Debt Consolidation

January 10, 2019 By Jen Lee Leave a Comment

The Most Important Part of Your New Year’s Resolution

Every year, we all vow to lose weight and pay off debt. We are very predictable creatures. Those are the top two resolutions for people who actually make resolutions. While it’s great to have a goal, many forget the most important part of reaching a goal:

Create a plan!

When it comes to debt, it’s very hard to pay off all of your debt if you don’t know how much you owe, what your options are, what you can do, and when you should do it. I often see people give up on their goals because the goal is so big that it becomes this overwhelming thing that you can’t even imagine.

So, what does a plan look like? Where should you start?

List out everything you owe, including balances and monthly payment amounts. This is the scariest step, but it really helps to figure out where to go next.
If the list looks overwhelming, commit to getting yourself some professional advice on your rights and options (schedule with Jen Lee Law).
Create a budget so you know how much you have to pay towards debt every month.
Decide on the order you want to tackle the accounts.
Develop a few milestone points where you celebrate what you’ve accomplished.

Finally, remember that your plan has to be based on what works for you. There is no one-size-fits-all approach to accomplishing any goal (see last week’s post about more than one way to skin a cat). If you know that you need someone to keep you accountable, find that person. If you know that you have a weakness for online shopping, delete your saved credit card information out of the shopping cart (Amazon, I’m looking at you). If you know that numbers are not your friend, ask for help. You can always schedule an appointment on our website to review your budget and your rights and options.

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.

January 3, 2019 By Jen Lee Leave a Comment

Lies You Find on The Internet

Nothing makes me more frustrated than finding out someone read something on the internet that was wrong and then it influenced that person’s decision.

Last week, I had a colleague reach out to me regarding a company that his client hired to help him with some debt issues. The client thought he had done debt consolidation, but the company’s information on their website says that they only do debt settlement or debt negotiation. So, the first issue was the client likely did not fully understand what he had signed up for in the first place.

Then, I started looking at the company’s website. It gave wrong information about the benefits of their program and also very wrong information about the difference between debt settlement and bankruptcy. Here is the paragraph from their site that I am going to pick apart:

“Bankruptcy is an option that is generally treated as a last resort and if you need to protect appreciating assets. It will remain on your credit report for as long as 10 years & you can be denied employment, state licenses, insurance, as well as tenancy of an apartment. Most importantly, you can be denied virtually any type of credit with a bankruptcy on your report for several years. In addition, since the bankruptcy laws have changed recently, it is even more difficult to qualify for Chapter 7, the method of liquidating assets to eliminate your debt. You will not be allowed to discharge alimony, child support, taxes, student loans, judgments, or any loan on the bankruptcy petition. Under Chapter 13 bankruptcy, your debt payments are simply restructured meaning you will still have to pay a percentage of your debts while you suffer the consequences of bankruptcy. Debt negotiation is an alternative to bankruptcy.”

How is this wrong? Let me count the ways.

There are very specific situations where a bankruptcy can be used against you in employment and they are very few. I did an interview on this topic with Kira Feick of Ignite HR because it’s such a misconception.
For insurance, your credit score cannot be used to raise your rate or deny you insurance in California. If you consent to using your credit score, the only thing the insurance company can do with it is lower your rate.
You can be denied credit for anything at any time, whether you have a bankruptcy or not. However, you qualify for a mortgage a year after bankruptcy and a car loan immediately after bankruptcy. You will receive credit card offers BEFORE your bankruptcy is completed. If you are in a debt settlement program, you will not get credit because all of your accounts are in collections.
The bankruptcy laws have not recently changed. The last time there was a significant change in qualifying for bankruptcy was 2005 (14 years ago…). There are also a number of ways to qualify for Chapter 7 (and sometimes Chapter 13 is a better route – see last week’s post).
The list of things they say you cannot discharge is pretty much wrong. You can discharge taxes in many circumstances, judgments, and all personal loans.
Finally, they try to scare you by saying that in Chapter 13, you still have to pay your debts back. Shocking. You have to pay more back with “debt negotiation” than with Chapter 13 in most cases. Again, see my recent post on what’s so great about Chapter 13, because people generally recover much more quickly from filing Chapter 13 than trying a multi-year debt settlement program.

