bankruptcy

What to Do When You Can’t Pay a Lender

March 26, 2021 By Kathryn Vercillo Leave a Comment

Sometimes debt just gets out of control. You do your best but life’s circumstances get in the way. Obviously you want to do all that you can to keep your good credit. But what do you do when you truly can’t pay a lender? How do you work with them?

First, Try to Solve the Problem

Are you absolutely certain that you can’t pay a lender right now? There’s a big difference between being truly unable and money simply being tight. If your income has been slashed then maybe you can cut out all discretionary spending in order to pay your debt. So, do the math. Its it possible for you to make at least your minimum payments for the time being if you cut back somewhere else?

Also, review your existing assets to see if there’s a way to pay off that debt after all. Can you sell an extra car? Perhaps you can rent out a room in your home? Maybe you have a vacation savings account that you can dig into in order to pay that debt off and get the lenders off of your back? Explore all of the options that you have at your disposal to pay off the debt, pay down the debt, or at least meet your minimum monthly payments.

Next, Try To Get Help From The Lender

If you can’t pay a lender in full, but you do have some money to work with each month, then you might be able to work with the lender to make your payments more manageable. Contact the lender to find out exactly what your options are. Some of the things that lenders can do for you include:

Reduce or waive monthly payments
Reduce interest rates in order to make payments more manageable
Change the monthly amount due
Alter the due date of your payment if you’re just slightly behind
Waive late fees and other fees to bring your account current
Lower the total amount due if you pay it off as one lump sum

Ask your lender if they have any hardship programs. After all, if you’re struggling to make payments, it’s likely because of a hardship. Many people lost income due to COVID-19. Lenders responded by opening up their hardship programs to more people than ever before. Hardship programs help to postpone or reduce payments for a period of time, usually anywhere from one month to one year.

What To Do When You Can’t Pay a Lender Who Won’t Work With You

Sometimes you come across a lender who just isn’t willing to work with you. It might be their policy. Alternatively, your income and debt situation might be out of the realm of what they’re willing to work with. Whatever the case, the lender says that you either need to make your minimum monthly payment in full each month or they’re going to add late fees, increase your interest rate and/or ding your credit score. So what do you do when you can’t pay a lender that’s holding this bottom line?

Debt Consolidation On Your Own

Are you able to move the debt around in order to make paying it off more manageable? Or potentially to find a lender that’s willing to work with you a little bit more based on your own situation? For example, could you take out a personal loan, refinance your mortgage, or balance transfer in order to pay off the lender? If you can consolidate the debt to a loan with better terms then maybe you can pay it off.

Of course, some of these things have their own consequences. For example, you’ll likely incur a fee if you do a balance transfer. If that allows you to pay it off, maybe the fee is okay. But if you just switch lenders and then still can’t pay the new lender, you’re just digging yourself a deeper hole.

Work With a Debt Management Company

There are debt solutions that will help you out when you can’t pay a lender. They’ll work directly with your lenders to negotiate the terms. Basically the way it works is that they pay the lender the new negotiated amount. Then you pay them. They become your new lender. Typically they work with you and your original lender to get the debt down to something that’s more manageable for you. This includes lowering both the total amount owed and the monthly amount due.

If you have some money set aside but not enough to pay off a full loan, then you might seek debt settlement. A debt management company can assist you with this as well. They negotiate a payoff amount to settle the debt entirely. Then you pay that amount. Note that this can sometimes have a negative impact on your credit report. If you’re already going to lose credit points because you can’t pay a lender, then it might even out. But make sure that you follow understand all of the terms and issues at play when working with a third party debt management company.

File for Bankruptcy

If you’re so deep in the hole that you can’t see your way out then you might end up choosing to file for bankruptcy. There are different types of bankruptcy. There are many pros and cons. After all, there’s a reason that this isn’t the first choice for anyone who can’t pay a lender. You want to do what you can to avoid bankruptcy.

