5 Things to Know about Filing Bankruptcy

Comic by Dan Gibson @ DestroyDebt.com

The number of people filing for personal bankruptcy was up 36.5% in the first half of 2009 from the same period a year before, and more than likely that number will keep rising as people seek their own personal bailout from the recession. Here are a few things to know if you have ever contemplated filing.

1. More than likely, you will still have to pay something. Some people believe that filing bankruptcy means that they will get out of paying any of their debt. This is not true in most cases. Most people, those with some regular income or certain savings, qualify for a Chapter 13 bankruptcy, which puts them on a repayment plan. Although some of your debt may get reduced or consolidated, you will have to make payments on the remaining balance for about three to five years until the debt is paid off.

2. All assets could be liquidated. Although you can save your home and some other assets under Chapter 13, that is not always the case with Chapter 7—and you’ll still owe on some payments. If you’re without regular income you may be able to file Chapter 7 and avoid a payment plan on eligible debt, such as credit card balances, but will still have to pay on child support, alimony and most student loans. You also will have to pay your mortgage, but in some instances under Chapter 7, you could be forced to sell your home to pay off your debt. If you don’t have enough equity in your home to benefit creditors, don’t think that will save you. In some cases you will just be asked to move out, and your creditor will get to keep the home.

3. Bankruptcy can be better than debt settlement programs. Although I advocate for people to try to settle their debts directly with their creditors themselves, rather than choosing bankruptcy, if you don’t have the stamina to settle your debts yourself, you can opt to enter a debt settlement program. However, you should know that you would still have to make regular payments to the settlement firm before they will negotiate with your debtors. Once there is a settlement plan, you will have to pay taxes on the amount you saved. For example, if your debt was $10,000 and the settlement plan says you only have to pay $3,000, you will have to pay taxes on the $7,000 you saved. The IRS considers it income. If you file bankruptcy, you do not have to pay taxes on the erased debt.

4. You can’t hide your assets. If you’re filing bankruptcy, you have to reveal all of your assets. Selling off items for cheap, or to friends and family until you can buy it back later is not allowed. Anything you sold or gave away within a year of filing bankruptcy can be retrieved by the court or trustee. So if you repaid Grandma $1,000 rather than pay your credit card, the court can make Grandma pay back the $1,000 or risk getting sued. You could also be jailed for perjury.

5. You need money to file for bankruptcy. Most people don’t realize that lawyer fees for Chapter 7 bankruptcy could be $2,000 or higher. And guess what? That lawyer wants to be paid upfront, after all they want to be sure that they will get paid. Lawyers in Chapter 13 cases might just roll part of their fees into the payment plan. Chapter 7 lawyers can’t do that because you’re seeking relief from all debt, which would include their bill!

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Get Help Now

Not sure how to proceed now? Get free personalized financial coaching from the National Foundation for Debt Management (NFDM), a reputable non-profit credit counseling agency which negotiates with creditors, gets your interest rates lowered, and creates a plan to quickly get you out of debt. Since I am a spokesperson for NFDM, they’ve agreed to provide a free on-one-one counseling session to my readers and fans. With NFDM, there is no obligation to buy anything, and there will be no pressure on you to do anything. All you have to do is share your situation openly and honestly, and in return, I promise that you will get honest and real-world advice on how to handle your situation. To arrange for your free counseling session, click on this link http://www.themoneycoach.net/gethelpnow.htm to sign up for your free consultation.

4 Tips for Avoiding Airline Baggage Fees

Airlines seem to be going ala carte. They are charging passengers for every bag they check, if they exceed the 40 lb or 50 lb weight limit, or bulge beyond the 40 linear inches allowed. Some are even charging extra if you check a bag at the gate.

If you learn to pack lighter when you fly, you’ll be able to save money in more ways than one. For example, if you travel with just one carry-on, you will not have to worry about tipping a bell hop for carrying your bags or holding them in storage after you check out. You will be more free to take a bus or train to and from the airport rather than the more expensive taxi or shuttle service.

Here are 4 tips on how to avoid airline baggage fees:

1. Use small, light luggage. Pack everything in one bag that is at or less than 40 linear feet (width + height + length). Most airlines limit carry-on sizes to 40 linear feet. If you choose a bag at this size be aware, however, that if you over stuff the external pockets by even an inch, your bag can be sent to the belly of the plane, with a charge to you.
2. Weigh your bags. Airlines will also charge you extra if your bag is too heavy. Check on the weight limits for your airline and before you head to the airport make sure you stay within the guidelines, which is typically a 40- or 50-pound limit for most airlines.You can try setting a bag on a bathroom scale, or hold it in your arms while you step on, and then weigh yourself again without the bag. The difference is numbers is the weight of the bag. If you don’t trust your bathroom scale, there are portable scales available just for this purpose. You can find such scales at travelonbags.com, magellans.com).
3. Board early. It is quite frustrating to have all of your belongings squeezed into the possible smallest bag so that you can avoid chcking luggage, only to board the plane and learn that the groups that boarded ahead of you used up all of the available overhead compartments and there is no space there for your bag. You then turn to slide the bag under the seat at your feet, but it just won’t fit. Feel the panic as the airline attendant approaches you and says, “Sorry, it seems we’re going to have to check your bag because there just isn’t any more room.”
   The easiest way to avoid the “cabin’s too full” issue, is to be among the first to board. Some airlines determine your boarding order by how early you confirm your flight. If you confirm your flight online within seconds of the time the airline says you may do so online, you’re apt to be one of the first for your boarding section. So, often the key to getting on board early is to reserve your seat online, and confirm your seat online as early as you can, and then arrive to the gate early enough so that you’re able to be first in line for your section.
4. Choose the dreaded middle seat. Most people prefer window or aisle, but when it comes to assuring you make it on with your luggage in hand, choose the middle. Middle seats have more under-the-seat storage. Window seat under-seat floor space is smaller because the sides of the planes are curved, and the aisle seats are smaller because over the years aisles have been made larger. So just in case all the overhead bins are taken by time you board, you’ll be assured enough space under the seat for a medium bag if you seat in the middle.

