Post-Bankruptcy Survival: Why Debit Card Limits Could Be Bad News For Debtors-Image via Wikipedia

For debtors exiting bankruptcy, the ability to use debit cards for transactions requiring a credit card has been a lifesaver. From purchasing airline tickets to renting a car, post-bankruptcy debtors are depending on debit cards while they save enough cash for a secured credit card and build their credit so they can eventually qualify for an unsecured credit card. But some banks may be planning to limit how much debtors can charge onto their debit cards at one time because of proposed legislation designed to limit interchange fees. Interchange fees are the charges that retailers and other commercial ventures absorb so that they can use the debit card/credit card infrastructure provided by banks.

The revenue banks get from interchange fees helps to offset money lost from fraudulent transactions. So with the Fed’s proposed cap in place, banks argue they won’t have the money to protect themselves against fraud. And, of course, the bigger the purchase the bigger the risk, so banks are considering limiting consumers’ ability to pay by debit card.

“If banks cannot recapture their fraud-prevention costs, it is likely that a lower percentage of transactions at the point of sale would be approved,” Price said. “If the final rules that are issued in April look like the draft, there’s no question that it will impact how we and other issuers price deposit and payment services and what features and benefits are included.”

If banks limit transactions on debit cards we could see transactions being limited to as little as $100 or $50.  This would be a nightmare for bankruptcy debtors who need debit cards while they rebuild their credit.  Debtors exiting bankruptcy need to keep a close look at their bank’s debit card policy in the coming months.  It might even be wise for post-bankruptcy debtors to switch banks if debit card limits are instituted.

(source: http://money.cnn.com/2011/03/10/pf/debit_cards_limit/index.htm?iid=RNM)

Creating Viable Businesses After Chapter 11 Bankruptcy-Image via Wikipedia

The number of businesses filing bankruptcy has increased significantly over the past few years. But how does a company exiting Chapter 11 bankruptcy become truly viable? Let’s take a look at a few post-bankruptcy survival tips for businesses:

1. The secret to post-bankruptcy survival for businesses begins before they ever file bankruptcy. As you may have noticed, many companies work hard to pre-package their bankruptcy, complete with debtor-in-possession financing and creditor concessions. This type of bankruptcy planning can pave the wave for the type of smooth and speedy bankruptcy exit needed if a company plans to remain viable.
2. The next important step for businesses in Chapter 11 bankruptcy is to make sure that their business model is viable.  As we have seen with companies such as Blockbuster and Borders, a business model which is outdated can become a liability and can cause creditors to question the very survival of the company. This type of doubt can doom the company to a lengthy and arduous bankruptcy and/or to liquidation.
3. Companies in Chapter 11 bankruptcy must forge supplier, vendor and leasing agreements which will make it possible for the company to profitably exist after bankruptcy.  Companies such as Blockbuster and Borders found themselves battling to get out of expensive leases and unprofitable contracts with vendors.  But if they or any other bankrupt company wants to survive after bankruptcy, they will need to renegotiate these contracts.
4. Win favorable payment terms during your bankruptcy negotiations.  Post-bankruptcy survival is also dependent upon keeping your cashflow steady. In order to do this, bankrupt companies must negotiate payment terms which allow them to get paid quickly but also allow them to pay within a reasonable amount of time.  Borders is a perfect example of a company which is experiencing cashflow problems because of unfavorable payment terms.

The True Face Of Bankruptcy-Image by Getty Images via @daylife

As the headlines for bankruptcy focus on the sensationalized stories of individuals and companies who choose to engage in fraud and deception, it’s important for us to remind ourselves about the true face of bankruptcy. The true face of bankruptcy is NOT the former millionaire turned fraudster or slickster, it is the ordinary people in our society who have run into a bit of bad luck and misfortune. The true face of bankruptcy is:

• The single mother who has lost her job due to layoffs and now needs bankruptcy so that she can save her home from foreclosure.
• The elderly couple who is inundated with medical debt and now needs bankruptcy so that they can avoid depleting their savings and retirement trying to pay medical bills they can’t afford.
• The recent college graduate who has been unable to find work for the past two years and now they need bankruptcy relief so they can discharge high interest credit cards and other unsecured debt they accumulated during college.
• The businessman whose business took a nosedive after the recession caused customers to cut back and now he needs to restructure his debts in Chapter 11 bankruptcy so that his business can survive.

The true face of bankruptcy are all the ordinary men and women who have come to the end of their financial rope and now need the help of bankruptcy so they can start again. Most people who file bankruptcy use it as their last option and that’s after they have exhausted all other means of solving their debt troubles.  They have no interest in trying to “game” the system, they simply want a chance to start again, and bankruptcy gives them that chance.

Post-Bankruptcy Survival: Stay-At-Home Spouses Could Be Denied Credit-Image via Wikipedia

The Federal Reserve is coming under fire after it proposed that credit card companies consider individual income and not household income when deciding whether they will issue a credit card. Many protested saying that married women (and some men) who don’t work outside the home would be unfairly penalized by the law.  The Fed responded by saying that the nonworking spouse could get a credit card if the working spouse co-signed. This can be especially damaging for married post-bankruptcy debtors who don’t earn an income in a job outside of their home. After bankruptcy, all debtors need to rebuild their credit, and that includes work-at-home spouses.