That said, though, bankruptcy isn’t the worst thing in the world. Plenty of smart, successful people file for bankruptcy then get their finances back in order and go on about their lives. So, if it comes down to it, you might want to consider this as a last resort. If it gets you out from under your debt and off to a fresh start, it could be the way to go. Just make sure that you fully understand the implications for all of your finances, not just the way to resolves the debt.

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A Tidal Wave of COVID-19 Bankruptcies Are Coming

July 14, 2020 By Amanda Blankenship Leave a Comment

There have been more than 120 companies that declared bankruptcy in 2020 and blame COVID-19 for their downfall. Although many of these businesses were in financial trouble prior to the pandemic, the loss in revenue made those issues more evident. With many other companies holding billions of dollars in debt, it is likely we will see even more COVID-19 bankruptcies before the end of the year.

Which Companies Are Filing?

Some pretty big names are already among those filing for bankruptcy and closing doors. Here are some of the most recognizable names on the list.

24 Hour Fitness
Brooks Brothers
Chesapeake Energy
Frontier Communications
GNC
Gold’s Gym
Hertz
J Crew
J.C. Penny
Latam Airlines
Neiman Marcus
New York & Co.
Sur La Table
True Religion Apparel

More than 100 other businesses have filed or announced they will be filing for bankruptcy due to COVID-19. This includes American Addiction Centers, a Tennesse-based addiction recovery organization, who started suffering financially when patients simply weren’t coming in after the pandemic. Even the Catholic Church for the Archdiocese of New Orleans filed for bankruptcy due to a lack of collections as many mass gatherings have been canceled.

How COVID-19 Bankruptcies Will Impact The Economy

Over 6,800 businesses filed for bankruptcy in the U.S. last year. This year will undoubtedly have many more. Companies that have filed, or plan to file, are huge players in the American economy. Some, like Hertz, even have billions in assets to sell-off. Others simply saw no way to continue in the COVID-19 social distancing era.

“We’ve survived through wars, recessions, terrorist attacks, political upheaval, hurricanes, tornadoes, blizzards and more,” Sugarloaf Craft Festivals wrote on its website. “With no cash flow coming in, even a well-managed company cannot survive indefinitely.”

The good news is many medium-to-large size companies declaring bankruptcy will likely be able to work out a payment plan to manage their debts moving forward. If they cannot, then the company is liquidated and the assets are sold to pay off those debts. Small businesses may never recover though.

“We anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,” a group of academics wrote to Congress. “Workers will lose jobs even in otherwise viable businesses.”

In many cases, however, COVID-19 bankruptcies are revealing already troubled business models and staggering debt. Many of these companies were struggling before disaster struck. Hertz, for instance, has debt accrued from over 10 years ago.

So, it is safe to say that, in many cases, a complete business reform will be the only thing to prevent this from happening again. It is also easy to assume there are still many other businesses who will file before the year is out. The overall economic impact is likely to be seen for decades to come.

Unreimbursed Medical Bills Are #1 Cause of Bankruptcies

June 22, 2018 By Tamila McDonald Leave a Comment

Medical debt continues to be the leading reason for bankruptcy filings in the U.S. And it isn’t just the uninsured that struggle with healthcare expenses.

Approximately one in five insured Americans under the age of 65 had trouble paying their medical bills. Of those, 63 percent used most of all of their savings to handle the costs; 42 percent even took on a second job to help pay the debts.

However, some of them end up with medical bills that are so unmanageable that bankruptcy becomes the best option.

In 2016, there were 770,946 personal bankruptcy filings in the U.S. The number includes people of all ages, genders, and marital situations. It represents single professionals, middle-class families, and retired persons

Hospital Stays

On average, the cost of a hospital stay is more than $10,700. A routine childbirth, the most common reason for a hospital stay, runs about $3,600.

