Is Bankruptcy My Only Option?

If you are facing financial difficulties, you probably don’t want to mention the word “bankruptcy.” Bankruptcy seems like a last resort and something that does more harm than good. While those things aren’t necessarily true about bankruptcy, you do have other options before you file. Debt can make you feel like you are sinking, but there are ways to adjust your debt to a manageable level so that you don’t have to say “bankruptcy” just yet.

One alternative to bankruptcy is negotiating your interest rates. Many people find that they have a hard time obtaining a lower interest rate on their own because they are dealing directly with creditors. Creditors want money. Period. They aren’t concerned with what it takes for you to get it to them. This is where a bankruptcy attorney comes into play. They can help fight for a rate reduction to lower your monthly payments to an amount that you feel more comfortable paying. You may also want to consider debt consolidation. Debt consolidation combines your monthly payments into one fixed amount so that you end up paying less per month. Again, this may be difficult to negotiate on your own, but it is a good option for managing your debt.

Maybe your house payments have gotten out of control and you would rather leave it than deal with negotiating payments. In this case, a short sale may be right for you. A short sale will allow you to sell your home for a price that is cheaper than the balance you have remaining on it. You do need an approved agreement with whoever your lender is. Because you are obtaining less money for the home than you actually owe, a lender will have to approve of this lower payment. If you can’t afford your house payment any longer but wish to keep your home, you can seek legal help to fight against foreclosure and develop some sort of home loan modification.

A loan modification is an attempt to lower your mortgage payments so that you can afford to keep your home. Loan modifications must be agreed upon by both you and your lender, which may be a difficult process. You must go through a review process in order to assess the current value of your home as well as your past credit history to determine if you are eligible for modified payments. Loan modifications can do many different things and are catered to fit the needs of the individual. They can lower interest rates, take away late fees, change your interest to a fixed rate and even lengthen the time period you have to pay back your loan. If you would like help avoiding bankruptcy, then a bankruptcy attorney may be the right fit for you.

A Guide to Bank Stress Testing

The economic collapse of 2008 showed how closely connected worldwide financial institutions have become. Affected entities included too big to fail financial houses, all the way down to your local bank.

The combination of the failure of the mortgage backed securities market coupled with a liquidity crisis, nearly brought the worldwide financial system to its knees. This failure cast light on the risk to the world of finance. Because of government sponsored bailouts, the solvency of large institutions came under scrutiny.

Banks are more responsible for ensuring they have enough capital on hand to absorb problems in the credit market. However, the Federal Reserve wants proof and they use stress testing to obtain it.

Stress testing is now mandated by law, and the operative legislation is the Dodd-Frank Act. Dodd-Frank mandates stress testing for all institutions with at least $10 billion in assets. As a practical matter this now applies to nineteen of the largest US financial houses, including Chase and Morgan Stanley.

A stress test is a balance sheet assessment that looks to an institution’s insolvency under hypothetical unfavorable economic conditions. One example supposed a 21% drop in housing prices, a 50% drop in equity prices, and an unemployment rate of 13%. These conditions are unlikely but may be possible, and are similar to what some would call an economic apocalypse.

While many subject to the stress test passed, for others it was very close, or a small amount failed. Needless to say, confidence was shaken among those who choose to invest in the financial industry, despite the many bailouts and increased scrutiny.

What does this mean for your local bank? Community institutions are exempt from stress testing, but that does not mean they have no responsibility. The Comptroller of the Currency has issued guidelines for institutions with less than 10 billion in assets. Among the areas that are being looked at are commercial real estate borrowing and commercial transactions.

Because of the connection between domestic banks and European banks, stress tests are now mandated for overseas institutions. Stress tests are planned for 124 banks across 22 countries.

For your local bank, a regulator will be looking at toxic assets. These are assets that the regulator may believe to be illiquid and inflated in value. These will primarily deal with loans, and will look at the risk associated with those loans. Next, the regulator will look at uninsured mortgage backed securities. The regulator will discount the value of these assets.

