Should You Reaffirm Debts When Filing Bankruptcy?

Over the years, the bankruptcy code has taken on a new complexity that makes it almost imperative that an individual has the help of a bankruptcy attorney to file. It is true, that it is one’s legal right to represent yourself in a court of law and this includes filing bankruptcy. The major changes to the bankruptcy code came with the BAPCPA of 2005 that was intended to reduce the number of individuals filing for bankruptcy. These changes were directed at those filing Chapter 7 bankruptcy more than those filing Chapter 13. The idea was that Congress thought there were too many people abusing the bankruptcy system and they wanted to discourage those from using a bankruptcy filing to eliminate their debt. They believed that many Americans filing bankruptcy were capable of that lease paying back some of the debt. This is why they enacted the changes that made individuals filing Chapter 7 bankruptcy to qualify under a means test and if their income was too high they would be forced into a Chapter 13 bankruptcy.

One thing that hasn’t changed much is reaffirmation agreements with creditors. A reaffirmation agreement is a contract telling the creditor that the debtor would like to keep property secured by a loan. By signing a reaffirmation agreement, they will be able to keep the property through the bankruptcy filing and agree to continue paying for the property in full. These agreements are usually seen with automobile loans, auto leases, mortgages and sometimes furniture loans, where the furniture is the security for the loan.

When an individual is filing bankruptcy, this is the time to get out of any contracts that might be bad. In today’s society, just about everyone needs a car to get to work and pick the kids up from school. Also in today’s society many people are upside down on their vehicle loans. Many car dealerships let people buy a car with no down payment. Once the car rolls off the lot to the person probably lost 25% of equity of the vehicle. In essence, now they owe more on the car than what it is worth. Most of the time, a bankruptcy attorney will tell their client that this might be a good time to bail out and surrender the vehicle back to the lender. In many situations, signing the reaffirmation agreement might be signing the person’s life away. What happens if six months after the bankruptcy discharge the person loses their job and can no longer afford that car payment? Since they signed a reaffirmation agreement during the bankruptcy filing, they are responsible to pay the loan in full. There is no way out and if they default, the creditor can unleash their full wrath of legal power against the debtor. If they repossess the vehicle and it goes to auction, the creditor will file a lawsuit for the deficiency of the loan and the cost of repossessing the vehicle. This will end up in the judgment and if the person is working a wage garnishment.

At the time of filing bankruptcy, it’s time to do some serious soul-searching and be truly honest with yourself of what you want for your future. Always consider what could happen in the future and what would happen if you agreed to terms of the contract that extended past the bankruptcy discharge. The person should discuss the matter with their bankruptcy attorney to look at all the alternatives. Sometimes a person can buy their car out of the bankruptcy filing at a reduced amount, because in most cases, creditors don’t want the car back. If someone is filing bankruptcy to get out of financial trouble and set their sights on becoming debt-free, they should consider the ramifications of signing a reaffirmation agreement

Stake Your Own Claim On Personal Debt

Recently, I saw a chart listing debt as good, bad, and neutral. Since everyone has to make choices on personal debt, I wanted to explore it a bit further.

Did you know that in 1970 our national debt was under $0.5 trillion dollars and in 2013 it was $17 trillion dollars. From 2007 – 2012 national debt increased $5.4 trillion. In 1990 each person’s share of national debt was about $13,000 and in 2009 it was $40,000.

The point is that our government must either like debt, not worry about it, or think it’s necessary to run the country. However, while I think the national debt is a serious issue, my main concern is how I feel about my personal debt and how necessary that is to me.

All personal decisions about debt directly impact personal wealth building, either negatively or positively. Debt is not only a prevalent influence in life, it can also be pervasive, growing like a weed.

The state I recently moved from is prominent for Bermuda grass lawns. Like debt in our lives, Bermuda grass can actually thrive in cracks in concrete walkways and even roadways. It has its way of creeping in and taking over.

I’ve worked diligently to cut debt from my life, so I do prefer zero debt. But, here’s my full disclosure: I use debt often in my personal finances. This seems disingenuous, but not really so bear with me.

Looking at this chart, we form immediate opinions about money we owe. Heads nod both in agreement and disagreement with the listings. Some people will see other debt types in different boxes and some will see all debt as either acceptable or unacceptable.

Simple Debt Chart

Good Debt: Mortgages – Student Loans – 0% Loans – Business Debt

Neutral Debt: Debt Restructure Loan – Reward Credit Cards

Bad Debt: Credit Card – Payday Loans – Borrow from Retirement Funds – Debt for Consumables (clothes, food, etc)

The neutral box is interesting, because the debt types listed are conditional. Debt restructuring is good, but generally needs monitoring by a non-profit consumer credit program for success. Left to our own guises, combining debts into one payment often fails.

As for reward credit cards, they’re hybrid consumer credit. If used effectively there are benefits, but this is still a form of revolving credit. I disclosed earlier that I use credit with personal finances as leverage by making all weekly purchases with an airline rewards card.

Every item bought goes into a budget, the full card balance paid each month, and points traded for airline tickets each year. By using debt, I’m leveraging money spent for monthly living needs to gain free travel miles from my airline.