A heart attack can easily run over $20,000 per stay while an aneurysm costs more than $34,000. What about a broken leg? That can come with a price tag of $16,796 on average.

For nearly any stay, even if you have insurance, at least some of those expenses result in out-of-pocket costs.

Precisely how much the patient owes depends on the condition and the course of treatment. Additionally, the form of insurance also plays a significant role. Coverage through different insurers, ranging from Medicare and Medicaid to private or employer-sponsored plans, can vary dramatically.

Treating Conditions

The costs above only reflect those associated with a hospital stay, and they certainly aren’t the only source of medical bills.

Cancer drugs cost at least $10,000 per month, while some treatments can cross the $30,000 mark on a monthly basis. Even if you have insurance, you can expect to pay around $24,000 to $36,000 for your medication based on the typically 20 to 30 percent out-of-pocket requirements.

Those expenses don’t include other forms of treatment, like surgeries to remove tumors. Additionally, premiums and co-payments or coinsurance aren’t included in those figures either.

Even Diabetes is Expensive

If you have diabetes, the average annual medical expenditure to treat the condition is $9,601. Plus, since these individuals are at greater risk of developing other conditions, their total medical costs are typically much higher.

When insurers require pre-approval — not just for diabetes treatments but any other medical condition — that can result in astronomical out-of-pocket costs amid the rush to provide an emergency treatment. Yet many insurance companies mandate that certain forms of treatment and types of specialists be made known to them in advance.

Plus, the insurer can choose to turn down your request for coverage,. If you go forward without approval, then you may be responsible for all of the medical bills that come after.

Why Unreimbursed Medical Bills Lead to Bankruptcy

Ultimately, most people who chose to file for bankruptcy do so because they can’t afford to pay their bills. When it comes to medical expenses, bankruptcy creates a path to get out from under the burden.

Typically, medical bills receive the same treatments as unsecured debts, meaning there is no collateral associated with the obligation. Additionally, they may be low-priority debts. This can increase the likelihood of discharge without the need for any additional repayment.

People who file for Chapter 7 or Chapter 13 bankruptcy may find relief from their medical bills. They may also find relief from a variety of other debts. While it results in a severe and long-term hit to their credit, it can be worth it to escape the situation. Especially, if the medical expenses are genuinely outside of their capabilities.

Bills May Still Be Due During and After Bankruptcy

However, bankruptcy doesn’t necessarily make medical bills go away. The ultimate outcome depends on a much bigger picture: your unique financial situation, including the existence of other debts, current income, and available assets.

If you are considering bankruptcy, it’s wise to consult with an attorney who can review your financial situation and determine which options may be available. Additionally, the attorney can provide you with guidance on whether your medical bills are likely to be discharged.

However, the final decision in that area is in the hands of the judge handling your case, not the attorney. Unfortunately, bankruptcy judges have gotten a lot stricter about forcing debts to be restructured rather than discharged.

Are Bankruptcies Due to Medical Costs Going to Rise?

Recent changes to the Affordable Care Act, also known as Obamacare, significantly affect healthcare exchanges and plans in many states. Since the shifts are fairly new, the full impact is not yet realized.

However, if costs rise, as many expect, the number of bankruptcies involving medical bills could shift upward. Additionally, the removal of the individual mandate may encourage some people to drop their coverage, particularly if the expense for their plan increases significantly.

In early 2018, a federal budget deal cut funding for programs associated with Medicare and Medicaid. While the White House asserts that the savings will come from program reforms, not benefit cuts, it’s difficult to tell how it will actually develop.

Fewer People Eligible for Coverage With Funding Reductions

A possible impact of funding reductions could mean fewer people are eligible for coverage. This could result in a larger portion of the population not having insurance, especially in lower income brackets, where medical bills are harder to manage.

If the amount of coverage shifts, placing a higher burden on those who use the programs, the same scenario could apply.

