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Don’t Fall for These 10 Common Bankruptcy Myths

Posted By damien on September 2nd, 2010

Homeless Bankruptcy

(This is a guest post from Jack Reed. Since I know very little about bankruptcy, I asked Jack to point out some common misconceptions about the process.)

The very thought of going bankrupt gives sleepless nights to consumers facing overwhelming debt problems.  The prime reason behind it is nothing but the social stigma associated with bankruptcy.

Like most big and frightening things, bankruptcy has a reputation that is glossed with a lot of myths and misconceptions. The myths have been embellished to such an extent that they have instilled in consumers a deep rooted fear of being a financial castaway.

The following are some common bankruptcy myths that greatly affect a debtor’s decision of bankruptcy filing:

1. Bankruptcy will lead to social disgrace

It is the most common misconception about bankruptcy. It is true that bankruptcy is a public legal proceeding but it also true that there are huge numbers of bankruptcy filings everyday and no one takes the pain to follow all of them diligently.

Unless you are a socially prominent person drawing a lot of media attention, the only people interested in your bankruptcy filing will be your creditors and no one else.

2. Personal bankruptcy is meant for the poor only

Another common stigma associated with bankruptcy says that personal bankruptcy is only for the poor. But the real picture is quite different.

The terrible economic downturn in the recent years has pushed numerous formerly affluent people into bankruptcy. Bankruptcy is no more a social stigma but a financial catastrophe that can hit any of us.

3. Bankruptcy will eliminate all your obligations

It is common wrong notion with which consumers file for bankruptcy. Bankruptcy will not waive off all your debts. You will still be liable for obligation such as child support and alimony, federal student loans and most taxes owed to the federal government.

4. You will lose all your assets

This is an important misconception that makes the debtors dread bankruptcy. Most of the consumers think that the state will liquidate everything they have and they will be financial impoverished forever. But, in reality the federal as well as the state governments have wide range of exemptions to protect the certain kind of assets from liquidation.

Moreover only Chapter 7 bankruptcy is liquidation bankruptcy. If you file for bankruptcy under Chapter 13, you will not have to go through liquidation proceedings.

5. Your credit worthiness will be ruined forever

It is true that bankruptcy stays on your credit report for 7 to 10 years depending upon the bankruptcy you file for. But it certainly does not mean that your credit worthiness will go for a toss forever.

Bankruptcy, in fact, paves way for you to build your finances afresh. All you need to do is take wise financial decisions post-bankruptcy and rebuild your credit worthiness.

6. Both the spouses need to file for bankruptcy

It is not necessary. Both the spouses will be required to file for bankruptcy together only if they owe the debts jointly.

7. You will have to repay your debts even after bankruptcy

This is a common misconception that creditors want you to harbor so that you feel obligated to repay your debts even after the bankruptcy procedure is over. However, in reality, you are neither legally nor morally liable for the debts that are discharged through bankruptcy.

8. Filing for bankruptcy is difficult

It is another myth that dissuades debtors from filing bankruptcy. But bankruptcy filing is not as difficult as it seems. You can even file for bankruptcy without a lawyer’s help. All you need to do is fill out the forms correctly and submit all the required documents properly.

However, it is always advised that you seek help from a lawyer while filing for bankruptcy.

9. You may exclude some creditors from your petition

This is another commonly mistaken idea. Bankruptcy will require you to include all your creditors in the petition.

10. You can’t file for bankruptcy more than once

It is completely untrue. After a successfully completing a bankruptcy case, you cannot file for bankruptcy within the next 8 years. For Chapter 13 bankruptcy you can file more often that, but you cannot undergo more than one bankruptcy case at a time.

Nevertheless, having multiple bankruptcies on your credit report is never a good idea and can harm your credit worthiness.

There is indeed nothing very pleasant about bankruptcy. But, it is definitely not as dreadful as you imagined it to be. So, if you are struggling with overwhelming debts that cannot be managed with any other debt relief option, then you can safely file for bankruptcy.

