Bankruptcy is perhaps the scariest ghost that can loom over one's financial well-being. In the years since the 2008 Financial Crisis, it has become a reality for millions of Americans. While the number of new bankruptcy filings for businesses and individuals has fallen considerably since 2008, there were still over one million bankruptcy filings in the financial year ending March 31, 2014.
What kinds of bankruptcy are there?
One thing that often makes bankruptcy confusing are the varieties of bankruptcy, each referred to by the chapter of the Bankruptcy Code by which they are defined. Most Americans are unlikely to become involved with Chapter Nine (municipalities), Chapter 12 (family fishermen and farmers) or Chapter 15 (bankruptcy in multiple countries). The most common forms of bankruptcy are:
- Chapter 7 -- Liquidation of debtor’s property to pay off creditors.
- Chapter 11 -- Generally used by businesses, Chapter 11 or "reorganization" allows a business or individual to reorganize its affairs and stay in business to pay creditors over time.
- Chapter 13 -- Also called "individual debt adjustment," allows an individual earning a wage to propose a plan for repayment of debts over a period of (typically) three to five years. A significant benefit of Chapter 13 is that debtors are often allowed to avoid home foreclosure and have the ability to repay certain other debts with a long-term payment plan.
What happens when you declare bankruptcy?
Bankruptcy proceedings fall into four basic concepts:
- Accounting -- An accounting of all assets, liabilities, income and any other relevant financial information.
- Reorganization -- In Chapter 11 and Chapter 13 bankruptcies, the goal is to reorganize the financial affairs of a business or individual in order to arrange for a manageable repayment of debt over time.
- Discharge -- The elimination of personal or business liability for certain outstanding debts and the prohibition of creditors from engaging in collection efforts.
- Liquidation -- The sale of the debtor's property, the proceeds of which are distributed to creditors according to their rank in a repayment hierarchy.
The primary benefit to a debtor when declaring bankruptcy is the concept of discharge. Discharge means that some of the financial obligations of the debtor are essentially wiped clean, and creditors can't hound you with collection efforts. The key word when it comes to discharge is "some." Certain debts are not dischargeable in bankruptcy, and these vary by Chapter.
The primary drawback of bankruptcy is liquidation, which means selling your stuff and using the money to pay off your debts. Just as certain types of debt are not subject to discharge, certain types of property and income are not subject to liquidation.
Can you ever get out of bankruptcy?
Bankruptcy isn't a fun process and is often a life-changing event; however, the intention of bankruptcy law isn't to punish a debtor and hold him down financially, but to provide a fresh start.
While a bankruptcy certainly isn't good news for your credit report, it doesn't stay there forever. A Chapter 7 will only remain for ten years, and Chapter 13 for seven. Through sound personal finance, bankrupt debtors can rebuild their credit and financial health. The forced frugality and tough lessons learned through bankruptcy should be seen as a template for a more financially responsible future.
I would watch with envy as my friends booked trips to Miami, Jamaica and other such warm weather hot spots where you could spend your entire spring break lounging around and indulging to your heart's desire. For me, however, that sort of spring break was out of the question, as I simply didn't have the money. Luckily, I quickly learned that with a little creativity, you can have a fun spring break without spending a fortune.
If you're low on funds and wondering what to do with your time off, here are some affordable suggestions:
Take a road trip
Can't swing the cost of a flight? Gather up some friends and hit the road. Since you can divvy up the cost of gas and tolls, it'll be considerably cheaper to travel by car, and you can keep lodging costs to a minimum by staying at no-frills inns or motels.
Soak up city life
If you've got access to a nearby city, you can create a week-long itinerary that lets you take advantage of everything it has to offer. Hit up some museums, visit a few landmarks or go on a walking tour of some offbeat neighborhoods.
Rent a ski house
If your school is within a reasonable proximity to skiing and winter sports, round up a group of friends and split the cost of a week-long house rental. Many ski houses are set up to accommodate a dozen or more people, thus keeping the per-person price to a minimum. Even if you only hit the mountains once or twice to keep costs down, you can enjoy a week of simply hanging out. Pack a bunch of DVDs, bust out the board games and stock up on hot chocolate and snacks. It's essentially an extended sleepover, minus the pillow fights (or not).
