The biggest money pit I see when I interview prospects with financial problems is the car — always.  I have even seen people paying half of their disposable income in car payments (plus insurance, tolls, repairs, maintenance, tickets and all the other costs we don’t often consider).  It’s insane.  Here’s a post from Jay Miles in Quora.com, in answer to a young man thinking about buying a Tesla, that says it perfectly:

No, don’t buy a car.  Cars don’t make money.  They’re depreciating assets.  You already have a wife, so there’s no need to show off.

Scammers are targeting bankruptcy filers throughout the country by posing as attorneys or law office staff and telling them to immediately wire money to pay a debt.

Don’t fall for it. One of the best ways to avoid a scam is to stop the caller and make a direct call to the supposed person or company. For example, if they say it’s your attorney’s office, stop and YOU PLACE THE CALL DIRECTLY TO THE OFFICE. You know you’ll be dealing with the real person or office, instead of a phony. Don’t be hurried by the caller. Situations of this type do not call for immediate action and can wait a day or a weekend if necessary.

Here’s the bulletin issued by the bankruptcy court serving northern Virginia (with information applicable to all jurisdictions):

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF VIRGNIA
CONSUMER ADVISORYALERT
Phone Scammers Target Bankruptcy Filers in Virginia and Other States

A sophisticated phone scam is targeting bankruptcy filers in several states, using personal information from filings and posing as attorneys to coerce intended victims to wire money to the scammers immediately to satisfy a debt.

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Probably one of the most frequent problems I encounter with new cases clients bring to my office is the lack of documentary evidence.

No one bothers to put down in writing that agreement with the brother-in-law or “friend” about the business they were starting together, the house one was going to buy (by signing on the mortgage) and which the other was going to “own” (by going on the title) and paying the mortgage, the investment they were going to make together, or any other manner of legal arrangements.

Then, when things “go south” and the “owner” does not pay the mortgage or the business fails (or even prospers, in which case you will see fights over profits), the differences in each person’s understanding of what was agreed becomes painfully obvious.

But what’s worse is that the prospective client has nothing in writing to back up his side of the story. It becomes a “he said / she said” dispute hard to win in court. Convincing a judge or jury of the rightness of your position is now just a coin flip.

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It may not be a well-know fact, but the truth is a lot of financially-responsible people are turned down for loans because they have NO history of recent borrowing. None.

This may be because the person saves up and pays for purchases without financing, or because they have not bothered to start building a new credit history by borrowing (and showing on-time payments) after a major financial event such as a bankruptcy or foreclosure.

After a bankruptcy discharge, a debtor needs to make sure that, after his or her case closes, there is a new credit history being reported with either new lines of credit that are opened, or old lines that were maintained and still being used.

Many of these individuals are credit-worthy but the current credit reporting and scoring system is not set up to evaluate this.

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Admitting it was a “bad boy” handling mortgages in bankruptcy, Chase recently entered a settlement with the federal government to compensate more than 25,000 US homeowners. The settlement is subject to court approval.

The United States Trustee Program, a unit of the Department of Justice whose attorneys at the bankruptcy court oversee the integrity of the system, announced on March 3 it had reached an agreement with Chase forcing it to pay homeowners $50 million in cash, mortgage loan credits and loan forgiveness for “robo-signing” and other improper practices before the bankruptcy court. Chase also agreed to change internal operations and submit to the oversight of an independent compliance reviewer.

Chase admitted it submitted more than 50,000 mortgage “payment change notices” that were signed by persons who had no knowledge of the accuracy of the notices they signed:

  • More than 25,000 of the notices were signed by employees or former employees who had nothing to do with reviewing the accuracy of the notices.
  • The rest of the notices were signed by employees of third party vendors who also were not involved in verifying the accuracy.

Chase also admitted it failed to file the notices in a timely fashion, as well as failing to provide timely escrow statements to homeowners in bankruptcy.

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It’s tax season and the scam artists are also out in force. Even our law office — which specializes in tax matters — recently got an email asking us to pay a phony tax bill!

There are a number of scams out there with criminals pretending to be IRS agents and contacting persons by email and telephone trying to get them to pay up a phony tax debt.

The single most effective rule to remember is this: IRS does not make initial contact with taxpayers by email. If there is a tax problem, you will be notified by mail. Period.

Below is a press release from IRS warning taxpayers about telephone scams that are also common.

IRS Reiterates Warning of Pervasive Telephone Scam

R-2014-53, April 14, 2014
WASHINGTON — As the 2014 filing season nears an end, the Internal Revenue Service today issued another strong warning for consumers to guard against sophisticated and aggressive phone scams targeting taxpayers, including recent immigrants, as reported incidents of this crime continue to rise nationwide. These scams won’t likely end with the filing season so the IRS urges everyone to remain on guard.

The IRS will always send taxpayers a written notification of any tax due via the U.S. mail. The IRS never asks for credit card, debit card or prepaid card information over the telephone. For more information or to report a scam, go to www.irs.gov and type “scam” in the search box.

