Is bankruptcy the answer?
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Transcript of Is bankruptcy the answer?
Is bankruptcy the answer?
Impacts of bankruptcy Remains on your credit history for 10 years Can still get loans, but will pay double or triple the
going interest rate Unsecured debt goes away, which places the
burden of payment on everyone else
So what is the answer?
No catchy slogans – just personal responsibility
If you don’t have the money for it, don’t buy it Be educated about the true cost of credit and
fees Educate others!
Money trouble? It's your own faultby Liz Pulliam Westonhttp://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/MoneyTroubleItsYourOwnFault.aspx?GT1=9317
Read the important points from this article in your notes
Bankruptcyhttp://www.uscourts.gov/Press_Releases/2008/BankruptcyFilingsAug2008.cfm
In 2005, more Americans filed for bankruptcy than graduated from college
The first 9 months of 2009 in Utah 10,700 bankruptcies filed Up 62% from 2008
#21 = Utah In 2004, we were #1 In 2005, we were #3 In 2007, we were #20
Bankruptcy States with highest bankruptcies per capita
Nevada Tennessee Georgia Indiana Alabama
States with lowest bankruptcies per capita South Dakota Texas South Carolina District of Columbia Alaska
http://www.creditcards.com/credit-card-news/bankruptcies-per-capita-state-rankings-nevada-1267.php
Reasons for Utah Bankruptcies?
Tax burden as a result of a high dependency ratio Young families Lower incomes per capita High rates of unsecured debt
The total debt-to-income ratio for Chapter 7 was 194.3 percent or almost twice annual income at the time of filing. For Chapter 13, the ratio was 173.4 percent (in Lown, 2005).
Larger homes than the national average More cars owned or leased per hh than national average More highly educated, which correlates with more likely
to overspend, and does NOT mean more financially literate
Bankruptcy Demographics2008 Annual Consumer Bankruptcy Demographics Report: American Debtors in a Recession Leslie E. Linfield Institute for Financial Literacy
June 1, 2009
As in years past, the average American in financial distress and seeking credit counseling and financial education is a 35 to 44 year old married Caucasian with a high school degree or some college who is employed and earning less than $30,000 per year.
. . . the 2008-2009 Recession is noticeably shifting middle class Americans into bankruptcy.
Bankruptcy Laws (10/17/05)
Means test If your income is above your state’s median, and you can
afford to pay 25% of your “nonpriority unsecured debt” you are required to file Chapter 13
Determining what you can afford to pay under Chapter 13 You and the court will apply living standards derived from
the IRS (what is fair in your area for housing, food, etc.) to determine how much of your income is available for your repayment plan
Homestead Exemptions If your home was acquired less than 40 months before
filing, you can only exempt $125,000 of the value
Lawyer Liability If information about a client’s case is found to be
inaccurate, the lawyer is subject to fees and fines
Credit Counseling & Money Management You must meet with a credit counselor in the 6 months
before filing at your own expense You must attend money management classes at your own
expense before your debts are discharged
If you are accumulating debt, it is IMPOSSIBLE to accumulate wealth
What is your goal?
Budgeting for the College Student
More students drop out of college due to credit card debt than academic failure
Famous Dickens’ quote from David Copperfield Monthly income, 20 schillings, monthly expenses,
19 shillings bliss Monthly income, 20 schillings, monthly expenses,
21 shillings misery
Budgeting, cont.
Budgeting is very simple (but not necessarily easy) List all sources of income List all expenses (including paying yourself first) Make sure you have some left over
Make a Spending Plan Plan how to spend your money You’re probably already very good at spending your money
just need a good plan!
General Spending Plan Principles
Income vs. expenses Needs vs. wants Non-monthly expenses
Questions to consider…
Which expenses are essential to your family’s well-being?
Which expenses have the highest priority? Which areas can be reduced to keep your
family’s spending within its income?
Do I/we need that? If so, how did I/we get along without it up to
this point?
Zero Based Budgeting
Estimate your monthly income Starting with your financial priorities, subtract
obligations until you get to zero Ex. Your monthly income = $________ Subtract charitable donations Then investing money Then housing Then transportation Then food Then personal care And last, misc.
Step-down Principle
Think of a budgeting category What is the most expensive option available? What is the least expensive option available? What’s in the middle?
Example: Food Most expensive: every meal at a restaurant Step down: prepared foods Step down: mixes Least expensive: every meal from scratch
Example: Transportation Most expensive: new car every year Step down: new car every 2 years Step down: used car every 2 years Step down: used car every 5 years
Think about where your spending is. If you can step down just one step just part of the time you will save a lot of money every year
Too much month at the end of the money?
Increase income Cut variable spending Reduce fixed expenses Look at liquidating other assets
Money doesn’t always bring happiness. People with ten million dollars are no happier than people with
nine million dollars.”
-Hobart Brown
Financial goals
Need to categorize goals Short-term Intermediate Long-term
Priorities Emergency fund Insurance needs (life, health, property, disability) Pensions/retirement Extra investing money
How to save money for investments/debt reduction?
HAVE A PLAN! If you have a plan, you are more likely to
accomplish your goals
Pay yourself first Commit to a percentage, like 10%
The 60% solution 60% = expenses
Food, clothing, hh expenses, insurance, charitable contributions, bills, taxes
10% = fun money Anything you want!
10% = retirement savings 401(k), Roth IRA
10% = L-T savings Debt reduction, or other investments (incl. kids college)
10% = S-T savings Use in 1-2 years Vacations, hh repairs, new appliances, gifts
Some more ideas…
Envelope system 101 ways to save money
Link on http://financialplan.about.com/ Go on a “Financial Diet” Automatic deposit Round-up in checkbook Cut unnecessary expenses Save loose change Coupons save difference Others?
More ideas referenced on the Pearls of Wisdom page on webCT
Dave Ramsey – The 7 Steps to Financial Peace
1. Save $1,000 in the bank for emergencies
2. Pay off all consumer debt
3. Increase emergency fund to equal 3-6 months of expenses
4. Save 15% of monthly income for retirement
5. Save for children’s college education
6. Pay off home early
7. Build wealth and give a lot of it away