Take a class
You deserve a break from hard-core academics, but that doesn't mean you can't indulge a hobby or area of interest. Sign up for a week-long cooking class, take ballroom dancing lessons or work on your tennis skills.
If you can't afford a vacation this spring break, why not use the time to give back? Find a cause you're passionate about and spend your time off helping others. Organizations like Habitat for Humanity and United Way run spring break trips geared toward college students looking to put their vacation time to good use, and as an added bonus, you'll get to meet new people and gain experience that will look great on your resume.
Spending spring break with your parents may seem kind of lame, but there's something to be said about getting a week of home-cooked meals without having to spend a dime. Coordinate with your hometown friends and you can turn your break into a week-long reunion.
While it may be tempting to spend your spring break at an exotic destination, there are plenty of enjoyable alternatives that won't leave you with a giant credit card balance hanging over your head. With the right company and a little imagination, you can have just as much fun as your beach-hopping, globe-trotting friends, and you'll come away with far less debt in the process.
From credit cards to home and student loans, debt is big business in America. According to Bloomberg Business Week, student debt has grown by $100 billion per year since 2008. Outstanding consumer debt stands at a record $3.2 trillion. This is the result of new debt being acquired faster than existing debt is paid off.
The specter of incurring interest and obligations for future payments would seem like a strong deterrent against borrowing money. So what is it that drives people to take on debt or delay repaying their existing debt?
It comes down to two primary points: delayed gratification and optimism regarding future earnings.
Optimism for the Future
When a student takes out a loan -- most consider it an investment in their future. They assume or hope that future earnings will make those future loan payments affordable or even insignificant. However, as illustrated by the Huffington Post, accumulated student-loan debt has increased dramatically in the past decade while inflation-adjusted wages have decreased.
The same goes for business loans. A study by Na Dai and Vladimir Ivanov reveals interesting facts about optimism in relation to business debt. The authors note that the returns on entrepreneurial ventures are relatively small compared to the inherent risks. Also, optimistic entrepreneurs are more likely to borrow more money; particularly short-term loans with high-interest rates (think credit cards). Credit lenders also tend to grant optimistic business borrowers with larger amounts of money.
In short, debt-acquiring students and business owners put their money where their mouths are: they are confident enough that their future earnings will be much higher than their current earnings, and so are willing to take on substantial debt to finance an uncertain future.
In the 1960s, Walter Mischel, a Stanford professor, came up with a simple test known as the Marshmallow Test. Mischel and his team would give a child a single marshmallow and tell the child that he could eat the marshmallow immediately or wait a few minutes and be rewarded with a second marshmallow. The concept is known as delayed gratification.
The Marshmallow Test helps explain the way people tend to take on and repay their debt. Assume a seventeen percent annual interest rate on a credit card. When a consumer spends $1,000 in credit card purchases for immediate consumption, they are making the choice to have $1,000 now, instead of $1,170 a year from now, ignoring for simplicity the compounding interest.
While this concept doesn't seem to have much to do with taking out a student loan, it certainly applies to repaying those loans, or any loans for that matter. If a borrower has $30,000 in student debt at a seven percent annual interest rate, and comes into $30,000 of disposable income, she can either pay off that $30,000 now or spend the $30,000 on consumption and be faced with $32,100 in debt in one year.
There are certainly different motivations behind taking on and paying off different types of debt. Putting a leather jacket or a big-screen TV on a credit card isn't quite the same as taking out a six-figure loan for a PhD; however, the psychology of those decisions is very similar and boils down to a combination of optimism for the future and the concept of delayed gratification.
I quickly finished my undergraduate degree before going on to grad school. I loved learning and I loved school. I knew I would never have a problem generating income. What I did not consider was how much the $50,000 in student loan debt would cost me each month for the next thirty years. Or what could happen if life threw me a curve ball.
After finishing grad school I was diagnosed with Crohn's Disease. Turns out it's not cheap. Lucky for me, I snagged a job with the Federal Government and had no issues getting health insurance or medical care. The Crohn's diagnosis was a small blip on my radar as I set out to live life and climb the corporate ladder.
Then I left my federal job.
Since then, I have bounced around from job to job and even went a year without health insurance. Medical debt, unemployment and student loans -- that won't go away even after bankruptcy -- have consumed my life. When the wage garnishment letter arrived, I had no choice but to file for bankruptcy. If any of my income were garnished I would not survive month-to-month. This was the curveball I hadn't anticipated.