These potential losses are totaled and factored into the adverse scenario, and they will be offset against the institution’s ability to earn its way back to health. If passed, business goes on as usual. If failed, the regulator may require additional capital to be raised. If the capital cannot be raised, closure will be the final step.

In order to get a sense of whether your local banking establishment is in trouble, look at the kinds of loans it makes. If it is in the habit of making a lot of unsecured loans, you might have reason to feel uncomfortable.

Just because your bank is undergoing a stress test does not mean it is in trouble, but it is likely still worthwhile to pay attention.

Different Priorities

So many people today have different priorities than they did a couple of generations ago. In the old days, when you had bills to pay, those were your first priority. You saved up for your vacations; they were separate and they didn’t come out of your regular paycheck. Nowadays, I’m seeing so many people who, when they see their bills piling up and they don’t have the money to pay them, they just close their eyes and ignore them,

I once heard a man say that although he and his wife were having enormous money problems he planned on using his tax refund to take his family on a vacation.

When I asked him why he didn’t use the money to pay down some of his debts he told me that bills will always be part of his life but it was more important for their family to remember having some fun times together.

I wish I could say that I only know one person who, whenever her debts are insurmountable, she goes shopping. But, the truth is that I know many people who fall into this category.

It’s as if they receive a subliminal message that tells them to rush out and buy a lot of things that they don’t need and can never repay. The sad part is that when they get their merchandise home, most of them don’t even get excited about the things they bought.

For many others it’s an addiction and it has the same draw as narcotics. It’s more than money burning a hole in their pocket. They can’t seem to help themselves; there is a compulsion to spend, spend, spend. It’s the ultimate shopaholic.

Many of these shopaholics have brand new clothing in their closets with the price tags still hanging from them. For them, it’s not about owning the clothing and planning on wearing them; it’s about the need to spend money. On anything.

Then there are the people who close their eyes to the bills and go out and party so they don’t get depressed. It’s almost as if they are expecting someone to sprinkle fairy dust over them and, in a magical moment, all their bills will be paid while they’re out partying.

Maybe some of this lack of accountability springs from the uncertain times we’re all facing with a collapsing economy, a shortage of jobs, and a world gone crazy. And maybe it’s just a case of more people having entitlement issues than ever before.

Connie H. Deutsch is an internationally known business consultant and personal advisor who has a keen understanding of human nature and is a natural problem-solver.

Tips on Trading in Bankruptcy Claims

In the present market, if you have multiple investments, the chances of finding one of the companies where you hold stock going bankrupt is normal and not highly irregular. Whether you like it or not, you have to take the call sometimes whether to litigate in court or sell off your claims.

If you have decided to sell off your bankruptcy claims then following the tips below would help you:

1. Research the bankruptcy: Before you sell off your claim to the first, or the highest bidder, whoever it may be, do thorough research of your claims, the status of the case and the status of the bankrupt debtor. Use PACER and industry focused publications to do your research. Documents you must review before selling off your bankruptcy claims include the bankruptcy petition, schedule of assets and liabilities, and any plan for restructuring. However, despite all your research, you might still remain blind about the real pricing, and your only options are to hire an investment manager or talk with other creditors and attorneys engaged in the case.

2. Ready your bankruptcy claim for sale: Keep in mind that you might have to sell on short notice, so it is always a good idea to prepare your claims for sale by gathering all supporting evidence and documents like invoices, purchase orders or other instruments. Determine the amount of your claim and then check whether the debtor has identified your claim on its Schedule F. You need to find out whether the debtor has misrepresented your claim or marked it as disputed or contingent or whether any objections to your claims have been filed by the debtor in court dockets. If you can identify disputes, then quickly work with a bankruptcy attorney to file a proof of claim and resolve disputes to make your claims saleable.