Even those with insurance through their employers are feeling the burden of shifting medical costs. Changes to federal regulations gave insurers the ability to review the health risks involving children on family plans; this has resulted in higher premiums for many people in 2018.

Companies Shift The Burden of Health Insurance to Control Costs

Companies that are looking to control their costs often shift more of the financial burden of health insurance onto their workers, increasing the out-of-pocket costs on entire families.

Between 2012 and 2017, the average premium rose by 19 percent, and copays, coinsurance, and deductibles also went up. Between 2005 and 2015, out-of-pocket costs grew 66 percent, or more than double the growth rate of wages during the same timeframe. This can be a big reason for unreimbursed medical bills causing financial hardship to consumers.

Adding to all this, healthcare costs have an above-average rate of inflation: Currently, the annual growth rate of healthcare spending is expected to outpace overall economic growth by around 1 percent for the next decade, so that means that the prices would go up by about 3 to 4 percent annually on average.

All of these factors suggest that medical bankruptcies could increase significantly over time due to unreimbursed medical bills.

Readers, what kind of unreimbursed health-care costs have you had to deal with? And what about bankruptcy? Please tell us about your experience in the comments below.

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Retail Apocalypse: How To Shop a Going-Out-of-Business Sale

March 24, 2018 By David Robson Leave a Comment

Toys R Us’ bankruptcy and liquidation means, among many other things, yet another huge going-out-of-business sale for those willing to brave the crowds. In a year with a record-number of these sales happening, it’s fair to ask, “how do I shop at a going-out-of-business sale?”

Don’t bother. Just stay home. Seriously.

Sure, the lure of fantastic bargains – anywhere from 10% to 70% off everything in the store – may seem irresistible. And the sentimental desire to take one last walk through a favorite store from our childhood is perfectly understandable.

But it’s like that scene in every zombie movie when one of our heroes tries to run into the arms of a newly reanimated family member: That’s not Geoffrey the giraffe anymore!

Why Are so Many Stores Going Away?

Toys R Us isn’t the first big chain to go into liquidation, and from the looks of things, it won’t be the last.

Many of the once high-flying retailers that have filed for bankruptcy are actually forced to restructure in the aftermath of court proceedings. The judge might force a change in ownership resulting in tons of stores closing.

Liquidation specialists get dibs on running the going-out-of-business sales for these outfits (see comment above about Geoffrey the giraffe having left the building already).

However, some of the retailers are in fact ceasing operations entirely — after first trying to restructure they’re now having to shut down every single store. These outfits can’t compete with the convenience of online retail giants. Or they face increased rents coupled with decreased foot traffic at multiple sites, which adds up to a significant sales drop.

Still others are acquired by large capital firms in leveraged buyouts, and get saddled with huge debts from the parent company that they can’t possibly cover, and go bankrupt. This, by the way, is what happened to Toys R Us, Kmart, and Sears.

So Why Shouldn’t I Shop a Going-Out-of-Business Sale?

No matter which of the above paths the retailer started going down when filing for bankruptcy, the going-out-of-business sales end up in the hands of those third-party liquidation companies; they have all kinds of dirty tricks up their sleeves to make you want to spend money, according to a warning by the Federal Trade Commission.

If your local shop is going out of business but is part of a surviving chain, then the most popular, best-selling items have already been moved to other stores. If every store in the chain is going out of business, then those items have already been bought. Do you think a liquidator will not acknowledge your sentimental bond to a retail store by holding the item you want for you?

Shop a going out of business sale — A liquidator is not your buddy.

Liquidators will advertise large discounts, but these are often applied to inflated retail prices, with a net savings of almost nothing. (Comparing retail prices on your phone to the bargain you think you’re getting may surprise you.)

These sales are typically advertised with huge signs and urgent messages to try to stoke people into a spending-frenzy, which means you’ll be roaming the aisles with desperate, unpleasant, and stressed-out bargain hunters (Imagine Black Friday, but ruder.).

Liquidators don’t even have to get rid of everything after the lease run out — because they have warehouses where they’ll stash items they don’t sell, and they will try and sell them to you again at the next liquidation sale.

This is why you’ll see, for example, furniture on sale at bankrupt electronic stores — it only adds to the weirdness and desperation of a going-out-of-business sale.

But What If I Have a Gift Card?

This is the only reason to go to a going-out-of-business sale, and it’s a compelling one. If you have a gift card to a retailer that doesn’t exist, you’ve got nothing. By all means get what you can from that gift card, while you can.

Another Important Exception: Mom and Pop Shops

Let’s be clear: we’re not talking about small neighborhood businesses here. If the Mom-and-Pop shop on your street is closing down simply because Mom and Pop want to retire, then by all means, go on in, have some pie, and bask in the nostalgia. Anything you buy from them at whatever discount they offer is indeed a souvenir of a personal relationship, plus it’s a stock inventory item they won’t have to move after they close their doors for good.

But the trend of larger retailers filing for bankruptcy protection seems never-ending, and it is indeed upsetting to see a favorite store go under. If you see a big gaudy banner in their window advertising unheard of discounts on your favorite items, don’t be taken in.

The store you loved is gone, and it won’t be the last. It’s a zombie apocalypse movie, but produced by Bain Capital, not George Romero.

So, readers, which stores’ closures are pulling at your heart strings now? Any liquidation sales still have you curious to see what’s on offer?

Money Lessons You Can Learn From Donald Trump

January 27, 2016 By Amanda Blankenship 4 Comments

Donald Trump has obviously been in the spotlight more often in recent months. Of course, he is known for his success in the business world, his show “The Apprentice,” and more recently his unorthodox presidential campaign. While he has a lot of valid (or crazy) points throughout his campaign, there are a few lessons we can take from Trump when it comes to money and money management.

Bankruptcy

If anything, Trump has taught those who look into different companies for investments to look beyond the headlines and deeper into the company. Although Trump has never personally filed for bankruptcy, plenty of his businesses have, even though he is one of the most successful people in America. This money lesson is a hard one. It is a reminder that sometimes failure is one of the steps along the path to greater success. It is a hard lesson to take, but it is sometimes necessary.

Love What You Do

You have to love what you do. If you are passionate about it, you are more likely to be successful. You shouldn’t just join any industry or invest in anything simply because it is a “hot” item or company. You should invest you time and money because you truly care about it. If you are not passionate about your investments or even your job, sometimes you can let the smallest things slip (because you don’t care). These things can lead to a loss of a job and even demotions — two things you definitely want to avoid if you are trying to get your finances set straight.

Negotiation

Whether you are negotiating the price on a house or a pay raise, do it in person. This is something Trump strongly believes in. Obviously in the age of technology in which we all live, this one is hard. Sending an email or having a phone call with someone seems so much easier, and it is. However, negotiating face-to-face can really change the results you receive.

You Have Control of Your Finances

If Trump has taught anyone anything about finances it is that you are in control. He is obviously financially independent, but it took a little while to get there. There is a lesson to take away here though. In America, once you’ve achieved financial independence, you really don’t have to answer to anyone. Trump is definitely proof of that.

Work Hard

Trump has often said that everyone he knew who was successful worked seven days a week. You may have to put in extra work to get the money and results that you are looking for. Working hard is something that you’ll hear from just about everyone, not just Trump. Continuing work a couple of extra days each week will likely lead to success in the workplace, raises and more money.

Use Your Resources

If Trump has done nothing else as an American, he has certainly used every resource available to him to get where he is today. He’s been able to successfully navigate the legal system and use each and every resource available to him (and every other American) to his advantage. Many other people can take advantage of the plethora of tools available to them. That means just utilizing small and simple things like 401(k) and tax deductions on investment accounts.

