Tag Archives: debt

New Year’s Resolutions for Those in Debt

My partner Jeena Cho and I have been discussing plans and strategies for 2014. Along with this comes the annual resolution pitch we all seem to give ourselves: eat better, go the gym, blah blah. There is something a little cheesy about this, but there is also something to be said for reflection and the vow to take action to better your life in the new year.

I will never stop harping on my number one problem I see with people in too much debt: waiting too long to take action. I know it is hard. Whether it is embarrassment, fear of the unknown or procrastination, waiting to act is one of the worst things you can do.

If you have too much debt, the interest and penalties that increase this out-of-control debt actually feed off of your very failure to act. You know the drill: the credit cards reach their limits and you can’t make the required payments.

Clients describe this sinking feeling in their stomachs when they realize they are over their heads. And when they can’t juggle things and make even all the minimum payments, the phone calls and collection letters are particularly intimidating.

One of my favorite parts of bankruptcy practice is seeing people rise again. The first sense of relief is our first meeting where the client realizes there is a viable strategy for getting themselves out of this mess. The second big step is completing the 341 meeting of creditors, and breathing a sigh of relief that it is over and not what they expected. The third step is getting a discharge. Getting out from underneath the debt and getting a fresh start brings about a much needed sense of hope.

So, back to the resolution. If you are suffering from too much debt, make the resolution to do something about it, and act. Do not just reflect, but take affirmative steps. Call a financial advisor, tax specialist or whatever professional you need. It’s so easy today that you can often just schedule appointments online. Regardless of how you go about it, talk to different professionals and make an informed opinion on how to proceed.

I’ve never had a consultation with someone that regretted getting good information.

Image Credit: EEPaul

Will I Ever be Debt Free?

By Jeena Cho

Money, especially in the context of debt has a lot of emotions surrounding it. If you’ve been avoiding your debt because you’re feeling guilty, shame, embarrassment, fear, anger or some other emotion, this post is for you.

Being in Debt is Painful!

Frequently, when I meet with clients, I can feel the increased tension in the room. You see, we have all sorts of associations with money. Money represents success, power, ability to purchase things for yourself and your loved ones. Clients will frequently express the emotional pain of being deeply in debt. Common emotions are: shame, fear, denial, frustration and anger.

How Did You Get Into Debt?

Most people don’t end up with unbearable debt overnight. For most people, it’s very gradual. Maybe you don’t have enough money to buy holiday gifts for your children, so you charge it on your credit card. Then when you get your next paycheck, you need more money for unexpected house repairs. So, you charge that too. Then the car breaks down. Or you’re faced with an unexpected hospital visit. Sometimes, it’s simply wanting what you know you can’t afford. You don’t want to feel left out when you see your friend carrying the latest designer purse so you charge it. This feeling of wanting to belong, wanting to keep up with the Joneses is powerful.

Who is to Blame for the Debt?

There’s a tendency to play the blame game. You blame your spouse, your significant other, your parents, your children. The hardest part of the blame game is blaming yourself. Berating oneself for the financial mess and constantly beating yourself up for debt - that’s very common.

You’re Not Alone

Another thing I hear frequently is “I feel so alone.” Debt doesn’t exactly make polite dinner conversation. People in debt go to great lengths to hide their problem. It can feel as though everyone else around you is earning more, spending more, yet doesn’t have the financial woes you’re facing.

If you feel like you’re the only one in debt, read the headlines in any newspaper. Debt is everywhere. We’ve gone through a mortgage crisis and now a student loan crisis. Chances are many of your friends, family, and co-workers are suffering with debt too. It’s just we’ve all gotten very good at masking the problem.

What’s Stopping You from Being Debt Free?

Despite the pain of being deeply in debt, most people resist change. It’s like resisting healthy living. Most of us know we need to drink more water, consume less fat, eat more fruits/veggies, exercise more, yet, we all struggle.

Basic math requires that in order to pay off debt, you must (1) increase income or (2) decrease spending or do combination of both (1) and (2). Some clients resist this idea. They will buy lotto tickets, gamble or try various other ways of coping with their debt, including simply ignoring it. You can guess how well this works.

Kick the Debt Habit

Oftentimes, I’ll meet with clients that struggled with debt for years and they want me to make it better instantly. Frequently, clients want to avoid bankruptcy. I can certainly understand. However, non-bankruptcy options are often more costly than bankruptcy. This includes repaying the debt in full or paying in part, such as debt settlement.

Bankruptcy can only fix existing debt. It can’t help fix your broken budget. If you’ve always been borrowing from the future and subsidizing your lifestyle by using your credit cards, it will mean you have to cut expenses to remain debt free. It means taking a hard look at your budget. It may mean you have to drastically curb your shopping habits. It may also mean you have to give up certain expenses. Like the saying goes, you can’t have it all.

Make it a Priority

I firmly believe that in order to get out of debt, you must make it your number one priority. Look at your budget as though you were a CFO reviewing your company’s P&L. Grab that red pen and start figuring out what expenses go.

Start Big

When reducing your expenses, start with the large line items like rent, and car payments. The reason is that it’s much easier to save if you can reduce your rent by $500 per month than trying to reduce your food budget by $500. Is it possible to get a roommate to offset your rent? How about renting your apartment on Airbnb temporarily? Can you drive your car on Lyft or loan your car on getaround or relayrides?