It is the most logical and favorable debt relief option that can get you out of your insurmountable obligations and help you shape you finances afresh.

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The 3 Things You Must Do Every Time You Get Money

Posted By damien on August 26th, 2010

How to use your money

Do you ever get a paycheck and ask yourself, “What should I do with this money?”

Probably not.

You probably know exactly which pair of shoes or which Justin Bieber song you want to buy.  Or maybe the latest gadget from that 3 a.m. infomercial.

I’m sure you have plenty of ideas how you want to spend money.

But what about how to save it?

Or who to give it away to?

In this post, I’ll fill you in on the three things you should be doing with your money.  The only three things.  Here they are: give it away, save it, and spend it.

That’s it. Not for toilet paper. Not for gambling. Not even for starting a fire. You should do all three of these things, and only these three things.  And in this order: give away, save, spend. Let’s look at each.

3) Give It Away

Whenever you receive money, you should first give some away.  Why? There are many reasons, here are a few:

  • Giving money away helps keep us humble.  When we give our things to the less-fortunate, it reminds us of how blessed our lives are.
  • Those who give money away are more wealthy. Arthur C. Brooks explains the research behind this claim in his book Gross National Happiness. Call it karma or whatever you wish, but what we give away comes back to us.
  • Those who give to charity are happier. This is also explained in Gross National Happiness.

Giving some of our money to the less-fortunate is just the right thing to do.  But how much should you give?

This is for you to decide.  If you are married, discuss it with your spouse. If you are religious, pray a bit and seek direction.  Historically, a tithe has been 10% of one’s income.  After determining how much to give, now figure out who to give it to.

If you attend a church, there’s a good chance that they accept voluntary donations that go to help the needy.  That’s an easy place to start.  If you are not affiliated with a church, there are many noble non-profit organizations that could use your donations for much good. (Question: does anyone know a good site/service that evaluates the honesty of non-profit organizations?)

The first thing you must do with your money is give some away.  Your soul needs that experience.

2) Save It

After donating some of your money, you need to save some.  Your soul needed you to give some away, now your future needs you to invest.  I’ve written in several other places about saving, because no one is doing enough of it!

There are many things to be saving for:

  • your wedding (hopefully only one)
  • a new house
  • your kids’ college tuition
  • vacation in Italy
  • retirement

Ideally, you’ll be saving for retirement throughout your whole life. The mid-range goals of a wedding or house hopefully come sequentially and not simultaneously, so that you can focus on one at a time.

So, how much should you save for all of these expensive life events? I’ve written an extensive post on retirement saving, so I’ll focus elsewhere today. Most financial gurus say you should save at least 15% of your take-home pay. I say more.

AT LEAST 15%. That’s the bare minimum. Save more and your future will love you for it. Save less and there will be much weeping, wailing and gnashing of teeth when the kids decide that a cheapo state school is just not posh enough for them.

Spend It

After donating and saving, this is the last thing to use your money for.  Your soul needs to give. Your future needs you to save. And your present self needs to live comfortably.

There are sooo many things to spend your money on. But which are the most important? How to prioritize?

  1. Utilities, rent and food: You need to spend to survive.
  2. Debts: You need to spend to fulfill your borrowing obligations.
  3. Stuff: You need to spend to fill other physical and emotional needs.

The awesome thing about spending in this order, is that once you get to spending on stuff, you can do it WITHOUT ANY GUILT! You have fulfilled all of the necessities: improving the world by donating, saving for tomorrow, and spending to meet your needs. Once you’re here, you are free to spend as you wish.

Earned Income vs. Found Money

I wrote an earlier post about the problem with “found money”. Since you weren’t expecting it, you blow it on Snuggies for the whole family. We’re not bad at figuring out how much of our paychecks to donate, save and spend, but everything goes out the window when we get a check from Grandma for Christmas.

I think you should work out a plan for found money. Along with spending a good portion, you should save some and give some away. Just think about it.