Researching online can be a good thing, but make sure that you make your final decision based on knowing all of your rights and options, not just the one they are trying to sell you.

December 20, 2018 By Jen Lee 1 Comment

What’s So Special About Chapter 13?

Whenever I mention Chapter 13, I get looks of horror from clients and people listening to talks I give about financial stress. Chapter 13 is a repayment plan of 3-5 years and many seem to think that it is the end of the world, so I decided to do a blog post about how powerful Chapter 13 really can be in the right situation.

Why declare bankruptcy if I have to pay it back??

The first thing that is totally misunderstood or misrepresented about Chapter 13 is that you have to pay back everything you owe. While that may be true if you have a lot of equity in your house or other assets, Chapter 13 often results in a very low payment to unsecured debts like credit cards. In fact, many cases pay back 0% to credit cards. However, Chapter 13’s power comes in being able to pay back other debts (like taxes or mortgage arrears), relieving the pressure of minimum payments, and restructuring what you have so that you come out of the payment plan with a fresh start.

Isn’t debt settlement a better option?

Yes, debt settlement is a better option…for debt settlement companies. I always explain to clients that Chapter 13 IS debt settlement, but with a court order. There is little to no negotiation and the court reviews everything to make sure that creditors are getting what they are legally entitled to under the bankruptcy law. Again, that often means that your credit card companies get a small percentage of what they would under a debt settlement agreement.

But, my credit is ruined for 10 years and I can’t buy a house for 10 years!

Wrong. You can actually buy a house while in Chapter 13. If someone offered you a deal that you could be out of debt in 5 years, buy a new house, and have a 700 credit score (or higher) if you agree to make a monthly payment on time each month, would you say no or that it is a horrible idea? Not that Chapter 13 is all fun and games, but it’s a viable tool for getting a fresh start, clearing debt, and restructuring.

Aren’t the only people filing for Chapter 13 bad with finances?

Nope. One of the analogies I often use is that business owners and successful individuals do not have a problem using the laws as needed to get the best deal, whether it is tax planning, estate planning, or yes, even bankruptcy. There seems to be this idea in more middle-class populations that using laws to our advantage is somehow taboo and even unethical. Whether you are bad at finances or not, understanding the rights and options available to you is a smart move. Please note that I’m not encouraging people to run out and file bankruptcy for the fun of it. My point is that sometimes the smartest move is to get back on track and avoid the possibility of being homeless before the financial stress of the situation causes bigger problems.

So, this post was written a little tongue-in-cheek. I find that there is so much misinformation about what Chapter 13 is, what it can do, and why it’s often a good thing, that I tend to get a bit sarcastic. However, while Chapter 13 isn’t always a fun idea, it can often be life-saving, marriage-saving, and the fresh start that people need to move forward.

December 12, 2018 By jenleelaw Leave a Comment

Holiday Blues: Top 5 Signs a Senior in Your Life is Struggling with Debt

The Golden Years May Have a New Name: The Bankrupt Years

In the past month or so, a number of articles in the news have come out showing that seniors are declaring bankruptcy at an increasing and alarming rate. The debt burden on seniors is going up due to student loans,credit cards, and lack of retirement savings.

Around the holidays, we often see senior family members who we may not have a lot of contact with at other times of the year. Or, we get to go to their houses and can notice that something may be a bit off, including debt and credit problems.

Often, the difficult part for seniors is talking to someone to figure out what to do with debt. They are vulnerable to scams and slick sales pitches because of this fear of others finding out that their finances are not in great shape. There also tends to be a feeling of pride and really wanting to solve the problems themselves because that is how they have always done things.

The problem then becomes getting help for someone who may not be willing to admit to others, especially close family members, that there may be a problem. So, how can you identify potential problems before a senior in your life has to resort to bankruptcy, especially during the holidays when things often get lost in the shuffle?