Luck

There’s no such thing as “luck” when it comes to your finances. You don’t get lucky. As Donald Trump has said time and time again, “The harder I work, the luckier I get.” Of course, it is the hard work getting him places and not the “luck.”

Photo: Flickr: Gage Skidmore

Tips and Tricks for Keeping Track of Your Finances During Bankruptcy

June 7, 2015 By Lori Kelley 1 Comment

First, let’s get something out of the way: declaring bankruptcy does not make you a failure or a deadbeat. It is one of the many negative and pervasive myths about bankruptcy that people who file for it are either dumb about money or are recklessly irresponsible and just don’t care. The fact is that there are a lot of completely legitimate reasons to declare bankruptcy and to try to give yourself and your family a fresh start.

In a lot of cases, the declaration is the most responsible thing you can do!

The In-Between

Unfortunately, the declaration of bankruptcy is not a severe dividing line between then and now. No, it is a lengthy process and it can be arduous. You don’t simply declare yourself bankrupt and start fresh the next day. Everything about your financial situation will be evaluated and, though you might not have to continue paying your creditors after you’ve declared, the money you earn isn’t necessarily yours to spend as you want, either.

How much of your money is really yours depends upon the type of bankruptcy you declare. For example, according to Doan Law Firm, which specializes in California bankruptcy law, if you file for bankruptcy under Chapter 13, you’re simply reorganizing your debts, so you will likely get to keep more cash on hand for expenses. With Chapter 7, conversely, the cash you have on hand can be seized to help pay off your creditors.

There are some accounts, like certain retirement accounts, that are considered “off limits” for seizing and you might even be allowed to continue contributing to them while you work through your bankruptcy filing.

The point is: it’s complicated. This is why it is imperative that you hire a professional to help you with the process. Trying to navigate bankruptcy on your own (and with clever articles like this one) increases your chances of making mistakes. Hiring a bankruptcy attorney will cost money, yes. It is not money you can discharge as a part of your bankruptcy. Even so, the money you spend on your attorney will be less than what you would be penalized for incorrect filing or trying (or seeming like you’re trying) to thwart the system.

When It’s Time to Start Over

After you’ve finished your filing and your bankruptcy has been sufficiently resolved to the court’s satisfaction, that’s when you really get to start over. Here are the first things you need to do to set yourself up for financial success.

Start Saving: If you declared bankruptcy, you’ve likely been living paycheck to paycheck for a little while. Trying to save money when you are living paycheck to paycheck seems counter-intuitive, but it is important. Even if you can only save a little bit of money at a time right now, it is better than nothing. There are lots of great weekly savings plans out there that help you save without forcing you to only eat ramen all the time. It’s important to save and replenish emergency funds, etc because you don’t want to fall into the trap of relying too heavily on your credit.

Start Rebuilding Your Credit: Wait, didn’t we just say that you shouldn’t rely on credit? It’s true: you shouldn’t. Even so, it is important to start rebuilding your positive credit and proving to future lenders, landlords, etc. that you can handle credit and payments responsibly. The best way to do this is with a secured credit card. You can open a secured line of credit with your bank at any time because you give them cash as collateral (that they keep if you default on your payments). Another great option is to apply for a bankruptcy car loan or similar, especially if you file for Chapter 7 bankruptcy.

Rebrand Your Lifestyle: There is no better time to get intimate with frugal living than after declaring bankruptcy. You’ve been given a fresh start! Learn how to search for deals and find the things you need at affordable prices. Figure out what you can and can’t live without. Living frugally doesn’t have to mean going without or being cheap. It’s more about being smart about where your money goes.

Figuring out how to live while and after filing bankruptcy is challenging. There are very specific rules about how much of the money you earn during the filing process you get to keep. There are specific rules about what and what can’t be seized to help pay off creditors. And then, once it’s finished, the temptation to live a little bit large for a while as a celebration is strong. Work with your attorney to make sure you don’t accidentally torpedo your filing and then, afterward, work to build good habits! You can do it!