While it is understandable that the Federal Reserve wants to make sure that credit cards are only being issued to individuals who have an income and can repay the debt.  The Federal Reserve has failed to understand that the income of a working spouse is also the income of a non-working spouse.  Unfortunately, the Federal Reserve has not shown any signs of changing its position.  So what should a stay-at-home spouse do after they exit bankruptcy?  Let’s take a look at a few strategies:

1. The post-bankruptcy debtor who does not work outside of the home could apply for a secured credit card in their name and then slowly earn the right to have it converted to an unsecured credit card.
2. The stay-at-home spouse could ask for their spouse to co-sign their unsecured credit card after they exit bankruptcy.
3. The stay-at-home spouse may want to consider starting an at-home business or even receiving an “official” salary from their spouse as a way of securing their own line of credit after bankruptcy.

(source: http://www.businessweek.com/magazine/content/11_10/b4218030561940.htm)

Image via Wikipedia

Savings has grown for individuals in this country, so banks are now seeing themselves flush with deposits. What do those fat deposits mean for debtors? More credit availability. Consumers are reporting that the ability to get credit, even with a flawed credit history seems to be easier, especially in the auto lending industry.

Even car buyers with tarnished credit histories are getting financing, in some cases without making a down payment. More than 859,000 new cars were sold to consumers with a so-called subprime credit rating in 2010, a nearly 60 percent increase from the year before, according to CNW Marketing Research.

A sixty percent increase is huge.  But for those debtors trying to reestablish their credit after bankruptcy, there are still issues they must keep a look out for:

1. What you see is not always what you get.  A post-bankruptcy debtor purchasing a vehicle or applying for a credit card needs to read the fine print.  Are there fees, interest rate hikes or other variables that could make this credit deal more expensive than it seems?
2. Some lenders are still dealing in funny numbers to get you qualified.  Post-bankruptcy debtors must remember that the lending industry is in the business of making money and the only way they can do that is if they have customers.  During the recession the number of customers went down, not just because there was a credit crunch; but because many debtors began to turn down offers for credit out of their own cautiousness.  Now, to get those customers back, some lenders may be willing to have you (the post-bankruptcy debtor) take on just a little more debt than you can really afford. So make sure you do the numbers yourself and don’t stretch your finances to pay for debt.
3. While it is mostly the auto lending industry showing a huge upswing in the granting of sub-prime credit, post-bankruptcy debtors need to watch this in the housing market too. It may be tempting to take on a sub-prime mortgage just to “get into” a home. Don’t do it.  A mortgage is a huge, long-term responsibility, and post-bankruptcy debtors who sign onto toxic mortgages are putting their homes and finances in jeopardy.

(source: http://www.nytimes.com/2011/02/28/business/28autos.html?_r=1&src=busln)

Post-Bankruptcy Survival: Save For Retirement vs. Paying Off Debt-Image via Wikipedia

Many creditors would have you believe that retirement savings should be completely postponed if you have any outstanding debt. But this line of reasoning defies logic. Post-bankruptcy debtors who still have debts to pay after their discharge need to ask themselves a consider a few things so that they can both prepare for retirement, reduce and eventually eliminate their debt obligations.

1. Post-bankruptcy debtors should consider their age when deciding how much they should commit to retirement savings as opposed to debt repayment. Younger debtors have more time to save for retirement while older debtors will need to take an aggressive retirement savings approach after their bankruptcy discharge. Post-bankruptcy debtors don’t want to take the risk that they won’t have enough for retirement a situation that could force them to take on even more debt  in their elderly years.
2. Post-bankruptcy debtors need to make sure that they have a sufficient emergency fund.  We see what’s happening in this recession with long-term employment. Many debtors remaining jobless for a year or longer. That’s why post-bankruptcy debtors should create an emergency fund that’s able to cover at least 6 months of their living expenses before committing lots of money to retirement savings or to major debt repayment. Once again, failure to have a healthy emergency fund could be financial risky when the post-bankruptcy debtor is faced with a crisis.
3. Post-bankruptcy debtors should make sure that they are maximizing their employer’s matching plan for any 401k fund they have while simultaneously paying off debt.  It may be smarter to literally double your money in an employer matching plan than to spend all of your cash on paying down debt quickly as possible.

(source: http://moneywatch.bnet.com/retirement-planning/blog/money-life/should-you-save-for-retirement-or-pay-off-credit-card-debt/3063/?tag=content;col1)

Post-Bankruptcy Survival: Winning The Credit Card Game-Image via Wikipedia

One of the battles of a bankruptcy debtor’s post-discharge life is rebuilding their credit.  One of the tools of doing this is using credit cards strategically to gain an advantage in the credit rating system.  But how does a post-bankruptcy debtor win the credit card game, and is it even possible?