Even though deciding to file for bankruptcy was a difficult decision, I am confident that it was the right decision for me, and you might find yourself in the same situation someday. If you do end up filing for bankruptcy, here's what you should know:
Cross Collateralization Crisis
My car, which is financed through a credit union, will be seized since there is a cross-collateralization clause associated with my auto loan. This means a line of credit was secured by my automobile and the car is on the hook until the line of credit is forgiven. My lawyer indicated we could ask the credit union for an auto exemption, but it was unlikely that they would oblige. Financing a new car is not out of the question after bankruptcy, but I can kiss the 2.9 percent interest rate goodbye.
The trustee has all the power
The difference between chapter 7 and chapter 13 is the way debts are forgiven: under chapter seven debts are discharged whereas under 13, debts are repaid over time. There is a means test in chapter 7 and if too much money has been earned, chapter 13 may be the only option. In my case, I was barely eligible for chapter 7 due to bonus money and a relocation check that I earned this year.
To facilitate a chapter 7 bankruptcy, a trustee administers and facilitates the bankruptcy proceeding. This person serves as the "watchdog" over the process and has the power to sell any of your belongings that aren't protected under the law.
In my case, the trustee asked lots of personal questions about my income, tax returns and purchases. He may or may not demand that this year's tax refund be turned over to the court.
Consider all of your accounts
If you have decided to file for bankruptcy, make sure you include everyone to whom you currently owe money. Even utilities, landlords and other non-revolving accounts should be listed on your case since any deposits on these accounts are protected as part of your estate.
All accounts listed in your bankruptcy will be notified and given the opportunity to attend your 341 meeting of creditors. My landlord showed up and asked the trustee if she needed to be there. It was awkward. If I had known she would be invited, I would have given her a call and let her know myself -- as a courtesy. She just wanted to know if I would continue paying rent on time. If I were behind on rent, however, the lease could have been dissolved under the proceeding and my security deposit would have been returned.
Any accounts listed in your bankruptcy will be protected to the fullest extent of the law. This means your landlord must return your security deposit, your utility company can't shut your account down and you generally have more safeguards. Accounts not listed in your case will not be protected; debts not listed will not be discharged.
Ready. Set. Improvise. (Nothing is as bad as it seems.)
All in all, filing for bankruptcy was a relatively simple process. The debts forgiven in my bankruptcy will be discharged in the next few months. My credit score will fall. It will take time to rebuild credit and establish favor in the eyes of the credit score gods. The bankruptcy itself will remain on my credit report for the next eight to ten years.
But I could have spent the next ten years trying to dig myself out of debt. With ongoing medical costs from a chronic illness plus a hefty student loan balance, it may have taken a lifetime to establish financial solvency. By filing for bankruptcy, I chose to wipe the slate and start over. It was a tough decision, but it's not about pride at this point.
What could I have done differently? Everything. Or maybe nothing. While it's important to plan your future and position yourself for success, when life happens -- you improvise.
I am lucky to have secured another vehicle from a family friend -- one that I will pay off over a few months. This way, I will own the car and won't have hefty payment each month.
I have been given access to my expensive medication through a patient assistance program, which means I don't have to pay any copays.
As far as building a financial future, I have learned how to make smarter money choices. I have learned that I don't need to buy a "latte" each day, because these little things add up and prevent me from getting ahead. By making smart money choices, I can put more money into savings and create a safety net if the unexpected happens again.
Two years ago I had $20,000 in my savings account, and my biggest problem was figuring out where to invest it. I found myself bragging about my savings prowess to anybody who would listen. Then everything changed when I got divorced. My $20,000 was reduced to nothing overnight. Then all of a sudden, I was looking at $6,000 in credit card debt.
As you can imagine, it was a bit of a financial blow -- but making payments on my card balance now acts as an instant mood elevator. Even if I just have five extra dollars, when I put it toward my credit card, I feel better. My slow but steady progress means three things: I'm getting my finances back in order, I'm moving on from my past and I'm reducing those pesky interest charges. I don't want to say that my debt was a blessing in disguise, and I wouldn't suggest it as therapeutic by any means, but there are some positives that come along with repaying it.