Unopened mail. This is not necessarily a generational or senior issue. Someone who is afraid and avoiding a debt problem will avoid opening the mail. From a senior standpoint, caregivers or family members may notice piles of unopened mail on the counter or in a drawer. That doesn’t necessarily mean snooping around grandma’s house during a holiday celebration, but a stack of mail could be hiding in plain sight.
Never ending phone calls. Someone who is in debt will usually receive a lot of phone calls from creditors or even collection agencies. The phone ringing off the hook can be unnerving to the senior, but also a noticeable red flag that something may need to be addressed.
Avoiding home repairs. Home repairs can be expensive and can be one of the first things that get neglected when money is tight. Paying attention to the condition of the home when visiting a loved one during the holidays can clue you in to problems before the situation becomes dire.
Skipping meals or not going out with friends and family. I once met with a lady who was worried about her mother. Every time she would ask her mother to go out for a bite to eat, the mother would come up with an excuse. We later found out that the mother was embarrassed that she could not afford to eat and did not want her family members knowing how bad it was.
Missing mortgage payments. There have been interesting studies done that show that consumers are more likely to pay credit cards than mortgages when money is tight. Why? Because if you are one day late on your credit card payment, they are calling you multiple times a day (see #2 above). Mortgage companies very rarely call because they know if you do not pay, they can foreclose. There have been times where we found out that the mortgage was not being paid when a notice of sale was posted to the door and a family member saw it.

If you notice any of these red flags, it can definitely be a difficult conversation to have with a loved one. However, the sooner the problem is recognized, the easier it is to develop options and strategies.

August 27, 2010 By jenleelaw Leave a Comment

Alternatives to Bankruptcy – Part 1B: Debt Consolidation Pitfalls

This is the second in a series of posts regarding the alternatives to bankruptcy. The series will discuss debt consolidation, debt settlement, mortgage modification, and debt management programs.

What are the Pitfalls of Debt Consolidation?

There are several pitfalls to watch out for when considering debt consolidation. The interest rate on the new loan, the length of the new loan, hidden fees associated with the new loan, and potentially turning unsecured debt into secured debt.

One of the biggest key indicators to look at is the interest rate on the new loan. If your credit card is charging you 20% interest and your consolidation loan is 10% interest, it might help with lowering your payments and reducing the amount of overall interest you pay. You also want to keep the interest rate in mind with federal student loans. In the past, rates have fluctuated depending on when the loans were taken out and the federal consolidation loan is based on an average of those rates. If you have a high balance at a low rate, you need to look and see what your new interest rate is going to be before you consolidate.

However, the next thing to look at is the length of the loan. If you have a lower interest rate, but are spreading the payments out over 20 years (or longer), you may end up paying a lot more in interest, even with a lower interest rate. So, looking at the interest rate and the length of the loan together are important steps to understand the total amount you will owe.

Also, watch out for hidden fees in your new loan and make sure you consider the overall cost. For example, if you use a home equity line of credit, there may be an appraisal required or an origination fee. Just be aware of the fees and look for anything that could cost you more money.

Finally, turning unsecured debt into secured debt can be a big problem for some people that use their homes to obtain the consolidation loan. When you have unsecured debt (credit cards, personal loans, etc.), the creditor just has your word that you’ll pay and there is no collateral involved. Once your house is used to secure your consolidation loan, the creditor could potentially foreclose on your house in order to recover the loan payments if you default on the loan.

This is just a basic overview of the pitfalls of debt consolidation and is not legal advice specific to your situation. If you are considering bankruptcy or alternatives to bankruptcy, you should speak with an attorney in your area for legal advice.

The Most Important Part of Your New Year’s Resolution

Lies You Find on The Internet

What’s So Special About Chapter 13?

Holiday Blues: Top 5 Signs a Senior in Your Life is Struggling with Debt

Alternatives to Bankruptcy – Part 1B: Debt Consolidation Pitfalls

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