• Post-bankruptcy debtors must realize that dealing with the credit card industry is much like a game of musical chairs.  Just when you think you got it all covered, the music stops or suddenly changes.  So is the case with credit card companies who are making subtle and not so subtle changes to their terms which are designed to get as much money as possible out of you—the debtor.  That said, smart post-bankruptcy debtors will remain on high alert for changes and be prepared to react to those changes immediately so that they can avoid financial problems. Shopping around for the credit card with the lowest fees and best interest rates is a good starting point.
• Post-bankruptcy debtors must learn to use their credit cards; but to use them responsibly.  More credit card companies are becoming aggressive about cancelling the accounts of credit card consumers who do not use their credit cards.  This is the tricky part of maintaining your credit rating after bankruptcy. Human nature says that if you start to use the credit card you eventually begin to overspend. You’ve seen the studies which say that people who use plastic over cash spend 30 percent more.  Well, it’s true. Post-bankruptcy debtors must make it habit to use their credit card on a regular basis, while developing the discipline to pay it off before the balance accrues interest.

(source: http://moneywatch.bnet.com/saving-money/blog/devil-details/5-credit-card-tricks-for-2011/4081/)

Credit Card Companies Continue To Abuse Youthful Ignorance-Image via Wikipedia

The CARD Act was suppose to put a lid on the virulent marketing of credit cards to young people but according to some experts, the situation has not improved much. Young people are still in debt with credit cards and credit card companies are coming up with creative ways to bilk the youth of their last penny.

Jim Hawkins, an assistant law professor at the school, found that 76 percent of more than 300 undergraduates surveyed under age 21 had received a credit card offer since the beginning of 2010. There also was little difference in credit card marketing between the freshmen who entered school after the law took effect and the upperclassmen.

What’s more, roughly a third of freshmen already had a credit card, Hawkins’ survey found. One way the students got around the income requirement: Almost one-third used student loan proceeds as part of the income reported to card issuers when they applied.

Income requirements are minimal for the cards because they are based on ability to pay the minimum monthly amount, not the entire balance, Hawkins said. Other loopholes the banks have found include using students’ e-mail addresses or putting offers on Facebook that include gifts if they fill out an application, Hawkins said.

The fact that credit card companies are using Facebook and the rest of the internet to ensnare youth into debt is disgusting.  These companies are clear on the fact that the students don’t have significant income to repay credit card debt. But that’s the point, right? Get the youth and drain them with high interest and fees, this is a credit card industry strategy. The fact that the income requirements are based on the ability to pay the minimum payment and not the balance is almost criminal. We all know that paying only the minimal balance can leave you indebted for years paying thousands of dollars in interest to a credit card company. That was the whole point of the CARD Act, to level the playing field and give Americans the opportunity to get out of debt.  But instead our youth remain at risk. And if you thought that the co-signer requirement would save our youth from credit card debt, you’re wrong.  The CARD Act allows the credit card co-signer to be anyone, as long as they are at least 21 years old.  That means that college students can co-sign each other’s credit card applications and put themselves in a word of financial trouble. Envision a new type of peer pressure where those who want to “fit in” sign onto a several years of debt for “friends.”

(source: http://www.star-telegram.com/2011/02/17/2858645/credit-cards-still-being-marketed.html)

1. Credit repair companies can wipe bad history off my credit report.  False. Credit repair agencies have no power to remove negative information from your credit report if the information is true.  If there is negative and factually incorrect information on your credit report, you don’t need a credit repair company to remove it.  Simply dispute the false information by contacting the credit reporting agencies via letter.
2. Credit repair companies can give me a “fresh financial start” by giving me a new credit identity. False. Some unscrupulous credit repair agencies engage in the illegal practice of creating new credit files for their victims.  But this practice can land the debtor in legal trouble.
3. If I stop paying my bills it will force my creditors to the negotiating table.  False.  Many credit repair companies encourage debtors to cease payment on their debts and to redirect their money to the credit repair agency.  This is a mistake.  Many credit repair agencies have been known to create more problems for debtors because after the debtor follows their “stop payments to creditors” advice they are hit with several lawsuits.
4. Credit repair agencies are better equipped to place me in an affordable repayment plan with creditors.  False.  Many credit repair companies carelessly place the debtor into repayment plans which are unaffordable and unsustainable.  Also, many credit repair companies fail to include all of the customer’s debts in the repayment plan which can still leave the debtor in financial trouble.

1. The creditor knows for certain that they debtor cannot discharge their new debts in bankruptcy anytime soon.  If the debtor filed a Chapter 7 bankruptcy, they have to wait 8 years before they can file another one.  So technically, they are a pretty good credit risk if you look at that factor alone.
2. A debtor exiting bankruptcy has more disposable income than anther debtor who is avoiding bankruptcy.  Because the debtor is no longer required to make payments on their unsecured debt and other debts discharged in bankruptcy, they can now use their income for other bills, a new car or a new mortgage. 
3. Even if a post-bankruptcy debtor gets a loan and defaults a few years down the road, there will be less competition for the debtor’s assets.    Let’s say the debtor defaults on a credit card loan, the creditor sues and wins a judgment.  It is unlikely that the creditor will have to battle other creditors for access to the debtor’s assets. Many post-bankruptcy debtors don’t accumulate nearly as much debt as they had before they filed bankruptcy.  This fact increases the creditor’s chances of getting paid.