Paying down debt replaces feelings of blame, shame and guilt with positive emotions like hope and relief. According to Business Insider, being in debt may eliminate the happiness you get from spending your money -- such as the excitement of looking forward to a vacation or a night out. It stands to reason that reducing your debt can have the opposite effect, and it often does. It restores the notion that the future is something to look forward to.
It helps repair personal relationships. Money is the number one thing that couples fight about. So working on money issues in a positive way can be the antidote to conflict.
Couples who look at their finances together, create a budget and stick to it, often find their relationship improves as their debt decreases. While repaying debt can jump-start the process, healthy communication is essential. If one person in the relationship is a saver, and the other a spender, tension created by unnecessary purchases can surface quickly. Couples who function better financially have the added benefits of better communication, less stress and a learned sense of financial responsibility that can be passed down to children when the time comes.
It erases past mistakes and can help in the healing process. For me, it was a divorce that drained my bank account, but we all have our reasons for sliding into debt. Physical evidence of that debt -- bills, online statements or a record of calls from collectors -- can serve as a reminder of the negative experiences that got us there. Rekindling a bank account or settling a balance can be an important step in moving forward, unburdening yourself and moving on.
It gives you freedom to advance toward your goals. Debt can keep us from starting a business, starting a family or going back to school. Many experience a feeling of being stalled; that you have to wait to start your life until your finances are in order. Paying the debt off or even making one small payment in that direction is helpful for regaining hope. It’s also motivation to keep going and watch that balance shrink smaller as a growing sense of accomplishment will lead to increased self-confidence in everyday activities. That’s how you win a marathon; just keep putting one foot in front of the other. In fact, many people who have stuck to a budget and paid off large portions of debt are less likely to fall back into debt later in life.
Paying off outstanding debt has many emotional, physical and psychological benefits. These extra perks to becoming debt-free include: Less stress, improved health, emotional relief, freedom to pursue other life goals, confidence in your sense of self, stronger resolve to remain debt-free, improved relationships and cutting the tie between spending and happiness. Whether you're making the minimum payment month to month, or paying off large portions at a time, paying off debt will not only benefit your emotional well-being, but your physiological, physical and financial well-being as well.
Recent college graduates are more in debt than ever before. When you combine substantial credit card debt with crippling student loan payments, it may look like that financially secure future is moving farther and farther away. With this as the new normal, many young adults are now looking into bankruptcy and asking, "Am I too young to file?" The quick answer is, "No." The long answer involves a little more info.
The Legal View
Anyone of legal age can technically file for bankruptcy, but this doesn't mean you will be granted this status. In other words, you can't simply say, "I'm bankrupt" and have your debt disappear. You have to be granted a bankruptcy ruling by the court. There are several different bankruptcy options referred to as "chapters." The most common bankruptcy chapter for a young adult in his or her twenties would be a Chapter 7 or Chapter 13 filing.
Chapter 7 works best when you have assets to sell to pay some of your debts. With Chapter 13 filing, some of your debt can be forgiven, but you will have to set up a payment plan to repay the remaining portion of that debt. The goal is to get everything paid in full within five years. The only way you'll be granted a Chapter 13 filing is with a job and a steady income. Unfortunately, there is no "Get out of jail free" card when it comes to filing for bankruptcy.
The Credit Hit
Bankruptcies can stay on your credit report for a minimum of seven years like a big scarlet "B" on your credit history. The result of this is that you'll find it extremely difficult to secure a loan for a car or home. Sadly, this is often the time when young adults make these types of purchases. You'll also find it challenging to apply for credit cards. In many ways, you'll be out of luck when it comes to borrowing money.
The Bright Side
In some circumstances, taking the credit hit can be a good thing if it keeps your spending in check and forces you to live within your means. And luckily, filing for bankruptcy when you are young does provide you with ample time to recover. Suppose your debt was too much to handle right after graduation and you're granted a bankruptcy ruling to settle your accounts. By the time you turn 30, you can start on the path toward buying a home without that "B" looming over your head. By living on a budget and forcing yourself to save and pay off debts, you'll fall into great financial habits that will benefit you in the long run.
If your debt has become too overwhelming, it might be time to reach out and speak with an experienced bankruptcy attorney. They can provide answers to all your questions and make sure you make an informed decision with regard to your financial future.
Thank you for all of the extended coffee breaks.
