Credit

October 29, 2020 By Leo Spanos

When Should I Consult an Attorney about my Debts?

Living on credit is a day-to-day reality for millions of Americans.

Consumer debt in the United States totals $14.1 trillion — that’s $14,100,000, 000,000 – with the average person owing over $90,000 (according to Experian’s 2019 Consumer Debt Study). This includes credit cards, consumer loans, secured loans on personal property (electronics, furniture, jewelry, etc.), car loans, mortgages, and student loans. Given that many people are living paycheck-to-paycheck and the job insecurity caused by the global pandemic, it may be reasonable to consult an attorney about financial stress and debt management options. This may be the case even if you have a six figure income and have never missed a payment; it is better to consult an attorney early (and know your options) than to wait until your back is against the wall.

But when is that point? Factors to consider, regardless of income, are –

Are you making minimum monthly payments?
Are most of your debts credits cards with high interest rates?
How much do you owe in relation to your monthly income?
Are you behind on your mortgage or rent?
Do you have debts in collection?
Do you have money left over to save for retirement?
Are you on installment plans for medical bills or tax debt?

You might improve your situation through stricter budgeting, debt consolidation, or negotiating settlements with your creditors. This is not always feasible depending on the size of the debts, the interest rates, and income. If you are making the minimum monthly payments on high interest credit cards with large balances and are not saving for retirement, bankruptcy might be your best option. For non-business debts, there are two types of bankruptcy, Chapter 7 liquidation and Chapter 13 reorganization. The main difference is whether you are trying to protect assets (e.g., house, car, etc.) from creditor repossession/foreclosure or you just want to get rid of your debts and get a “fresh start.” Your credit score is likely to increase after a bankruptcy because you are less of a risk to potential lenders. You can also qualify for a mortgage within 12 months of a bankruptcy. An experienced attorney can evaluate your situation and tailor a strategy to meet your needs.

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.

April 21, 2020 By jenleelaw

Round 2 of PPP: Tips to Make or Break Your Approval Odds

The CARES Act, passed on March 27, 2020, kicked off a chaotic and unorganized process of applying for a new program called the Paycheck Protection Program. On the surface, this looked like a great program for struggling businesses. A loan that can be forgiven if used to pay employees, rent, and other approved business expenses. This idea was far better than saddling small businesses with more debt than they already have.

The initial problem was that lawmakers passed a bill that had absolutely no procedures or processes in place. Banks scrambled to obtain guidance with bankers working around the clock to get an approved SBA application…and then the application changed just hours before the launch of the program. Then, the money ran out two weeks into the program. As we gear up for round 2 of funding, here’s what you need to do immediately to obtain funds:

Get a copy of the application (https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf) now.
Fill it out completely. Do not leave a single field blank. If you do not know the answer or how to calculate your monthly payroll, call your accountant, your payroll specialist, or a professional who can explain it to you. The funds for this program are going to people who can follow instructions.
There are specific documents required to move your application along to the next stage. They generally include your 2019 940 and 941 tax documents, bank statements to show proof of payroll, payroll reports to verify monthly payroll costs, and benefit invoices/statements. Your application does not move at all if you do not provide every single document that is requested.
If your bank requests something specific to complete your application, stop what you are doing and immediately find that document and submit it electronically and in a readable format. Do not wait until tomorrow or next week. Your application will be pushed to the side.
Finally, not specific to PPP, but it became apparent that the majority of really small businesses who got funds in the initial round banked with smaller, local, or private banks. I highly suggest you find a bank where you have a personal relationship with a banker. I always hear from people that they have banked at xxx big bank for years and it’s too hard to switch or things are fine. When things go sideways, you want the bank where you have the cell phone number of your banker and she answers your call every time.

If you are looking to obtain funds under Round 2. Start now. Get your documents together. Respond to requests for documents. Understand how the program works. We wish you the best of luck in the coming weeks!

March 30, 2020 By Jen Lee

The CARES Act and the Paycheck Protection Program: What You Need to Know

Lots of information out there about the new CARES Act and what it purports to do. It’s a huge document and has a lot of moving parts. In an attempt to pull out useful information for the average consumer and small business owner, we are working on a series of blog posts to help answer some questions.

One of the most interesting sections discusses a new loan program for small businesses that has an element of forgiveness involved. A chief complaint of SBA loans is that businesses were already saddled with debt and adding more debt may not make sense or even be feasible in the long-term. Enter the Paycheck Protection Program (PPP) loan.

The PPP is different than the disaster recovery loan that many have already tried to apply for in the past week or two. Applications are not available yet and documents, procedures, and communication with banks are still being established. The program offers cash flow assistance to small businesses with fewer than 500 employees.

The amount available is equal to 2.5 times the average monthly payroll costs or $10 million, whichever is less, and the average monthly payroll is based on 2019 payroll figures. Monthly payroll costs not only includes wages for employees, but also paid sick leave, health insurance premiums, payroll taxes, and other benefits. The loans are intended to cover payroll costs, business disruption, health insurance premiums, lease or rent expenses, and utilities.

A very important detail is that the loans will not be personally guaranteed or require collateral, which is very different than most SBA products previously on the market.

Now, the forgiveness part, which we should all be looking at to figure out the terms and conditions. Loans under the PPP may be fully or partially forgiven. Loan proceeds used to make payroll, pay utilities, rent, mortgage, and existing business debt may be forgiven, dollar for dollar. However, in order to receive the dollar for dollar forgiveness, employees need to remain employed and paid through the end of June.

Keeping complete and accurate records will be key to the forgiveness of these loans. You have to be able to show what the funds were used for, that those uses qualify under the program, and that you kept payroll going through the end of June. The better your records, the easier it will be to have the loan reduced on a dollar for dollar basis.

The PPP loans will be offered through local banks, not directly from the SBA. If you need connections to a bank offering these programs, please feel free to email me.

October 31, 2019 By Jen Lee

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.

June 14, 2019 By Jen Lee

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.

When Should I Consult an Attorney about my Debts?

Round 2 of PPP: Tips to Make or Break Your Approval Odds

The CARES Act and the Paycheck Protection Program: What You Need to Know

Interest Rates

The Next Financial Crisis: Parent Student Loans

Disclaimer and Additional Information

Recent Blog Posts

Follow Me