So, that’s all there is to it. The three things you should do with your money: donate, save and spend, in that order.

As my wife says:

Pay God first, then yourself, then others.

Posted in Building Wealth, Dumping Debt
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5 Personal Finance Writers to Avoid If You Want to Stay Broke and Ignorant

Posted By damien on August 24th, 2010

Personal finance writers

Here at BSI, the goal is to give you big ideas in bite-sized portions. To break down complicated concepts into manageable chunks. And personal finance is definitely complicated.

Or is it?

The self-proclaimed “experts” in such areas as investing and retirement planning prefer to keep their subjects as murky and technical as possible, so that you need their help. Your continued dependence keeps the repo men away from your stockbroker’s Mercedes.

(Have you seen Operation Repo? It’s over the top!)

If you can cut through all the noise and self-promotion, the realm of personal finance can be boiled down to a few key principles:

In order to stay up-to-date on financial topics, I read a wide range of source material. Personal finance books are my favorite way to learn the foundations of money management, defeating debt and investing. I have recommended several here.

But the problem with books is that they can quickly become outdated. (Especially personal finance books, since legislators cry “Financial reform now!” seemingly every quarter.) To stay up-to-date on personal finance issues, I read several blogs.

And I must say, there are some very good financial writers out there. For your curiosity and enlightenment, listed below are my top five favorite personal finance bloggers. Included are links to their blogs so that you can share in the fun. Just be sure to continue reading here!

J.D. at GetRichSlowly.org

J.D. Roth could be called the granddaddy of personal finance bloggers. He started writing after getting deep into debt and reading lots of books on personal finance. He wanted a place to record what he’d learned and track his progress.

His blog has been around for so long now that he employs a few staff writers who cover subjects in addition to personal finance.

Trent at TheSimpleDollar.com

Trent Hamm began writing about personal finance after his self-described “financial armageddon”. His blog is a mix of general money advice mixed with personal experiences.

One of my favorite aspects of his writing is the personal, warm tone–he deals with his and others’ real, everyday situations.

Ramit at IWillTeachYouToBeRich.com

Ramit Sethi is my favorite Indian, and yes, I do know a few. His writing has a special way of connecting with 20-somethings. He gets us to stop reading and take action in our financial lives.

His book (of the same name as the blog) set me on the path to automated, simple money management. Ramit’s specialty is in showing how to leverage technology to improve finances.

??? at MintLife

I have no idea who writes here, probably several people. This is an awesome blog from the makers of a stellar money management service. They keep you up-to-date on the latest legislative changes that affect your money.

Read the blog and sign up for the free money management service.

David at MoneyNing.com

Another great entry in the personal finance genre, MoneyNing covers topics from money management to frugal living to investing. David writes in a personable style that let’s you know that yes, he’s a real person and yes, he cares about your financial well-being.

Now that you know the secret to my money knowledge, do something about it! Visit these blogs. Read their most popular posts.

Who knows, it may just improve your life!

Posted in Building Wealth, Dumping Debt
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6 Easy Ways to Dump, Defeat, & Dominate Your Debt

Posted By damien on August 19th, 2010

Breaking the chains of debt

(This is a guest post by Jack Reed of fileyourbankruptcy.org. He writes on various financial topics with a special focus on bankruptcy)

Are you so much in debt that now you have started considering it a part of your normal life? Do you realize that this type of thought process would push you further into the hole? It’s true, millions of Americans are today submerged in massive debts and declaring themselves bankrupt.

The sad part is that most of them have conditioned themselves to live happily with their debts. If you are one of them, then read on to know how you can avoid this escapism!

1) Build Your Budget

You have probably heard it a thousand times, but the importance of budget cannot be undermined. Prepare a budget and determine to stick to it. This will help you to spend within your means and avoid falling into debt.

If you are a spendthrift, then your budget would even help to inculcate a sense of financial discipline in you!