I've learned a lot in my time here on this incredible team. Working with people who aren't embarrassed to accidentally wear matching undergarments is the most fun you can have while accidentally matching your undergarments. Making up excuses to eat pizza together is important for bonding. Finding a common enemy is good for morale. Creating board games is relevant to every position in the company. And of course, being good at what you do will help everyone around you succeed.
It's funny; when I started this internship I had every intention of pursuing an education in journalism. Yet after one week in the office, I changed my major and never looked back. You would think since I enjoyed working at Brass so much that I would want to continue work like this in the future. The fact of the matter is that this job takes more than the raw talent I showed up with. This work is gritty and finely attuned to detail. Frankly, it's maddening. I am a much stronger writer, worker and student because of the opportunity given to me by Brass, but I'm also happy to be moving on.
Without this chance, I may never have considered pursuing my greater passion. I may have stayed within the confines of something that I was naturally good at, without ever forcing myself to be great. My co-workers and superiors at Brass offered me an opportunity to expect more of myself. That being said, I am honored to have had the opportunity to work alongside some truly gifted people. Plus, you know, they're fun to hang out with.
Here's to knowing where to get sound financial advice at the drop of a hat.
And here's to knowing that I got to be a part of it for a little while.
Regardless of how qualified you may be for the job, if you botch the interview, you'll likely lose the chance of getting hired. Some interview mistakes may be inevitable, and the interviewer may chose to overlook your misstep. According to the staffing agency Office Team, however, some interview mistakes just can't be forgiven. A survey conducted by this Office Team included over 600 senior managers and revealed of the worst interview mistakes they've encountered:
- "A candidate fell asleep."
- "One applicant called the interviewer by the wrong name."
- "A guy didn't know what job he was applying for."
- "One job seeker had lettuce in his teeth when he arrived."
- "An applicant showed up in sweatpants."
- "The person was checking his cell phone and chewing gum during the interview."
- "One interviewee was so nervous she almost fainted."
- "The applicant did a song and dance routine in hopes of getting the job."
- "One candidate didn't realize that his zipper was down."
- "One job applicant was caught lying on her resume during the meeting."
- "One candidate claimed that he was late because he got lost, but the receptionist said she saw him hanging out at the coffee shop."
- "Someone brought his dog."
What to Do Instead
So now you know what you shouldn't do -- but that's only half the battle. Fortunately, the Office Team won't leave you hanging. It has provided the following advice to ensure that your interview goes off without a hitch:
1. Do your research. Be sure you study the history, vision and culture of the company. This can help you identify what's important to the company and will help you to ask relevant questions. Check out the organization's website and social media accounts. Both are great places to find this type of information.
2. Practice your responses. Rehearse your answers -- especially to questions that may trip you up like, "Tell me about yourself," or "What do you consider to be your greatest strength and/or weakness?" Remember, "Tell me about yourself" doesn't mean that you should start with the day you were born and end with what you had for breakfast. Touch on your education highlights (major, honors) and briefly discuss previous employment or relevant volunteer work.
3. Dress like a professional. Leave the sweat suits, jeans and other casual clothes at home. When you dress casually, it creates the impression that the job isn't that important to you. Wearing appropriate business clothes shows that you're serious about your career.
4. Verify directions. You don't want to get lost the day of the interview, so be sure you know exactly where you're going and how long it's going to take you to get there. And then add extra time in case there is some incident that could cause you to be late.
5. Be honest. You want to make a good impression, but don't exaggerate your education, skills or experience. Let your accomplishments speak for themselves. You've already landed the interview, so now show them what you have to offer.
6. Remain engaged. Make sure that your body language is positive and shows that you're excited about the prospect of working for the company. Avoid looking impatient or constantly looking at your watch. And please, don't pull out your phone and start checking messages -- even if the interviewer steps out of the room for a few minutes.
7. Use tact. If it is necessary to discuss former bosses or colleagues that you may have had problems with, use diplomacy. If you bad-mouth them, it will only reflect negatively on you.
Do you monitor and analyze your credit report? If you don't, you should. Being aware of your credit score is crucial as your credit determines your eligibility for large purchases like a car, home or personal loan.