Turning to zero percent loans, they can leverage high dollar items, like home appliances, but only if the full balance gets paid-off by due date. If not, you’ve acquired horrible high interest debt. Don’t consider these loans for anything other than long-life durable goods.

A business loan can also be a good decision, but it needs proper structuring and ideally used for something like capital expenditures that ultimately increase revenues. Otherwise, business borrowing can easily become an albatross if the economy sinks or the business income falls off.

Referring to the first chart again, I would say taking on new a mortgage at age 65 is not often good debt. For a recent college graduate, $100,000 in student debt is questionable as good, particularly for a liberal arts degree. For an engineering degree, maybe it is good.

Did you know that total education borrowing for students and parents, per graduating class rose from $5 billion total in 1973 to almost $70 billion in 2015. That’s an awful lot of smart people out their starting their working lives in a steep hole.

For the sake of not spinning myself like a top trying to decide good, bad, and neutral debt, I’ll just say there is debt. Debt is debt, which is a something owed or due. Really, all debt is negative since it drains money from a budget. However, at times borrowing is necessary.

For example, a single parent needs a dependable car. Aside from job commute and shopping requirements, the kids have school, activities, medical appointments and too many other things to list here. Dependable transportation is a needed. The trade-off is acquiring reasonable debt for dependable transportation that is imperative to the family.

My own epiphany from debt is evil to debt well planned is satisfactory came from a personal understanding of spending:

advertising is a driver of sales – mainly consumer goods
advertisement’s used to appear in magazines and newspapers – today they’re found everywhere
retailers know that sales tickets are higher when the payment is credit versus cash
Americans are not frugal – they buy things like guppies multiplying in a fish tank
the road called consumerism easily leads to buying what we don’t need and more debt

Those points make it look like I’m saying all advertising, consumer purchases, and credit is bad. I’m not. I believe that advertising is necessary and spending is part of living.

Before we used money to exchange things, people still bartered for goods and boasted of the benefit of one over another. Farmer’s received seed corn by promising a share of the harvested crop to the corn merchant – debt financing 101!

Check this out. In 1940 America, the total consumer debt (charge accounts, automobiles, homes, education) was $0.00 and in 2007 it had grown to $2,577,340,000,000 billion. If only my investments did that well!

So here’s the take-away. I’ve made poor decisions in my life and knew this as soon as I made them. I’ve made good decisions over time and recognized these when I made them. Some of these decisions – good and bad – concerned debt.

I came to understand that I needed to own my personal finances. Being honest about spending habits and learning to part with cash only when it made sense became the new norm. I found that debt control was easily governed when I removed outside influences and began using money based upon personal benefit.

By and large, zero debt is best. But there are times when buying with credit is our only option. The key is to only take on debt only when absolutely essential – no other options are available. Control spending with a home budget. Eliminate current debt as soon as possible before considering new debt.

I have been an active investor for over 35 years. My investments have always been self directed. My preferred investment style would fall into the value with dividend growth and income method. I hold long positions in Dividend Aristocrats in several portfolios.

The Wise Acorns personal blog came out of a lifelong interest in personal finance. This interest has led to teaching community classes to a variety of groups. Retirement activities include travel and volunteer site coordinator with the VITA Tax Program.

Investment experience in Equities-REITS-Oil & Gas Royalties-Utilities-Varied Fixed Income.

Take Control Of Your Debt To Manage Your Finances Better

Every person with even a little bit of debt has to learn how to manage their debt. If you have only a little bit of debt, you should make sure that it does not go out of control by paying up the relevant amount. On the other hand, if you have too much debt, then you must put more effort into paying them off.

Know how much you owe whom

Make a list of your debts, the creditors to whom you owe money, the total amount of the debts, the monthly dues, and the due date. You can make use of your credit report in order to confirm the different debts on your list. Make sure you refer to your monthly debt list, especially since you may have bills to pay. Update the list every few months whenever the amount changes.

Pay your bills off every month

Late payments make it tougher to pay off your debts since you will also have to pay a late fee along with them. Even if you miss two payments in a row, you would have to pay additional finance charges and interest rate. If you are using a calendaring system on your smartphone or on your computer, enter your payments over there and then, set an alert to remind you whenever the payment is due or a few days before the payment is due. If you end up missing a payment even by chance, do not wait for the next due date to pay up this amount. Otherwise, it would be reported to the credit bureau and it will reflect on your credit report. Instead, send your payment as soon as you can.

Create a monthly calendar

Use a monthly bill payment calendar in order to figure out which bills to pay using which paycheck. On your calendar, note down the number of days in which the next bill payment is due. Then, fill in the date of each of your paychecks. If you get paid on the same days each month, then you can use the same calendar for every upcoming month. However, if your paychecks fall on different days every month, make sure you prepare a new calendar for every month.

Decide which debts to pay off first

The best candidate for priority payment would be your credit card. Of all your credit cards, prioritize the one that has the highest interest rate. Use your debt list to pay off the dues one by one.