2) Limit Your Expenditure

Plan out in advance what you really need to buy. Without proper planning, one tends to indulge in a shopping spree especially with the credit card in wide use today. The point is, before buying anything, evaluate its usefulness to you.

Try not to be an impulsive buyer, take your time and decide if you really need to purchase something.

3) Avoid Using Credit Cards

Using credit card has become a style statement today, especially with the teens. The satisfaction of swiping your card and making big purchases is mentally satisfying. This leads most of us to the shackles of debt when the overwhelming monthly statement arrives at the end of the month.

If you are not wise with your money management, stop using your credit card right now!

4) Create An Emergency Fund

An extreme financial emergency can strike you from the blue. What do you do in such situations? Rely on your credit cards? This will just compound your problems. Build up an emergency fund to bail yourself out of such emergencies. Keep aside a part of your income each month to fill up your emergency fund.

5) Learn to Manage Your Debt

Instead of running away from your debt, chalk out a pro-active plan to fight it off. Move all your debts to the lowest possible interest paying account. Before you transfer your balance, check if the lower rate card has a reasonable introductory period so that you have enough time to clear your debts at the lower rate.

6) Educate Yourself

Utilize the free advice on the internet to manage your finances. There are millions of pages out there which promise to help you get wise with your money. Not all information is correct but it can help you make better decisions financially and keep you away from debts.

Don’t Do Drugs Debt

Debt is like a slippery slope, it will lead you to bankruptcy if you keep running away from it. Keep the above mentioned points in mind to enjoy a debt-free life. After all, you would not like to spend your life worrying about mounting debt figures. Isn’t it?

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10 Ways to Improve Your Finances Now!

Posted By damien on April 30th, 2010

good defense

The book The Millionaire Next Door has an awesome approach to personal finance.  The authors say that financial security is a mix of good offense and defense (everyone loves sports analogies, right?).

In personal finance, a good offense means having a good income.

A good defense means frugal and wise spending habits.

A  winning personal finance strategy is a combination of good offense and defense. Let’s look at some ways to improve both:

Good Offense

1) Ask for a raise

Perhaps the quickest way to improve your income is to ask for a raise.  Notice how I said quickest, not easiest. It’s an uncomfortable process, but will improve your finances faster than starting your own business or looking for a side job.

Take the time to review your recent performance at work, make sure you have concrete examples of how you have performed above expectations.  Then, take these examples to your supervisor and ask for a raise in pay to match your raise in performance.

2) Look for side income

Step away from the TV and spend your time in more profitable endeavors.  If you need to pay down debt fast or build up savings, look for a side job you can work around your full-time position.

This would be a short-term solution, since you probably don’t want to be working 60 hours a week for someone else for the rest of your life.

3) Start your own business

Does the thought of working for someone else during your free time not appeal to you?  Then strike out on your own and start your own small business.

Chances are, you have some sort of skill you can monetize.  Are you good at an instrument? Teach lessons.  Do you enjoy writing?  Start a blog and offer free information along with paid.  I turned my hobby of web design into a nice side income by designing sites for small businesses.

Take the time to inventory your skills and there’s a good chance you can make money from one or two of them.

4) Work more hours

Don’t do this if you can barely stand 8 hours at your day job.  Personally, I would only use this option for short-term needs.  Work more hours if you need to quickly pay down debt or increase your savings.

5) Sign up for a high-yield checking account

I am constantly surprised by the number of people who still pay to have a checking account.  I thought the days of fee-based checking accounts were long gone, but many dinosaurs remain.

If you are paying your bank to have a checking account, dump it!  Your bank should be paying you to use their services.  Check out your local credit unions for the best rates on interest-bearing (sometimes called “rewards”) checking accounts.

Good Defense

1) Build an Emergency Fund

I have an earlier post dedicated to building an emergency fund.  This is such an important part of a successful personal finance strategy.

Some people call them emergency funds, rainy day funds, or umbrella funds.  Basically, an emergency fund is cash savings set aside for the express purpose of covering an unexpected expense.  Save up 3-6 months (or more) of expenses in an easy-to-access place, such as a high-yield savings account.  Then, don’t touch it unless you have an emergency.