3. Be in control: Do not panic. Laws and regulations have changed vastly in favor of investors over the past decade and especially following the recession. The real drama begins after the filing of Schedule F, which provides event-based funds and investors the information they need to start purchasing in earnest. Most trading of bankruptcy claims prior to the filing of Schedule F by the debtor are speculative and has to be done with great care. It is quite common for investors to sell off their claims during early stages of a bankruptcy when rumors and speculations abound. Be in control – time it right. Whether you sell early to cash in on the frenzy or sell later based on concrete information, it’s your call, so don’t give in to panic.

4. Research investors: Before trading your bankruptcy claims, shop around for investor funds and take your time. Usually, event-based investors send out extremely low offers across as large a territory they can during initial phases of a bankruptcy. Desperate creditors often end up selling to the first investor who happens to contact them, because they lose the mental strength to remain in control, do research, and then decide. Don’t wait for buyers to come to you. Research firms that buy distressed debt and regularly purchase bankruptcy claims. You can also use a claims broker, an investment manager, or just list your claim for sale on sites like eBay, and then sit back and watch things happen.

5. Keep your wits about you: While you need to be in control and time things right, you also need to be realistic. Sometimes, turning down the first offer can also hurt you, and this is where research and information comes to your aid in trading in your bankruptcy claims. Never take things personally, and don’t feel insulted because an investor in distressed claims happens to make an offer that seems too low to you. In a vast majority of cases, unsecured claim holders are fortunate to recover pennies on the dollar. When investors are willing to shoulder your risk, especially, even before the filing of Schedule F, don’t turn down the offer, but do some quick research and calculation, as also investor shopping before selling of your bankruptcy claims.

Get an Education Before A Bankruptcy Filing

In the recent years, many Americans have been faced with the possibility of filing bankruptcy to get out of debt. In the past, filing bankruptcy was more of a way to get back on your feet and now it has become a matter of survival. When someone is considering the process they should spend some time and get themselves an education about bankruptcy. There are many places to look for information about the topic of bankruptcy. If someone has access to computer the Internet is probably the fastest and easiest way to get a large amount of information in a short amount of time. If that is not available, one can always go to the library and explore the topic from books and magazines.

The first and easiest place to look for information on bankruptcy is on the World Wide Web. The Internet has a wealth of information about the process and is a good place to start. Since filing bankruptcy is a legal process, time, date and location are very important for the information you need. You wouldn’t want to spend a lot of time learning about Canadian bankruptcy when you live in Texas. It would just be a waste of time. The bankruptcy code is constantly changing and an individual needs to be aware of that. Every year the median income chart is released on the federal U.S. Bankruptcy Court website. This is important because it might mean the difference between someone qualifying to file Chapter 7 bankruptcy or being forced into a Chapter 13.

Personal bankruptcy comes served up in two chapters, Chapter 7 and Chapter 13. In a nutshell, a Chapter 7 bankruptcy is otherwise known as liquidation bankruptcy because the bankruptcy trustee can liquidate any property that is not protected by bankruptcy exemptions. Even though Chapter 7 bankruptcy is known as liquidation bankruptcy rarely does anyone lose any property especially in this economy. On the other side of the coin, Chapter 13 bankruptcy is known as a wage earner bankruptcy. This is because the individual filing and their bankruptcy attorney are required to submit a feasible repayment plan that will last 3 to 5 years. Any unsecured debts left unpaid at the end of the Chapter 13 plan will be included in the bankruptcy discharge and wiped out. Filing Chapter 13 is best known for its ability to protect one’s property. If the individual can afford to keep it, they will be able to catch up on any of the arrears.

What’s best for you? The only person that knows is you. After gathering a minor education in bankruptcy filing, a person should take the time to go in and sit down for a consultation with a bankruptcy attorney and have their bankruptcy questions answered. In most cases, the bankruptcy attorney will sit down and discuss the individual’s personal situation for free. This is a pretty good value to get some free advice even if you don’t decide to file for bankruptcy.