Be Aware of Baggage Fees before You Pack

 

Travel light with one carry-on to avoid the airline charging you fees for checking any luggage.

In a move to help force passengers to travel lighter and to curb its costs, most airlines began charging fees for luggage you check. Typically, an airline for domestic U.S. flights charge $15 for the first checked bag, $25 for the second and anywhere from $50 to $125 for the third.

 

If you must bring more than a carry-on, be aware of your airlines fees for checked baggages.  Airfarewatchdog.com offers a chart of most major airlines and their baggage fees.

The Upside to Credit Card Reform

By Lynnette Khalfani-Cox, The Money Coach

A major overhaul is underway to change the way credit cards work and are marketed in the United States. Congress has passed The Credit Card Reform Act and is awaiting President Obama’s approval, which might happen later today. The Act’s goal: to stop or prevent unfair or deceptive lending practices by banks and credit card issuers.

The Bill contains some downsides for consumers, but it has more than a dozen great benefits for consumers. As proposed, the Bill would:

• ban retroactive interest rate increases (unless you’re 60 days or more late paying your credit card)
• require 45-days notice before a rate hike
• restrict default rates to 6 months if customers pay on time
• outlaw universal default
• mandate that payments be first applied to the highest rate balances
• require anyone under 21 to have a co-signer to get a credit card
• forbid credit cards from being issued to people under 18
• set rules for how quickly banks must apply payments
• give consumers a minimum amount of time to pay bills
• prohibit fees on payments made via phone and the Internet
• put a 5-year lifespan on gift cards and eliminate their hidden fees
• require better disclosure of payment due dates and late payment penalties
• prevent issuers from establishing early morning payment deadline

All of these provisions boil down to one thing: bringing more fairness into credit card lending and marketing practices.

Should You Pay Points on a Home Purchase?

By Lynnette Khalfani-Cox, The Money Coach

Mortgage interest rates are at historic lows. If you have great credit with a FICO score above the mid-700’s, these days you’ll probably qualify for a rate below 5%. Despite the low rates, if you make a home purchase, should you pay points to lower your rate even more? Generally, my answer is “No.”

What is a Point?
A “point,” also known as a “discount point,” is a fee that costs you one percent of your loan amount, and will typically knock about 1/4 to 1/8 of a percent off your interest rate. It might take 4 points or more to bring your interest rate down one full percentage point.

While it might sound like a good idea to pay a one-time fee up front in order to “buy down” your interest rate, in reality, paying points is often a money-losing game.

Consider This Scenario
Say you apply for a $250,000, 30-year mortgage loan at a 5% fixed interest rate with no points, your monthly payments would be $1,342.

If you then wanted to pay one point to buy down your loan rate to 4.75%, it would cost you $2,500 (almost two months worth of mortgage payments, in this case). Your new payments would be $1,304, a savings of $38 a month or $456 a year.

If you divide the cost of that point by your yearly savings, you will find that it would take you about 5.5 years to reach the break-even month on the cost of that point.

So if you knew for certain that you were going to stay in your home for more than 5 and a half years, then buying the point might be worth it. You also, however, would have to be certain that you will not refinance your mortgage within those 5 years. Although you might think you wouldn’t want to refinance given how low your rate would be, you also can’t say for certain if what I call the “Dreaded Ds” (divorce, disease, disability, or death in the family) might occur, making it necessary for you to refinance.

Another Savings Option
However, a safer bet on yearly savings without having to worry about when you might move, is to use that $2,500 to lower your mortgage loan amount and instead take out a loan for $247,500 with monthly payments of $1,328, which would be $14 a month less than on a $250,000 loan, and a savings of more than $10,000 in interest paid over the life of the loan.

Advantage to Paying Points
I must admit, the one advantage to paying points on a home purchase is that they are tax deductible in the year you pay them. If you can get a seller to pay the points for you at closing, then it’s not money out of your pocket, you lower your rate, save interest over the life of your loan, and you can still take the tax deduction. Ideally, however, you personally shouldn’t pay for any discount points on a mortgage.

For more information on selecting the right mortgage, see my book, “Your First Home: The Smart Way to Get It and Keep It.” It has a lot of helpful tips even for those people purchasing their second or third home.