly. When I was single, eating was simply a matter of buying a fresh loaf of bread and some good cheese and maybe some cheap wine, but now I have to feed a whole family, it's become a little more complex.

Or perhaps you find yourself paying through the nose for services, like yard or home care, that you could do yourself. There's nothing inherently wrong with paying someone else to perform work for you, as long as you can afford it, but if your budget is stretched, then cutting back makes sense.

How to Fix It

Find ways to make the necessary work more bearable. If it's meal planning, take a look at websites and meal planning apps that help you plan, shop, and cook. Enlist the help of your favorite music while cleaning and doing laundry. Get a lawn mower that works. I had to spend $400 to find a lawn mower that I could start, but that's still cheaper than paying someone to come and mow my lawn every week or so.

3. You Had Bad Money Role Models

Maybe your parents were terrible at money and you learned their bad money habits. It can be hard to break out of this mold if you've been shaped by it since childhood, since old habits die hard. But if you want to put yourself in a better financial situation, you need to forget what you learned growing up and start fresh. Fortunately, it's never too late to learn good money management skills.

How to Fix It

The internet is your friend when it comes to money management. You can peruse personal finance websites (like this one!) or take a free online course in money management.

4. You Had No Money Role Models

Maybe no one ever taught you the basics of money management and you've been winging it poorly. (Incidentally, back when I was in school in the last millennium, Home Economics courses taught us how to sew and how to microwave eggs, but never mentioned budgeting.)

Parents often believe that they are doing their children a favor by not exposing them to the dirty business of money management. While understandable, the notion is misguided. Sometimes families have to tighten their belts to make ends meet, and it's not wrong to explain to children why they can't go to the movies every weekend.

How to Fix It

If you have kids, you can break the cycle of financial silence by allowing your kids to participate in planning meals and family budgets. Although learning basic money management skills can seem daunting when you're an adult, getting the whole family onboard can make it less grueling.

5. You Try to Keep up With the Joneses

Maybe you idolize people who have a lot, and believe that buying things is the only way to be happy. Or maybe you've just bought into the idea (haven't we all?) that you need to have at least as much as your neighbors in order to fit in.

Humans are social creatures, and we tend to care deeply about what our peers think of us. This is, of course, why many advertisers sell an image of who you can be when you buy their product, rather than just selling the actual product.

How to Fix It

Just like occasional shopping sprees, there's nothing inherently wrong with wanting to impress other people, but buying things specifically for the sake of shaping someone else's opinion of you is silly, especially if you don't really need what you are buying. Before you buy anything, ask yourself, "Would I spend money on this if I knew that no one else would ever see it?"

6. You Are the Joneses

Or at least… you were the Joneses, until financial circumstances changed, and your spending habits didn't.

Perhaps you lost your job and now you have to scramble to make ends meet for a while. It doesn't matter that people once envied your brand new car and constantly updated wardrobe; what matters now is putting food on the table and paying the bills. A part of your new life involves adjusting budgets and expectations to meet reality.

How to Fix It

You might find that changing your spending habits is as simple as cooking at home instead of dining out, or learning not to shop as much. Some downsizing might be more serious, like reducing the number of cars that you own or learning to live in a smaller house. Regardless of the size of changes that you have to make, you'll do well to learn to let go of the past and accept the present.

7. YOLO

Hey, I'm totally in favor of living for the moment, but that doesn't mean that you can't save for the future. And while you can't take it with you when you die, you're going to need those savings to help you out in old age (sure, it might seem far away now, but you'll be amazed at how time flies once you hit your 40s).

How to Fix It

Part of the joy of being young is taking calculated risks and enjoying the freedom that comes from a relative lack of responsibility. But that doesn't mean that you have to struggle with money — money problems are a stressor, and nothing ruins the fun like stress. Learning to live within your means while young is smart, and it's also easier than trying to learn when you are older.

8. You Have Really Bad Luck (or Dumb Relatives)

Not everyone in a lousy financial situation got there through bad habits. I happen to be good friends with a couple who continually ends up having to empty their savings because their families are financially irresponsible, and they find themselves having to bail out spendthrift siblings or medically challenged parents.

Medical bills are a major cause of bankruptcy in the U.S.; even people with health insurance can end up losing all of their savings on expensive treatments. Even Medicare and Medicaid don't cover the full cost of many treatments — my own mother recently went through both chemotherapy and radiation to treat cancer, and would have paid much more out of pocket if she hadn't purchased supplemental health insurance to cover what Medicare would not.

How to Fix It

There's not much you can do when calamity strikes, other than to pick up the pieces and learn from any mistakes (like gaps in insurance coverage). But you can prepare by having emergency savings on hand and being adequately insured.

Why do you suck at money? More importantly — how will you fix it?

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This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: