Chapter 3: Meeting the Players

There are a lot of people involved in the bankruptcy process. Some, such as the trustees, are working against you. Some, like your lawyer, are on your side. This chapter gives you an idea of who’s involved in the bankruptcy process and how.

Your Lawyer

In the wake of bankruptcy laws enacted in 2005, it has become increasingly important to find a good lawyer to handle bankruptcy for you. Filing bankruptcy is not the time to barrel through on your own—new laws are so obtuse and poorly written that even attorneys are having problems keeping up to date.

Paying your lawyer will be tough—you’ll likely be paying an attorney around $100-$200 per hour—so make sure you insist on a consultation with the attorney who will actually handle the case, not some paralegal or assistant. You can sell assets to raise the money (you’d probably be forced to forfeit these assets when you file anyways), or you can try your friends or relatives.

Definitely don’t borrow money from anyone without being perfectly transparent about your plan to file bankruptcy. Otherwise, the creditor may claim you’re guilty of fraud.

The Case Trustee

The case trustee differs depending on the type of bankruptcy you file.

A Chapter 7 bankruptcy involves a panel trustee, who appointed at random from a panel of lawyers. You’ll meet them at a 341 meeting, which is where debtors answer questions about their assets and financial affairs. The trustee’s main mission is selling property and doling the proceeds out to creditors, and is given a commission based on how much money is collected.

A Chapter 13 bankruptcy involves a standing trustee, who questions you about your assets and scrutinizes your income and expenses and generally tries to make sure that your repayment plan meets technical requirements and could probably succeed.

The difference is that a Chapter 13 trustee doesn’t typically liquidate your property—instead, he or she collects monthly payments that you make and receives a commission based on these payments. So, he or she has an incentive to help you succeed with your repayment plan.

The U.S. Trustee

The U.S. Trustee is an employee of the U.S. department of justice He or she oversees private trustees and makes sure that they properly account for the funds they receive, watches for fraud, grades the Means Test, and can help whenever special accommodations must be made for the 341 meeting.

Who to Look Out For

Although it seems tempting, you should avoid the following in order to make sure you’re only getting objective, trustworthy advice:

Credit counselors might inappropriately discourage you from filing for bankruptcy. Be wary—they’re often on creditors’ payrolls, so they’re really just trying to sap more money from you.

Debt consolidators use sophisticated marketing ploys to dazzle you into believing that you can get out of debt by borrowing more money. Don’t fall into the trap.

Bill collectors will tell you anything to squeeze some money out of you.

Thankfully, creditors can’t bother you too much until after your case is filed. The most they’ll do is attend the 341 meeting and ask a few questions, but contact will be limited to the context of surrendering collateral or making arrangements to keep it after you file.

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Healthy finances can surely ease many of the stresses that come with a life together, but for many people, financial struggles will be an ongoing part of life. You will join more than your lives together when you marry. Bank accounts, loans, mortgages and credit card balances will now be the responsibility of two rather than one. In combining two incomes, savings, investments and debts, there will be a mixture of positive and negative affects. To help you avoid a bad situation and the potential for an ugly argument, consider all your options before deciding how to handle your joint money concerns.

By far, money and finance related issues have become the number one reason for friction and potential divorce. Knowing this, the wise couple will discuss their differences in money management styles before they walk down the aisle. Some issues will be easy to resolve, while others will require further compromise. Also, keep in mind that money may buy a new couch or a vacation on the beach, but it can never provide the love and respect you need to have for each other to enjoy a lifelong marriage. Making it work is a process that needs to be done as a team.

Separate or Joint Accounts

There was a time not long ago when this wouldn’t have even been a consideration. Many couples these days consist of both partners working full time before they wed and planning to continue working this way after… separate and/or joint accounts needs to be addressed. Taking the time to consider all accounts ahead of time; savings/checking, investment accounts, credit cards and so on, will help prevent some future blow-ups. You’ll need to look at who will be responsible for each of the household expenses. Another consideration of how you manage your accounts should include the best option for filing taxes.

A joint account will be one large canvas to work from together and may make it easier to clearly see where your money is going and how well you are making progress. On the other hand, separate accounts are beneficial if you’re receiving tuition reimbursements or child support that needs to be managed apart from your household expenses. Situations can vary greatly for different households and individual circumstances…do your homework.

Working Together on Debt

This may be the hardest part of the financial future of engaged or recently married couples. You’ll need to create an agreeable budget between the two of you. The difficulty comes when you try to combine the customs of two people living independently. You’ll both need to be willing to put your shared future ahead of your personal needs.

It’s not unusual for couples to have accumulated debt on their own that will continue to be an obligation after they marry. Much of the troubles with bringing debt into a marriage may begin when one partner carries a much larger amount of debt than the other. Financial experts suggest that when someone has a large amount of debt, they need to work extensively to pay it down as much as possible before they marry.

If you find that your commitment to get out of debt as a couple isn’t working, it’s time to reassess how your behavior may be going against what you hoped to accomplish. You will need to sit down again to rework a budget that is truer to how you are living. One issue that may be part of the problem is that you’re avoiding an honest discussion on how you’re spending money. It’s important to your finances, but even more for your relationship that you never keep secrets. Even a small white lie can derail your relationship.

Planning for the Future

With your whole future ahead of you, it’s easy to fall into complacency about planning and preparing. There’s no time like the present to begin and the sooner you do, the more you will have in retirement. Another big question is, how much risk to take with your investments? For this you’ll need to sit down and discuss your goals and time frames. If that doesn’t work for you, seek the help of a broker or a financial planner. Once you begin to invest, you’ll need to review your plan annually to make sure it continues to meet your projected goals.

Emergency Planning

Planning for emergencies is another fact of life that is often put on the back burner when a couple gets married. Even with the most successful career and comfortable lifestyle, unexpected situations happened. Being financially prepared will give you peace of mind and help eliminate the potential panic that may otherwise come when you discover you’re woefully unprepared for emergencies. A good rule of thumb is to establish an emergency fund of three to six months’ worth of living expenses.

In conclusion, your life together will be happier when you work as a team, especially in times of hardship. From serious matters like establishing an agreeable budget to what color to paint the kitchen walls, building a rapport in major and minor things will earn the mutual respect of both partners and help insure a long, happy life.

The post Prepare Your Financial Plan Before Saying “I do” appeared first on Debt Kid.

I have decided to help them to improve their credit score, so hopefully in due time, some bank will be willing to extend a loan to them to buy houses.

It all bores down to the issue of credit. You’ve got to have good credit to get credit. So if you have  bad credit no credit history at all, how should you go about?

It really depends upon your personal circumstances.  Debtkid.com has a good write-up on how to raise your credit score fast and free.

If you just don’t know where to begin, try the following three tips first.

1. Piggyback on Someone Else’s Good Credit if you do not have a credit history

Piggybacking is a technique that allows consumers with good credit to help boost other’s credit scores by adding them as authorized users on accounts. If you haven’t heard the term before, it’s not a new thing by any means.

Parents have used the technique for a long time to help their children build solid credit while young. So, if you have a spouse, relative, or close friend with good credit who is willing to add you as an authorized user on his or her account, you’re in luck!

This may be the fastest way to establish a credit history without actually securing a credit card in your personal name.

2. Get a Secured Credit Card from Your Bank

Ask your bank where you have a checking account if they offer secure credit cards. Chances are they do, and secured cards are one of the best options for individuals building or rebuilding their credit histories.

They’re called “secured” credit cards because your credit limit is secured by the amount you deposit in cash with the creditor. For example, if you deposit $1,000 in cash, then your credit limit will be $1,000. And since you have basically pre-paid for the maximum amount you may charge to the card, the creditor is guaranteed you will never miss a payment.

In return, most banks will report your activity on a monthly basis to the credit bureaus just as they would for a “regular” credit card.

If your bank does not offer one, then there is Capital Bank. It currently offers a credit card, that charges 17.5% interest and an annual fee of $29.  Find the Capital Bank Open Sky Secure Visa Credit Card on this page to apply.

The truth is, establishing a good credit history at the youngest possible age has never been as important as it is today. Doing so will not only save you plenty of headaches in the long run, but your pocketbook will thank you as well.

Don’t waste any more time procrastinating. Follow these three tips today and begin your journey to excellent credit on the right path.

The post How to Build Credit from No or Bad Credit appeared first on Debt Kid.

10. Don’t wait to get started. The biggest mistake you can make is putting off saving money until you get a new job or a bigger paycheck. It doesn’t matter if you start small—you can begin with things as simple as keeping your change. The key is breaking the cycle of mindless spending and becoming aware of where your money is going.

9. Save up spare change. As Benjamin Franklin famously once wrote, “a penny saved is a penny earned.” Spare change doesn’t look like much when you’ve only got a handful of it, and it can be a nuisance to carry around. Resist the urge to toss it in the tip jar—keep a coin bank in your living room and empty out your wallet whenever you get home. You’ll be surprised how quickly it’ll fill up! When you’re ready to redeem your jar for something more convenient, there’s probably a Coinstar at your local supermarket to convert the coins to bills.

8. Be good to the planet. Eco-friendly practices are also wallet-friendly. Even though it seems more expensive to buy a reusable water bottle or shopping bag at first, they’ll pay for themselves in a matter of weeks in terms of the money you didn’t have to spend getting a new one. Remembering to turn off lights and stopping the sink when you’re brushing your teeth cuts down the strain on the environment—and your utility bills.

7. Shop online and obtain coupons. You can get many items at a significantly discounted rate online, often in brand new condition. This is especially of clothes and jewelry, although sites like Ebay.com and Amazon.com can offer bargains that you’d never find at a department store. Even if you don’t end up purchasing online, checking prices at different stores before actually heading out can help you make comparisons and ensure that you’re getting the best bargain.  What’s more, you can print coupons from sites such as Coupon Code Raja.

6. Make a list before you shop—and take it with you! Have a clear idea of what you need before you head to the store so that you can get it all efficiently, without expensive distractions. We tend to splurge on unnecessary items when we’re just browsing. Having a list is a good way to distinguish between needs—and wants. It’ll also help you cut down on the amount of unnecessary outings if you can consolidate your trips, which will help save gas money and time.

5. Find a hobby. New clothes and jewelry can be fun, but shopping out of boredom a dangerous habit to have. Instead of hitting the mall, try some more inexpensive activities like going to the library, jogging around the block, or gardening. It’ll help you feel better about yourself and prevent your credit card bills from rising. You might even find ways to make some extra cash, like babysitting or dog walking.

4. Prepare things yourself. Don’t hit the store every day for something you can easily make for yourself. For example, don’t waste money on a cup of coffee every morning—you’ll spend well over ten dollars by the end of the week. Instead, buy some ground coffee from the supermarket and make it yourself—you’ll get much more bang for your buck. In the same way, make your own lunches instead of ordering or buying—those daily trips to Chipotle can really add up.

3. Brave the cold. If you turn down the heat a few degrees in the winter and wear a few extra layers around the house, you can cut your heating bill by a huge percentage. Likewise, in the summer, try opening the windows instead of amping up the air conditioner.

2. Set goals. Create targets and timelines for yourself so that you know what you’re working up towards. Having concrete goals can also make saving money a bit more bearable—you’ll know when you have to be careful with every penny and when you have a little wiggle room.

1. Write and record. The best way to save money is to put yourself on a budget and know how you are doing. Write down your income, figure out a spending plan that works for you, and stick to it. Don’t forget to put aside some money for leisurely spending every week—it’ll keep you from giving up on your budget and also put a cap on huge splurges. If you’re really up for the challenge, keep a notebook and record every single expenditure you make, which will help you create a realistic budget. It’ll also help cut down on unnecessary spending, since you’ll either be deterred by guilt or the pain of having to write it down.

The post 10 Frugal Things To Do When You are Bankrupt appeared first on Debt Kid.

Pay As You Earn is a repayment plan for eligible Direct Loans that is designed to limit your required monthly payment to  an amount that is affordable based on your income and family size.

What federal student loans are eligible to be repaid under the Pay As You Earn plan?

Only loans made under the Direct Loan Program are eligible for repayment under Pay As You Earn. Eligible loans are Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and Direct Consolidation Loans that did not repay any PLUS loans that were made to parent borrowers.

Loans that are currently in default, Direct PLUS Loans made to parents, Direct Consolidation Loans that repaid PLUS loans made to parents, and Federal  Family Education Loan (FFEL) Program loans are NOT eligible for repayment under Pay As You Earn.

Who is eligible for Pay As You Earn?

You must be a new borrower. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or if you had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new Direct Loan or FFEL Program loan on or after Oct. 1, 2007. In addition, you must have received a disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan for graduate or professional students on or after Oct. 1, 2011, or you must have received a Direct Consolidation Loan based on an application that was received on or after Oct. 1, 2011.

In addition to your being a new borrower, your federal student loan debt must be high relative to your income. While your loan servicer will perform the calculation to determine your eligibilityfor Pay As You Earn, you can use the U.S. Department of Education’s Pay As You Earn calculator at http://studentaid.ed.gov/PayAsYouEarn to estimate whether you would  likely qualify for the Pay As You Earn plan. The calculator looks at your income, family size, and state of residence to  calculate your Pay As You Earn monthly payment amount. If that amount is lower than the monthly payment you would be required to pay on your eligible loans under a 10-year Standard Repayment Plan, then you are eligible to repay your loans under the Pay As You Earn plan.

If you are married and you and your spouse ?le a joint federal tax return, and if your spouse also has eligible federal student loans, your spouse’s eligible loan debt is taken into account when determining whether you are eligible for Pay As You Earn. In this case, the required monthly payment amount under a 10-year Standard Repayment Plan is determined based on the combined amount of your and your spouse’s eligible loans. If the combined monthly amount you and your spouse would be required to pay under Pay As You Earn is lower than the combined monthly amount you and your spouse would pay under a 10-year Standard Repayment Plan, you and your spouse are eligible for Pay As You Earn.

Although only Direct Loans may be repaid under Pay As You Earn, your (and, if you are married and file a joint federal tax return, your spouse’s) eligible FFEL Program loans will also be taken into account when determining whether you qualify for Pay As You Earn based on the amount of your federal student loan debt relative to your income. For this purpose, eligible FFEL Program loans are Subsidized and Unsubsidized Federal Stafford Loans, FFEL PLUS Loans for graduate or professional  students, and FFEL Consolidation Loans that did not repay any PLUS loans for parents. FFEL Program loans that are currently in default, FFEL PLUS Loans for parents, and FFEL Consolidation Loans that repaid PLUS loans for parents are not counted as  eligible loan debt.

What are the bene?ts of Pay As You Earn?

• LOWER SCHEDULED MONTHLY PAYMENT: Under Pay As You Earn, your monthly payment amount will be less than the  amount you would be required to pay under a 10-year Standard Repayment Plan, and may be less than under other repayment plans.
• INTEREST PAYMENT BENEFIT: If your monthly Pay As You Earn payment amount does not cover the full amount of interest that accrues on your loans each month, the government will pay your unpaid accrued interest on your Direct  Subsidized Loans (and on the subsidized portion of your Direct Consolidation Loans) for up to three consecutive years from the date you begin repaying your loans under Pay As You Earn.
• 20-YEAR CANCELLATION: If you repay under the Pay As You Earn plan, any remaining balance will be forgiven after 20 years of qualifying repayment.
• 10-YEAR PUBLIC SERVICE LOAN FORGIVENESS: On-time, full monthly payments you make under Pay As You Earn (or certain other repayment plans) while employed full-time in a public service job will count toward the 120 monthly payments that are required to receive loan forgiveness through the Public Service Loan Forgiveness (PSLF) Program.  Through this program, you may be eligible to have the remaining balance of your Direct Loans forgiven after you have  made the 120 qualifying payments as described above. PSLF is available only for Direct Loans, but you may be eligible to  consolidate FFEL Program loans into the Direct Loan Program to take advantage of PSLF. For more information, visit StudentAid.gov/publicservice.

Are there any disadvantages to repaying under Pay As You Earn?

• YOU MAY PAY MORE INTEREST: The faster you repay your loans, the less interest you pay. Because a reduced monthly payment under the Pay As You Earn plan generally extends your repayment period, you may pay more total interest over the life of the loan than you would under other repayment plans.
• YOU MUST SUBMIT ANNUAL DOCUMENTATION: To set your payment amount each year, your loan servicer needs updated information about your income and family size. If you do not provide the documentation, your monthly payment amount will be the amount you would be required to pay under a 10-year Standard Repayment Plan, based on the amount you owed when you began repaying under Pay As You Earn.

How is the Pay As You Earn amount determined?

Under Pay As You Earn, the amount you are required to repay each month is based on your adjusted gross income (AGI) and  family size. If you are married and ?le a joint federal tax return with your spouse, your AGI includes both your income and  your spouse’s income. The annual Pay As You Earn repayment amount is 10 percent of the difference between your AGI and  150 percent of the Department of Health and Human Services Poverty Guideline for your family size and state. This amount is then divided by 12 to get the monthly Pay As You Earn repayment amount.

The following chart shows the maximum Pay As You Earn monthly payment amounts for a sample range of incomes and family sizes using the Poverty Guidelines that were in effect as of Jan. 26, 2012, for the 48 contiguous states and the District of Columbia.

After the determination of your eligibility for Pay As You Earn, your payment may be adjusted each year based on changes in your income and family size. However, as long as you remain on the Pay As You Earn repayment plan, your required monthly payment amount will never be more than what you would be required to pay under a 10-year Standard Repayment Plan.

Are there examples of borrowers who are eligible for Pay As You Earn and borrowers who are not?

Example 1: Based upon the Pay As You Earn repayment formula, a borrower with a family size of one and an AGI of $30,000 would have a Pay As You Earn calculated payment amount of $110 per month. If this borrower had total eligible student loan debt of $25,000 when the loans initially entered repayment, and the loan balance had increased to $30,000 when the borrower requested Pay As You Earn, the calculated monthly repayment amount under a 10-year standard plan would be based on the higher of the two amounts. Using an interest rate of 6.8%, the 10-year standard payment amount for $30,000 would be $345. Since the $110 Pay As You Earn calculated amount is less than the 10-year plan amount of $345, the  borrower would be eligible to repay under Pay As You Earn at a monthly amount of $110. However, if this borrower’s total  eligible loan debt used to calculate the 10-year standard amount was only $5,000, the 10-year standard payment would be  $58 per month, which is less than the Pay As You Earn amount of $110. Therefore, the borrower would not be eligible.

Example 2: A borrower with a family size of four and income of $50,000 would have a Pay As You Earn calculated monthly  payment amount of $129. If this borrower had total eligible student loan debt of $20,000 when the loans initially entered repayment, and this amount had not changed when the borrower requested Pay As You Earn, the calculated monthly repayment amount under a 10-year standard plan would be based on $20,000. Using an interest rate of 6.8%, the 10-year  standard repayment amount for $20,000 would be $230. Since the $129 Pay As You Earn calculated amount is less than the  10-year plan amount of $230, the borrower would be eligible to repay under Pay As You Earn at a monthly amount of $129. However, if the borrower’s total eligible loan debt used to calculate the 10-year standard amount was only $10,000, the 10-year calculated amount would be $115 per month, which is less than the Pay As You Earn amount of $129. Therefore, the  borrower would not be eligible.

For more information on other repayment plans and links to calculators, visit StudentAid.gov/repay-loans/understand/plans.

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Senator Warren Introduces the Bank on Students Loan Fairness Act, her first piece of stand-alone legislation, on May 8, 2013. The bill would would students who are eligible for federally subsidized Stafford loans to borrow at the same rate the big banks get through the Federal Reserve discount window. The full text of Sen. Warren’s remarks:

Mr. President, on July 1st, the interest rate on new, federally subsidized student loans is set to double from 3.4 to 6.8 percent. That means unless Congress acts, for millions of young people the cost of borrowing money to go to college will double.

The student debt problem in this country is a quiet but growing crisis. Today’s graduates collectively carry more than $1 trillion in debt—more than all the outstanding credit card debt in the whole country. Doubling the interest rate on new student loans will just increase the pressure on our young people.

Keep in mind: these students didn’t go to the mall and run up charges on a credit card.

They worked hard, they stayed in class, they learned new skills, and they borrowed what they needed to pay for their education.

Their education will improve their opportunities in life, but their education won’t help just these students. When they acquire more skills, these students help us build a strong and competitive economy and they strengthen our middle class.

Student interest rates are set to double in less than two months, but so far, this Congress has done nothing—nothing—to address this problem.

Some people say that we can’t afford to help our kids through school by keeping student loan interest rates low.

But right now, as I speak, the federal government offers far lower interest rates on loans, every single day – they just don’t do it for everyone.

Right now, a big bank can get a loan through the Federal Reserve discount window at a rate of about 0.75%. But this summer a student who is trying to get a loan to go to college will pay almost 7%.

In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks – the same banks that destroyed millions of jobs and nearly broke this economy.

That isn’t right. And that is why I’m introducing legislation today to give students the same deal that we give to the big banks.

The Bank on Students Loan Fairness Act would allow students who are eligible for federally subsidized Stafford loans to borrow at the same rate that big banks get through the Federal Reserve discount window.

For one year, the Federal Reserve would make funds available to the Department of Education to make loans to students at the same low rate offered to the big banks. This will give students relief from high interest rates while giving Congress time to find a long-term solution.

Some may say that we can’t afford this proposal. I would remind them that the federal government currently makes 36 cents in profit on every dollar it lends to students. Add up all of those profits and you’ll find that student loans will bring in $34 billion next year.

Meanwhile, big banks pay interest that is one-ninth the rate that students will pay.

That is wrong. It doesn’t reflect our values. We shouldn’t be profiting from our students who are drowning in debt while we’re giving great deals to big banks. We should be investing in our young people so they can get good jobs and grow this economy, so let’s give them the same great deal the banks get.

Some explain that we give banks exceptionally low interest rates because the economy is still shaky and banks need access to cheap credit to continue the recovery.

But our students are just as important as banks to a strong recovery. And the debt they carry also poses a serious risk to that recovery. In fact, in March of this year, the Federal Reserve said that, because of the economic impact on family budgets, high levels of student debt pose a risk to our shaky economic recovery.

If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class.

Let’s face it: Big banks get a great deal when they borrow money from the Fed. In effect, the American taxpayer is investing in those banks. We should make the same kind of investment in our young people who are trying to get an education. Lend them the money and make them to pay it back, but give our kids a break on the interest they pay.

Let’s Bank on Students

The Bank on Students Loan Fairness Act is my first standalone bill in the United StatesSenate. I’m introducing this bill because our students are facing a crisis. We cannot stand by and simply watch.

This is about our students, our economy, and our values. The Bank on Students Loan Fairness Act is a first step toward helping young people who are drowning in debt. 

Unlike the big banks, students don’t have armies of lobbyists and lawyers. They have only their voices. And they call on us to do what is right.

Thank you.

The post Sen. Warren Introduces the Bank on Students Loan Fairness Act appeared first on Debt Kid.

Chapter 2 is all about not making matters worse. If you’re considering bankruptcy, odds are that things are pretty bad already. You might be sweating even the minimum payments on your credit cards, neglecting medical and dental care because you can’t pay the doctor’s bill, or waking up in the middle of the night worrying about money.

But get this—you’re not alone. There are tons of Americans who are going through, or who have gone through, the exact same thing. The important thing to keep in mind is that there’s a way out. Although personal bankruptcy can seem pretty devastating, you need to maintain a positive, can-do attitude and focus on getting out of the hole. It’s time to take a step back and assess the situation through clear eyes—figure out what you own, what you owe, and what you can do in the short term to prevent further damages.

Preventing Further Damage Now

It’s time to be careful, not take even larger risks. Until you meet with a bankruptcy lawyer and know just where you stand, don’t take any big steps that have a large financial impact. This includes:

• Borrowing any more money
• Making any payments on debts to friends, business partners, or relatives
• Getting married—or divorced
• Ignoring lawsuits
• Moving out of your homestead or entering into a contract to sell it
• Voluntarily leaving your job

Credit Card Arbitration Proceedings

These are important—don’t ignore them! Some credit-card companies are part of a National Arbitration Forum, which is basically a way for creditors to get stealth judgments against consumers without going through a real court with a real judge. It starts with a legalistic notice that arbitration proceedings have been started against you, and that if you do not respond, an award may be turned into a real court judgment against you.

They’re counting on you not to respond, which is of course how they screw folks over. If you get one of these notices, don’t ignore it if you have any reason to question the amount of the claim against you.

Controlling Your Spending

The first step to controlling your spending is keeping track of all your expenditures. Caher and Caher suggest carrying around a little notebook so you can record every expenditure you make for a month. Not only will this let you prepare a realistic budge, it’ll also make small spending such a hassle that you’ll be motivated to spend less.

Next, figure out where you can eliminate unnecessary expenditures. Here are a few things to focus on:

• Credit-card payments: Bankruptcy might be the best solution if a big chunk of your monthly income is going to credit-card bills.
• Daily dribbles: It’s easy to develop habits of unnecessary spending such as that cup of coffee in the morning, or the afternoon snack from the vending machine. It all adds up in the long run.
• Extravagances: Think twice before that expensive sushi dinner or the pay-for-view TV show. It’s helpful to calculate how many work hours it took to pay for each luxury.
• Impulse purchases: Many people buy tons of stuff that they never end up using—just head to your attic or your garage if you want proof. Figure out what you really need and avoid the rest.
• Overwhelming mortgage payments: the home might not be worth keeping if most of your monthly payment is going toward the interest.
• Killer car payments: Consider selling your expensive new car and buying something more affordable if you’re struggling to maintain payments.
• If you have to buy things, visit a coupon website such as Coupon Code Raja.

What You Owe and What You Own

Document your assets—and how much you owe on debts. Figuring out what you have helps to create a basis for figuring out what property you may lose by filing bankruptcy, lets you know if avoiding bankruptcy by selling things is a viable option, and demonstrates how little you have to show for thousands of dollars of credit-card debt.

Even if it’s painful, knowing the total amount of what you owe is critical. Creditors want you to think in terms of monthly payments instead of considering the total amount—it’s easier to buy that new car when you only consider the $400 monthly payment instead of the $25,000 total.

The post Book Review: Personal Bankruptcy Laws — Chapter 2 appeared first on Debt Kid.

Given the options of investing in mutual funds, index funds, and individual stocks, I have made my choice.

As of now, my entire portfolio has less than $1,300 in mutual fund.  That is in a college saving plan, and the only thing available in the plan are mutual funds.

The number one reason I have mutual fund is that the performances sucks.

Thanks to my brokerage, I review the number very easily.  Back in February 2006, I invested $1,000 in the plan and the performance is as  it follows.

The performance for the past 1, 3, 5 years and since inception (2/28/2006) are 16.90%, 10.82%, 3.84%, and 2.47%, respectively.

It has been more than 7 years since I invested the money, and the annualized return has been merely 2.47%.  If you read about my personal investment performances in accounts that I manage by myself, you will understand why I regret I put money in the mutual funds.  My personal investment performance during the past 1, 3, 5, and 10 years has been 28.52, 35.51, 19.12, and 13.69%, respectively.

I could have done better by throwing money in and S&P 500 index fund. The index returned 16.89, 12.80, 5.21, and 7.88% during the past 1, 3, 5, and 10 years.

And my observation is confirmed by a report entitled S&P Indices Versus Active Funds (SPIVA) Scorecard done by Standard & Poor, publisher of S&P indices.  According to the report, 66.08% of all domestic USA Equity Funds failed to beat their benchmarks during the year of 2012.  Longer term, 74.35% of the funds failed to beat benchmarks in three years and 68.56% failed to beat for the past five year.

The odd to select a fund that will beat the market is against individuals. As in my case, the situation is worse as one really do not have a choice when it comes to invest in this college saving plans . For this reason, I avoid mutual fund as much as I can. In situations such as College Tuition Plans when mutual funds are the only choices, I have been avoiding  in these plans and choose instead max out my Roth IRA, which allows me to invest in individual stocks and ETFs.

More on this last point in the future.

The post Why I Hate Mutual Funds appeared first on Debt Kid.

It is the largest custodian of retirement asset in the nation that is based in Boston, in case you wonder who my brokerage is.

Between my wife and I, we have several accounts with the brokerage for ourselves and four accounts for our kids to fund their education.  The kids accounts have very little asset in them and are not included in this presentation.  The reason these accounts have very little money is that for over 15 years during the past 18 years or so, I invested those money in mutual funds instead of manage it myself. The mutual funds had not appreciated much by the time I pulled all except one account out of mutual funds.

It was a bad decision to invest in mutual funds and you will see why soon.

As time of this writing, I have exactly $1298.29 in a college saving plan account.  That is it.  The rest are in stocks (80%) and cash (20%).  Cash is on the high side because the imminent tuition expenses.

In order to protect my personal information, I only present the performance numbers and omitted the account name and account balance information.  But these numbers are true as they are screen shots from my brokerages website.

The following is the annualized view, the last row is the performance of all the accounts combined.  Highlight: I achieved an average return of  28.52% for the past one year, 35.51% for the past 3 years, 19.12% for the past 5 years, , and  13.69% for the past 10 years.

The following is the cumulative view. Again the last row is the performance of all the accounts combined. One way to look at is that one dollar invested in my accounts would become $1.285 in one year, $2.49 in 3 years, $2.40 in 5 years, and $3.61 in 10 years.

The numbers look decent enough, but how do they compare with the stock market in general? Here is the S&P 500 Index annualized performance:

And cumulative view: 

Yes, I beat the stock market by a large margin in any of the past 1-year, 3-year, 5-year and 10-year periods.  Of course, as hard as I try, there is no assurance that I can achieve the same investment return in the next decade.

In the future, I will share how I achieved these returns.