The Importance of Monitoring and Analyzing Your Credit Report
It's recommended that you check your credit report at least once a year to ensure no errors need to be disputed. However, keeping tabs on it regularly can help spot discrepancies early on. Monitoring and analyzing your credit report helps tremendously with keeping track of your payments and outstanding debt. It can even be exciting to see your credit utilization go down and your scores gradually improve with each payment. Staying on top of your activity makes it easier to stay motivated to meet your financial goals, as well. I personally check my credit report once a month thanks to resources such as Credit Karma, Credit Sesame and Discover.
Credit Karma is one of the free resources that allow you to stay on top of your credit. Recently, they've added in the Credit Report beta feature that allows you to see exactly what financial institutions can see when they view your credit report. Other beneficial features include the credit utilization report, the recommendations available for those seeking loans and the ability to read reviews about different financial institutions. Credit Karma not only allows you to monitor your credit report as often as you need to, for free, but they also have a ton of other resources available to aid you in improving your credit score.
Credit Sesame has a lot of potential. The main drawback is that you have to invest money in the site in order to use it to its fullest potential. Before Credit Karma introduced its free credit report feature, I would often pay to access my credit report through Credit Sesame. However, like Credit Karma, your credit score is always available to you for free. Additionally, the company notifies you when something happens on your credit report, and you can even set goals to see how close you are to getting your credit to where you want it to be.
Credit Card Companies
Some credit cards companies offer users their FICO score each month with their bill. This is one of the easiest ways that you can be sure to stay on top of your credit. Other credit card companies use this feature as a way to entice their users to sign up for paperless statements. Take Walmart for example. Receiving my FICO score each month on my statements is great when life gets busy and I don't want to take the time to use other credit services.
If you want to make sure that you are able to get the things you desire and to clear lingering debt, it's important to monitor and analyze your credit report frequently. Credit scores play a large role in obtaining loans, financing, housing and much more. You'll come to find that through regular monitoring, your financial health and well-being will surely benefit.
Congratulations -- you're engaged! Now you can finally begin planning the wedding you've always dreamed about. As you start looking at venues, interviewing photographers and creating sample menus, you may quickly notice that your magical day can really add up money-wise. Some people grow disillusioned with the outrageous cost of throwing a wedding and opt to take the simple route early on. Others refuse to skimp on details and instead find ways to splurge. According to a recent survey by Brides magazine, about one-third of couples go over their initial wedding budgets.
If you fall into the latter category, don't beat yourself up. After all, your wedding will (hopefully) be that once-in-a-lifetime experience you'll never forget. But do keep in mind that there's a difference between stretching your budget and going overboard. No one wants to find themselves starting their marriage deep in wedding day debt.
Don't Start Off on the Wrong Foot
It's no secret that a large percentage of marriages these days end in divorce and that money is often a major factor. You may not realize it when you're caught up in the details of floral arrangements and seating charts, but taking on debt to pull off your dream wedding can have serious consequences for your marriage.
Think about the short-term: How do you picture yourself spending that newlywed year? Do you want the freedom to travel with your spouse, dine out often and treat yourselves to the things you probably won't be able to do once kids come into the picture? Or do you want to spend that first year penny-pinching and stressing out over the looming balance on your credit cards? What many fail to realize is that splurging on a wedding often means sacrifices during the beginning stages of marriage.
There Could Be Long-Term Consequences Too
But it's not just the short-term you have to worry about. Over time, a huge wad of wedding debt can seriously derail your long-term plans and goals. The average wedding costs about $30,000, not including the honeymoon. Now if you happen to have the money to pull off a fancy wedding (from savings, generous parents or a combination of both) and want to indulge, go for it. But think about the impact of taking on debt in the grand scheme of your marriage. Outstanding wedding debt could make you a less desirable candidate when it comes to applying for a mortgage or car loan. You may be denied completely or get stuck with a less favorable rate, which will affect your finances for many years down the road. Then there's the notion of starting a family. How comfortable would you feel having kids knowing you've still got thousands of dollars in wedding debt to pay off?
Not only can wedding debt spoil your plans, but it can also add layers of stress to your marriage. If one of you ends up convincing the other to overspend on the big day, it could trigger some serious resentment if you're unable to meet your financial goals down the line. So before you eagerly whip out your credit card every time a vendor presents you with a quote, ask yourself whether a single day -- magical as you want it to be -- is worth many years of financial tension and sacrifice.