Why You Must Understand Financial Literacy

Financial literacy is the knowledge necessary for managing your personal finances. This is indeed a necessity for financial health. It will create a perspective that will allow you to avoid financial pitfalls. Most importantly, this will help you come up with wise decisions involving your hard-earned money. Experts highly emphasized that if you understand financial literacy, you’ll be able to make excellent choices and come up with a very strong financial management habits.

Financial Facts

When children leave their homes for college, they will certainly face a lot of new responsibilities, experiences, and environments. In order to help your student in this transition, they must be aware of the financial facts of life. These include how to open the first checking account or perhaps how to make the first purchase using a credit card. They must be ready to enter the world of becoming independent. Most people today view managing money as a symbol of independence and maturity.

Make sure that they fully understand the fundamentals of personal finance as this will guarantee that they know how begin their financial future. As a parent, be aware that you are the most important source of financial education for your young ones. Though it is not easy to talk about money, discussing personal finance with your children will show that you see them as responsible young adults.

Great Tips For Interacting With Your Kids About Money

Approach the conversation with an optimistic attitude.
Since laughter can help, consider lightening the mood with a joke.
You must set a tone of openness, trust, and confidence.
Ask several questions, and be sure to listen to the answers carefully.
Do not make it look like a lecture but an equal exchange.
Do not bring up an old financial disagreement.
Ensure that your kids know that they can always turn to you in case they will need financial help, information, and advice.
A great way of teaching your children about the fundamentals of finance is to develop a budget for college.

How To Develop A College Budget

List your regular monthly expenses.
Know your total income – these may include part-time job, financial aid refunds, and allowance.
Subtract your expenses from your income to determine if the budget is reasonable.
When the expenses are more than your income, you must work together in order to reduce your expenses until the numbers agree.

Can a Church File for Bankruptcy? What Options Are Available?

The U.S. real estate and economy stalls that started in 2008 have created many not-too-apparent casualties. Among these casualties are thousands of churches across the United States. In more extreme cases, these churches have been forced to consider bankruptcy relief.

Can a church file for bankruptcy? The answer to this question is usually “yes.” There is certainly no requirement for any “church-like” congregation or religious group to create a separate legal entity in order to operate or assemble. All “churches” are generally fully protected by the U.S. Constitution to operate as they see fit. However, most churches are fully “incorporated” into a separate, legally recognized entity for taxes, accounting, and other important considerations. Usually only church entities of this complexity would be holding property within the church or incurring large amounts of debt. Any legal church “entity” is entitled to file for bankruptcy.

Churches Have Two Options for Bankruptcy: Chapter 7 or Chapter 11

Churches generally are only eligible to file for bankruptcy under Chapter 7 and Chapter 11 of the bankruptcy code. Churches cannot file for Chapter 13 relief to repair their mortgage situations because churches cannot be considered as “wage earners” or “persons” as required under Chapter 13 of the bankruptcy code. Only “people” can file for Chapter 13, not “entities.” Chapter 12 and Chapter 9 are also not available for churches because they are for “family” operations and municipalities. Therefore, church bankruptcy options are either liquidation under Chapter 7 or more costly reorganization or liquidation under Chapter 11.

Church Bankruptcy and Chapter 7

Chapter 7 bankruptcy can sometimes be a help to a church who needs to get a fresh start. If a church is willing to lose all of its corporately-held assets, it could be an option to file under Chapter 7. Although generally a church will lose everything it owns collectively, they may be able to create a “new” church entity (or entities) that could be operate without being restricted by large debt loads. If a church has a mortgaged building that it can no longer afford, they can usually return the building back to the mortgage holder and then start a new entity for the future use that will not be bogged down by the churches former debts. Keep in mind that an accountant and bankruptcy attorney is absolutely essential to guide any church group through such a process. In addition, even if a church “needs” Chapter 7 bankruptcy and to start a new entity, it is possible a Chapter 7 filing may never be necessary for the old church entity unless there is aggressive or confused collection by prior creditors. Consult a bankruptcy attorney and accountant on such matters.

Church Bankruptcy and Chapter 11

A church can file Chapter 11 in order to reorganize their financial situation. When a church is in trouble financially, Chapter 11 could reduce their mortgage obligations and cut their unsecured debts to a fraction of their former amount. Essentially, Chapter 11 is a “better” solution in society’s eyes than having a church that will eventually fall apart and fully default on ALL their debts. Therefore, the church may be able to reduce all of their unsecured debt obligations down to ranges such the 10-30% while decreasing their mortgage balance potentially to the market value for the church.

Keep in mind that it is much easier to complete a successful Chapter 11 if you are ALREADY negotiating with the mortgage company and other companies for reductions. If you already have the new terms negotiated with the mortgage company before the church Chapter 11 is filed, the rest of the case is usually MUCH easier to get approved with the court and the rest of the creditors. In addition, keep in mind that a Chapter 11 CAN stop a foreclosure on a church, but it is very important to be negotiating with the mortgage company (and looking for other options) BEFORE and UP TO THE POINT of any Chapter 11 filing. Consult with a bankruptcy attorney.