Go Small

After you’ve figured out ways to reduce your spending on the big items, look at all the tiny ways you’re wasting money. This can be anything from your daily cup of joe to buying lunch everyday.

Yes! You Can Be Debt Free!

The journey to a debt free life isn’t easy. It’s full of challenges. There may be disappointments. You may have to make difficult choices like deciding to file for bankruptcy. In addition, you may need to make some serious adjustments in your spending habits.

Similar to starting a new diet, there will be days where you won’t meet your goals. The important thing is to not give up. Don’t beat yourself up for not sticking to your budget. If you go over budget one day, tomorrow’s another opportunity. Responsibly managing personal finances is a lifelong goal. Don’t let one defeat stop you.

Image Credit: morguefile

Bankruptcy isn’t something that only happens to “those people”

By: Jeena Cho

When I tell someone I’m a bankruptcy attorney, a frequent reaction I get is something like “oh, you work with those people.” The implication being that there is a certain category of those people that file for bankruptcy and that he could never become one.

One of the most common thing a client says to me at the initial meeting is “I can’t believe I’m here” or “I never thought I’d be sitting here.” Bankruptcy isn’t something that you plan for. It’s a Plan B.

A typical client ends up in my office like this.

You’re going through life, always paying your bills on time but having little or no cash reserve. And you use your credit card to buy stuff. Then one month you spend a little too much or maybe there is an unexpected expense. Which means you carry over a balance.

No problem, you think to yourself. I’ll pay it off next month. But something else happens - maybe an unplanned visit to the doctor or some other life event. Soon, you are always carrying a balance month to month and that balance starts to grow. But it doesn’t grow over night. It happens slowly.

Then one day, you hit a big bump such as loss of a job, reduction in pay, increase in mortgage, illness, divorce, etc. The decrease in income leads to making up the difference by more credit card spending.

Soon that once sort of manageable credit card debt feels like Mount Everest. Especially when you miss one payment and all the credit card spikes up to the default rate of 35%. So, you start borrowing from Peter to pay Paul, juggling all of your credit cards in the air, going faster and faster to keep them from falling.

Another common situation is business owners or investors that took a risk, borrowed money and couldn’t repay the business debt.

Lastly, clients frequently end up in my office for mortgage debt. Home equity lines of credit, negative amortization mortgages, balloon payments, upside homes are all common problems for clients.

The way I see it, unless you have stockpiled savings and/or have no debt, don’t be so certain you’ll never one of those people that I help. Bankruptcy doesn’t discriminate based on age, sex, or socioeconomic status. You can earn $40,000 or $400,000. Neither group is immune from the problems of too much debt.

Need help but afraid to ask?

By: Jeena Cho

As a society, there are two things we don’t talk about. Death & Debt. Frequently, when people are experiencing financial distress, they go into denial mode. Instead of assessing their situation and tacking the problem, they deny thinking something will change. Of course, debt problems do not get better without proactive action. It gets worse. Interest rates continue to rise, you borrow from Peter to pay Paul.

If you are experiencing financial trouble, you should seek help. Go see a financial advisor, reach out and ask a friend or a family member. You will soon find that you are not alone in your problems.

For those of you that do not see any hope of being able to reduce your debt, we are offering a free seminar. If you do not want to attend in person, you can attend on the Web. It’s totally confidential. We’ll discuss the different options to deal with your debt including debt settlement and bankruptcy.

Our goal is to educate you with the options available. One of the most frequent comment I get at the end of a consultation is “I feel so much better” or “I should have come in a long time ago.” We hope to do the same through these workshops.

For more information or to register, go to http://www.jclawgroup.com/workshop/

Forgetting to List a Creditor in Bankruptcy

Forgetting to List a Creditor in Bankruptcy By Jeff Curl

Occasionally I get a panicked call from a client on forgetting to list a creditor in bankruptcy. They received the discharge, but want to know if they are now responsible for the omitted debt. This raises a few issues.

Forgetting to List a Creditor in Bankruptcy - Was the Debt Dischargeable?

It first depends upon the type of debt. Debts in bankruptcy are either dischargeable (you can get rid of it) or nondischargeable (you’re stuck with it). Typical dischargeable debts include medical bills and credit cards. Typical nondischargeable debts include student loans, child support and recent taxes. If the debt omitted was something you could not discharge in the first place like student loans, you are stuck with it no matter what.

Was it a Chapter 7 “No Asset” Case?

But what if it was dischargeable? What if you forgot about the $8,000 credit card you have not used for a year or two? If you filed a Chapter 7 case, but were not able to exempt and keep all of your assets, the debt would survive. Luckily, the majority of those cases are “no-asset” cases. This means you were able to exempt and keep all of your assets; the trustee took nothing from you to pay your creditors.

If your debt was dischargeable in the first place, and if your case was the typical Chapter 7 “no-asset” case, those of us in the Ninth Circuit, including California, are in luck. Here’s some bankruptcy nerd talk: under the Ninth Circuit case of In re Beezley (recently followed by the Bankruptcy Appellate Panel in In re Heilman), the forgotten creditor has no claim against you. Your debt is discharged. It was a no harm, no foul situation because the debt was dischargeable and the creditor would not have received anything even if it was listed.

Take Immediate Action

If the omission of a creditor is discovered while the case is open, the petition should be amended immediately to add the creditor, and that creditor should be given notice as well. This is true even if you filed a Chapter 7 no asset case.