A blog about debt, credit and bankruptcy

November 8, 2019 By Jen Lee Leave a Comment

Are Your Finances Making You Sick?

I often talk about people I meet who have various illnesses and health problems because of the debt and financial stress they are facing. The reason I talk about it is because people often feel isolated and alone, so they hesitate to get advice or find out their options because others will think less of them.

Some of the things I see on a regular basis are depression, insomnia, stomach issues, headaches, and anxiety. I once had someone tell me that she could not remember the last time she slept through the night without waking up in a panic. That kind of stress has a profound effect on your health.

An article in the NY Post this week also talks about this issue. The article has some alarming statistics about consumer debt, which is now over $14 trillion and significantly higher than consumer debt was back in 2008.

The stress also makes people more susceptible to scams and services that are not necessarily the best way to resolve the problem. Make sure you find out all of your options and not just the one the person on the phone is trying to sell you. We talk to people every day who signed up for a service and did not fully understand the long-term consequences, which caused even more stress.

Remember, you are by no means alone in dealing with financial stress. You would be very surprised at the number of people in your everyday life who have the exact same issues and everyone is afraid to talk about it. Your best step is to find out what you can do for your situation and make an informed decision.

This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment.

October 31, 2019 By Jen Lee Leave a Comment

Interest Rates

138% Interest?!

Once again, this week’s blog post is related to things we are seeing in the news and with clients. In the news, Bloomberg published an article this morning titled, “America’s Middle Class is Addicted to a New Kind of Credit.” In our office, we saw a disclosure on a loan agreement that consisted of 138.44% interest that the borrower would pay on a loan, which is crazy. Let’s break it down and figure out why this is a bad deal for the borrower.

The borrower needs $3,025 and went to an online lender to try to borrow the money. The lender quoted a 138.44% interest which included the $3,025 that the borrower needed, PLUS $13,813.36 in interest. That means that the borrower is going to have to pay $16,838.36 over 4 years (48 months). Now, most people’s eyes glaze over when we start talking about numbers, but we hope you can see that this is NOT a good deal for the borrower.

So, how do you avoid these types of loans and debts? Sometimes, easier said than done, but here are a few ideas:

Create a budget or spending plan to help understand where your money is going. Look at your last 6 months of bank statements and credit card statements to figure out if you have any expenses you can cut to help with building a cushion.
Have an emergency fund that you don’t touch unless it’s actually an emergency. Anything requiring you to borrow $1,000 at 138% interest had better be an emergency and having a small amount set aside for those kinds of situations can help stabilize your budget.
Evaluate your options. If you are at the point where you are borrowing money at 138% interest, there is likely a bigger issue with your credit and/or finances. That’s ok and it is much better to get a handle on the issue before taking on more debt than after possibly making a mistake.

If you are considering one of these loans, please do anything you can to avoid signing on the dotted line. Also, please remember that you are not alone when it comes to dealing with debt and credit issues. It’s more common than you realize.

October 10, 2019 By jenleelaw Leave a Comment

Student Loan Refinancing – A New Resource

We are always looking for new resources and options for clients. Student loans are a hot topic these days and refinancing student loans has pros and cons, which we have discussed many times. However, if you have weighed all of your options and are looking at refinancing, the next big research project is what company or program to use for the refinance.

A new guide from Consumers Advocate outlines many of the options available for refinancing student loans and can be found at: https://www.consumersadvocate.org/student-loan-refinance

I like this guide because it points out the pros and cons (not just the pros) of refinancing and what you need to keep in mind when thinking about refinancing.

So, if you are thinking of refinancing, please add this guide to your list for researching various options.

September 11, 2019 By Jen Lee Leave a Comment

Why Don’t More People Consider Chapter 13?