The post My Personal Investment Performance Beats the Stock Market Hands Down appeared first on Debt Kid.

You can say I start with the worst of the worst.

The great thing about this country is that there’s always a way to get back on your feet, financially speaking—unless you’ve done something illegal. And even if you’re being sued, there’s something that can halt almost every kind of lawsuit—filing bankruptcy, an option for those who don’t have many options.

What is it? Sounds complicated. Thankfully, James P. Caher and John M. Caher already did the work for us, and wrote a nice guide called Personal Bankruptcy Laws For Dummies. I’m just here to read, summarize, and reflect.

What is Filing Bankruptcy?

In 1705, Parliament enacted a law that enabled a person to wipe out unpaid financial obligations, although this required the consent of the creditor. Over time, bankruptcy laws have become more compassionate and less punitive, and was seen by the Founding Fathers as a constitutional right; debtors deserved the ability to have a fresh start. Current bankruptcy procedures are defined by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Filing bankruptcy is essentially a procedure in which a person admits that they are not able to pay their debts, and receives help from the court. Bankruptcy can discharge most of your debts, stop foreclosure of your home, avert repossession of things such as your car, prevent your driver’s license from being revoked for unpaid fines, prevent garnishment of wages, and stop most evictions if bankruptcy is filed before a court enters a judgment from possession.

Types of Bankruptcies

There are mainly two types of bankruptcy Chapter 7 liquidation, which enables you to eliminate most of your debts but may require you to forfeit some of your assets, and Chapter 13 reorganization, which enables you to pay off all or most of your debts during a time period but doesn’t require you to forfeit any of your assets to pay unsecured debts- those that are not secured by property, such as your car.

In order to qualify for Chapter 7, you have to pass a Means Test in order to show you don’t have enough income to pay a significant portion of your debts. If you earn less than the median income for your state, you can skip this test altogether.

To qualify for Chapter 13, you must pass a best interest test, which mandates that unsecured creditors be paid at least as much as they would receive if you’d filed a Chapter 7 instead, and the best efforts test, which requires that you pay all your disposable income to the trustee for at least the first 36 months of your plan.

Other specialty kinds of bankruptcy exist—Chapter 11 bankruptcy, primarily for large business reorganizations, and Chapter 12 bankruptcy, which is particularly helpful for family farmers and family fishermen.

Drawbacks of Bankruptcy

Sounds pretty good right? Of course, bankruptcy is not a panacea, and certainly when your motive is anything other than reasonable relief from your debts. Bankruptcy generally can’t prevent criminal prosecutions, proceedings against someone who cosigned your loan, contempt of court hearings, actions to collect back child support or alimony, or governmental regulatory proceedings. In short, if you broke the law, filing bankruptcy can’t get you out of the mess.

Filing bankruptcy also doesn’t come without consequences. First of all, it’s a matter of public record, which means that your future landlord or your next employer might be able to find out you filed bankruptcy. Although governmental agencies and employers aren’t supposed to discriminate against you for filing bankruptcy, they can still do so in a roundabout way.

Second, your credit rating might go down—although your odds of obtaining credit are still pretty good even with bankruptcy on your record, you’ll probably still have to pay higher interest rates on new credit.

Third, friends and relatives can be forced to give back money or property if you’ve repaid loans or given them anything within the past year. There’s also the off chance that you could lose your home—rare, but it could happen.

Finally, there may be a stigma attached to filing bankruptcy. It’s easy to view filing bankruptcy as the easy way out for sleazy deadbeats who can clearly pay their bills, but just don’t want to. There have always been those who think that bankruptcy threatens the ethical foundations of our society, that the government shouldn’t just go easy on people because they screwed up.

I’m not here to get into a political debate, but this book makes a good case about why aggressive and sophisticated credit marketing techniques can easily drive any ordinary, hardworking consumer to lose control. The second largest growing segment of bankruptcy filers are consumers between the ages of 18 and 25, students and other young people who lack the maturity and resources to handle debt. But credit companies are more than willing to extend credit to folks with no income, no assets, and no track record, just because it’s extremely profitable.

Despite all that, bankruptcy seems like a reliable option to have around, so I’ll explore the ins and outs of it for the next few weeks with this book as my trusty guide. Stick around!

In the meantime, you can check out how much it costs to file bankruptcy here at www.debtkid.com.

The post Book Review: Personal Bankruptcy Laws For Dummies — Introduction appeared first on Debt Kid.