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Here are common holiday “deals” that look good on the surface — but are financial time bombs waiting to go off. Thanks to USAA financial services for bringing them to my attention. I share them with you:

1) “90-days same as cash.” Don’t pay it in time and you could be hit with accumulated finance charges and double-digit interest rates. Now it’s no longer such a good deal.

2) “5 years interest free.” Don’t believe it. They cannot stay in business if they don’t put interest somewhere in the charge to pay for their own loans. The charge is probably hidden in the price. Or maybe enough borrowers fail to meet the terms and get hit with suspended accumulated interest to make the business practice a money-maker.

3) “Skip a payment.” There’s no free lunch (if I may coin a phrase). The interest may be folded into principal increasing the cost of your financing. They are not doing you favors.

4) “20% discount for opening a store credit card.” Credit scores also take into account the amount of credit lines you have, as well as the frequency and recency of credit applications. You may be dinging your credit to save a few dollars. By the way, for many companies, the real money is in the financing, NOT the goods they selling. I remember the harangue I got from a dealer once for buying a car with cash and another time from a Dell salesman when I bought a set of office computers. That was instructive. (Undoubtedly the sales persons got bonuses for financed purchases.)

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One of the most frequent questions I get is: “How am I going to pay the attorney’s fees and costs for a bankruptcy?”

Yes, we know you’re seemingly strapped, but you actually have more resources than you realize.

Here are some:

1) Stop paying on the debt you are going to discharge anyway. In bankruptcy, almost all debts are dischargeable (wiped out). (There are a few, such as governmental fines, recent taxes, etc., but your bankruptcy attorney will identify them and discuss them with you.) The majority, such as credit cards, unsecured lines of credit, judgments, will be gone. Stop paying immediately and save up that money to finance your case. These are professional lenders, they understand.

And, by the way, once you hire an lawyer, you can stop the collector calls by simply telling them you have hired a bankruptcy attorney to prepare a case. Give them the name of your attorney, because they will call to confirm, and the calls will stop.

Professional lenders know they will be violating a court order by calling once you have filed, and since they don’t know when you will file, as a matter of company policy, they usually stop the calls altogether. Whew.

2) Get a “loan” from your secured lenders. If you have a mortgage on a house you want to keep, you may actually be doing the mortgage lender a favor by skipping a couple payments to pay for your case. If your goal is to save your home, you will probably be filing a Chapter 13 bankruptcy to catch up on your back payments — “cure the default” — and make your regular payments going forward.

Believe me, the bank does NOT really want to take your home. They are not in the real estate business. They are in the lending business. They want you to pay the mortgage and pay the arrears — that’s where they make money. If you skip a couple payments to get the money to set up a payment plan to pay them in Chapter 13, as well as freeing up more money by wiping out your other “junk” debt, such as credit cards, as a business matter, they won’t mind. You’re going to pay back the missed payments in the plan anyway.

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Probably the most frequent question I get from prospective clients is: “Will bankruptcy hurt my credit score?”

It’s a fair question, but I usually find it a little amusing. It’s a bit like the man who’s drowning worrying about how he’s dressed.

For most people, by the time they see a bankruptcy attorney the financial problem is extreme — the garnishment has begun, the foreclosure is imminent, the summons has arrived setting a court date, or the collector calls are now coming every hour. And, of course, at this stage, the person’s credit score is in the tank. It cannot get worse.

By clearing away debt, I explain, they will improve themselves to get a loan.

A recent survey of credit-risk managers at lenders by credit-score giant FICO, reported in the Washington Post, confirms what I have been saying all along: When it comes to qualifying for a loan, it’s the amount of debt you are carrying, not your credit score that matters most.

“Researchers asked a representative sample of them what single factor makes them most hesitant to fund a loan request — in other words, what’s most likely to prompt them to say no.

Tops on the list? Surprise, it’s not your credit scores. And it’s not how much you’ve got for a down payment or what you have in the bank. It’s your DTI — your debt-to-income ratio. Nearly 60 percent of risk managers in the FICO study rated excessive DTIs as their No. 1 concern factor. . . “

Again, I repeat, for 60% of bankers it’s the amount of debt the credit applicant is carrying that is the disqualifier, not the credit score!

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There may be some good news for taxpayers with problems since IRS loosened up the rules for relief in 2012, according to recently-released reports by the agency.

The IRS changes for granting tax relief recognize the downturn in the economy.

From 2012 to 2013 the number of so-called “offers in compromise” (proposed agreements by taxpayers to IRS to discount back taxes) increased from 64,000 to 74,000. And, more importantly, the number of offers accepted jumped from 24,000 to 31,000 — a 29% increase.

Likewise, the IRS seems to be moderating its forced collection efforts. IRS levies on bank accounts and paychecks dropped from 2,961,162 to 1,855,095 — a 37% decrease. And the number of seizures dropped from 733,000 to 547,000, which amounts to 25% fewer seizures of property.

Says Morgan King, a California attorney and tax relief expert: “Clearly, the new policies are making it feasible for more honest but delinquent taxpayers to wipe the slate clean, become compliant with the tax laws, and get a fresh start.”

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