When we are explaining options to clients, Chapter 13 is often a very attractive solution to develop an overall long-term plan for getting finances back on track. This is especially true if there are taxes, self-employment, or a mortgage involved. As we go through how Chapter 13 works, a few of the benefits include:

Court protection. Creditors cannot file collection actions against you while you are in Chapter 13. This is much different than a debt settlement program where you will likely get sued fairly quickly upon signing up for debt settlement. Chapter 13 also stops any lawsuits that have already been filed.
Ability to stay in business through the reorganization. Sole proprietors can use Chapter 13 to get their feet back under them, have an established monthly payment, pay back taxes over time without large penalties accruing, and keep earning an income.
Restructure taxes. Even if you aren’t self-employed, Chapter 13 helps with restructuring taxes and provides court protection from garnishments, levies, and liens.
Rebuilding of credit. You can rebuild your credit while in Chapter 13. Although, if your credit score is low to start with, filing bankruptcy often makes your credit score go up right away anyway.
Debt discharged in Chapter 13 is not taxable income. Unlike debt settlement, the debt that is forgiven as part of your bankruptcy is not taxable income that you have to pay taxes on.

Inevitably, we often get the question, “If Chapter 13 can do all that, why don’t more people do it??” And, the answer to that is that most people have no idea what Chapter 13 can and can’t do for them. When you call a debt settlement company, the biggest pro they give you as part of the sales pitch is, “You don’t have to file bankruptcy!” But, they don’t tell you that what you are signing up for is often worse than bankruptcy for your credit, for rebuilding, and for the total cost.

Now, don’t get me wrong, there are cons to bankruptcy as well that I always share with clients when we are deciding what the best route forward is for their situation. You have to be ok with saying that you filed for bankruptcy if asked on a job application or an apartment application. You have to make a payment to the court for a period of time and if you don’t, the debts are not resolved. It takes some planning and responsibility to complete a Chapter 13. However, for many people, if they actually were told from the beginning what it helps with and what it does not, would not hesitate to do it sooner rather than later. In fact, one of the most often said phrases by clients in our offices is, “I wish I would have done this last year or 2 years ago.”

My best advice to anyone struggling with debt or financial stress is to find out what all of your options are, evaluate each option to see what is best for your individual and family situation, and then develop a plan to move forward. Do not be afraid to find out what you can do before signing on the dotted line for any one solution.

June 14, 2019 By Jen Lee Leave a Comment

The Next Financial Crisis: Parent Student Loans

I often write about trends that I am seeing with clients or things I read online and this week is no different. The number of times that parents taking out student loans for their children has come up in the past week was pretty staggering. My standard advice is to never take a student loan out for anyone else, including your children, unless you have the assets already to pay that debt off. I am seeing people in dire financial straits who are trying to figure out how to take on MORE debt that they can’t possibly afford.

There are several reasons that taking on student loans for anyone other than yourself is a bad idea:

Most people looking to take on student loans for their kids are over 40 years old. By the time you are 40, you should have about 3 times your annual salary in your 401(k) for retirement. So, if you make $100,000 a year, you should have at least $300,000 in retirement savings. If you are already behind on retirement, there is no way you should be taking on debt that does not improve your own ability to earn or retire.
You owe the money, whether or not your child graduates or ever makes a good living. Most of the parent loans do not even have the student as a borrower or co-borrower, so they have no liability on the debt. I can’t tell you how many people I talk to who owe $75,000 or more and the adult child is now living at home because they can’t find a job or are under-employed. So, not only is the parent trying to pay off significant student loans, but also supporting the adult child.
If a federal student loan goes into default, your Social Security can be garnished up to 15%. Social Security already is not a lot of money, depending on where you live, but taking 15% off the top really hurts.
One of the main reasons that the cost of education is so high is because parents have been willing to sign their lives away for these loans. When the schools come up with the family’s expected financial contribution, they make parents feel like they have to do anything and everything to come up with that huge number that most families can’t afford. We are seeing the effects of that with people in their 50s, 60s, 70s, and 80s who are now defaulting on these loans and the financial stress is crushing at a time when life should be enjoyed.

Please think long and hard before taking on debt for others, even when those others are your children. I know that sounds really harsh, but there are so many options out there that do not involve this type of financial stress and I encourage you to talk to your kids about their goals and realistic options.

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