2) Monitor your spending

Mint.com is the software you need.  It’s a free service that allows you to track all of your financial accounts in one place.  Mint.com is an integral part of my personal finance system.

Use it to track your spending by putting all of your transactions into categories (gas, clothing, restaurants).  Then, after a few weeks, go over your expenses and you will be amazed at how much you spend on certain things.

Monitoring your spending gives you a better awareness of where your money is going.

3) Make a budget

After monitoring your spending, I’m sure there are some things you want to change. Maybe you want to spend less on eating out and more on your Roth IRA?  Mint.com allows you to set budgets for all of the categories you use.

After creating your budgets, Mint.com will track your spending, letting you know where you are and alerting you when you’ve gone over the limit.

4) Pay down debt

Too many people, instead of thinking about how much something will cost them, think only about monthly payments.  Can I afford $400 a month on my lease?  This way of thinking, in the long run, will make you much poorer than your potential.

I have a post devoted to my favorite method of paying down debt, what many call the debt snowball.  In brief, list all of your debts, from smallest balance to largest, then pay them off in that order.  Read my post for more detailed instructions.

5) Invest for retirement

We Americans are not saving enough for retirement.  If you are not currently investing in your company’s 401(k) or your own personal IRA, plan on flipping burgers into your 80′s.  You need to be saving at least 15% of your income for retirement.

For lots more information on investing for retirement, check out my free guide, The Minimalist Guide to Investing.

Posted in Building Wealth, Dumping Debt
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The Simplest, Smartest Personal Finance Set-up

Posted By damien on April 7th, 2010

Simple Investing

I love personal finance because it is such a taboo subject.  Everyone knows they should be spending more intelligently and saving for retirement, but hates confronting these facts and taking control.   I want to remove the fear and help others become financially secure, so they can focus on living life.

Today I want to present a brief overview of the simplest, smartest personal finance set-up.  Sort of a minimalist’s guide to financial accounts.  Here I’ll condense months of research to give you the best checking, savings and investing accounts for automated, simple, secure finances.

Remember, this is just a brief overview, if this post becomes popular enough, I’ll take the time to go more in-depth into each account.

1) High-Yield Checking Account

The foundation of all your financial accounts should be a high-yield checking account.  Interest rates are pretty low right now, but I suggest checking out your local credit union.  Some of the credit unions around here are still offering 3% on balances up to $25,000.  Pretty good for the current state of our economy.

There will be some conditions for getting the high-yield rate, but I’m sure you are already doing most of them.  Our credit union requires 10 debit card purchases a month, electronic statements, and one electronic transfer (like from a paycheck) per month.  Set up your paycheck as a direct deposit and do away with paper checks.

2) High-Yield Savings Account

Where do you keep your savings? Under your mattress? Get over your conspiracy theories and put it in a high-yield savings account backed by the FDIC.  Just like high-yield checking accounts, the rates are low right now, but as the economy improves, so will interest rates.

Online savings accounts, such as ING’s, Ally’s and Everbank’s are all the rage right now.  Put your 3-6 month emergency fund in your savings account and set up monthly transfers from your checking account.

3) Retirement Accounts

Are you saving for retirement? If not, plan on flipping burgers into your 80’s.  Everyone should have a 401(k) or equivalent with their employer and an Individual Retirement Account (IRA).

This is a broad generalization, but I suggest saving about 15% of your gross income for retirement.  Make monthly contributions on the 401(k) up to your employer’s match, then max out the IRA with monthly contributions, then, if there’s any money left over, put the rest back into the 401(k).  For more information on investing for retirement, check out my free Minimalist Guide to Investing.

Hungry for More?

This post has only been the briefest of introductions to setting up your financial accounts to function simply and automatically.  If you would like me to go into more detail about each step, let me know in the comments or by twitter, email or my contact form.

Posted in Building Wealth, Dumping Debt
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