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Wednesday, January 28, 2009

Can You Get Student Loans Discharged When You File for Bankruptcy?

Can You Get Student Loans Discharged When You File for Bankruptcy?
Can You Get Student Loans Discharged
When You File for Bankruptcy?
It makes sense that many individuals who find themselves filing for bankruptcy also have defaulted student loans. In our current economic climate, you may be hard pressed to find a college educated twenty or thirty-something who isn't experiencing woes with student loan debt. Government statistics released in September of 2008 report only to FY 2006, when default rates were low, at 5.2 percent. However, when recession hits, student loan default rates go up. Right before the U.S. recession of the early 1990s (which had been looming since Black Monday of 1987) student loan default rates reached a historic high of 22.4% in 1989.

I think it's safe to say that default rates are on the rise again.

So, many borrowers who are considering filing for bankruptcy have defaulted student loans as well. The problem, however, is that generally student loans aren't dischargeable via bankruptcy. In fact, there is very little consumer protection involved with student loan debt in any respect. Such borrower vulnerability is the inspiration for a gripping new film, Default: the Student Loan Documentary. The trailer for this documentary sheds a lot of light on how student loans are some of the most dangerous financial products of our time:

The current recession is sure to cause many other borrowers to default on their student loans, and this may come as they are already considering filing for bankruptcy. The lack of basic consumer protections like the right to refinance, Fair Debt and Collection practices, adherence to usury laws, Truth in Lending requirements, and statutes of limitations build a financial trap that many college graduates cannot escape in a poor job market. Because so many borrowers are uninformed about their financial rights and responsibilities when they acquire these loans, the lack of bankruptcy protection can come as a shocker when it comes time to file. Most people filing for bankruptcy cannot get their student loans discharged.

However, there is a small group who can...technically. If you find yourself experiencing such a great hardship, as in the case of a crippling disability, that you feel you cannot pay back your student loans you can indeed file a separate motion for the discharge of that debt.

But how often does that happen?

How Hard Is It To Get Your Student Loans
Discharged Because of a Disability?

Unfortunately, it is extremely difficult, even in an exceptional case, to get your student loans discharged.

The truth is that most borrowers will never actually be so financially burdened that they can prove that they would never be able to pay back their student loans. AllExperts.com adds,

"...Court decisions that find undue hardship for the debtor have been extremely rare in the reported case decisions. A review of the reported court decisions in this area will disclose that most undue hardship discharges that have been granted typically go to individuals that suffer from some type of very severe permanent and total disability or some sort of permanent disability that drastically restricts the ability of the debtor to more than a subsistence level of income. The courts require a finding that the debtor has proven each of the following three elements:

  1. That the debtor cannot maintain, based upon current income and expenses, a “minimal” standard of living for himself and his dependents if compelled to repay the student loans; and
  2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. That the debtor has made good faith efforts to repay the student loans..."

Furthermore, if they indeed did meet such qualifications, retaining legal counsel would probably be just as burdensome, preventing them from taking legal action at all. Therefore, in all practicality, it is nearly impossible to get your student loans discharged when you file for bankruptcy. If you do file for bankruptcy, you will still have to find a way to pay your student loan debt. It will only continue to compound if you ignore it; you simply have to pay it back.

So, I guess that there are three guarantees in life - death, taxes, and student loan debt.

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Friday, January 23, 2009

Bad Economic Times for People = Trouble for Pets

Bad Economic Times for People = Trouble for PetsThe Associated Press recently reported that,
"one in seven [pet] owners nationwide reported reduced spending on their pets during the past year's recession. Of those cutting back, more than a quarter said they have seriously considered giving up their pet." This article went on to explain that the average annual cost of owning a dog is $1,400; a cat, $1,000. Those are not easy numbers in an economy where every penny of our paychecks seems to be spoken for before reaching the bank account.

The expense of pet ownership is not a surprise. After all, any pet owner who has ever confronted an emergency vet bill certainly knows that pet ownership can be a real financial burden. But now, the question is not one of emergency – at least not in the sense of a cat getting hit by a car, or a dog overdosing on coffee beans (actually happened to my sister’s dog Viszla), or a Labrador needing a major surgical procedure for displaced hips. Those kinds of emergencies are heartbreaking, and pet owners always face hard choices about them. But now, we’re talking about a different kinds of emergencies for people and their pets: What happens when my house is foreclosed and the apartment I can afford doesn’t allow dogs? What happens when I have to work a second job to make ends meet, and I can’t afford a dog walker? What happens when, frankly, the burden of cat food, liter, routine flea and tick treatments, and veterinary services are just more than I can afford?

I faced a similar situation a few years ago when I went through a sudden divorce and lost my home. It was difficult enough to know what to do with myself, let alone the one year-old, 70 pound, retriever-Sheppard mix! 70 pounds of exuberant puppy who still liked to chew the occasional pair of underwear or the delectable couch pillow from time to time – how would I find a housing situation where I could keep this guy? What would I do with him when I was at work?

I was fortunate; my parents took us in until I could get back on my feet and find housing where he was allowed. He’s still with me at age four, and the love, companionship, and sense of security that he’s brought me are worth any sacrifice I may have made. However, I’m sure I could have been out of my parent’s house sooner if I hadn’t been looking for housing and work that would meet my financial needs as well as the needs of my pet.

In the process, of all this, I learned a few things to make pet ownership more affordable, and I’d like to share those tips with you here. However, I also recognize that even with practical approaches like these, keeping a pet sometimes does become just too burdensome, too difficult. While we all acknowledge that in an ideal world, a commitment to a pet is for life, people do get into situations that are so unexpected or out of control that the animal needs a new home. Also, people can become ill or have to escape an abusive situation. With that in mind, this article also provides tips for finding the best placement for your animals when crisis merits the extreme action of having to give up your pet.

Tips and Considerations to Make
Pet Ownership More Affordable:

  • Give up your gym membership before you give up your dog! Walking or jogging is good exercise, and the $50 a month you spend on a gym membership will cover dog food. It’s easier to re-join a gym when times get better than it is to get your pet back! Visit Hike with Your Dog to find dog friendly places to exercise in any of the fifty states.
  • Form a dog walking Co-op. A huge problem for (especially single) dog owners is what to do when we have to work a 14 hour day and it’s not possible to get home to take the dog out. Dog walkers and doggie daycare are expensive! A resourceful alternative is to find one or two people in the same situation and form a Co-op where you can exchange services. Think creatively – it doesn’t have to be a day by day exchange. I once knew someone who walked her neighbor’s dog every Wednesday afternoon in exchange for two consecutive weeks of vacation dog sitting in the summer. This worked out great for both of them, and went on for years.
  • In a crisis situation, such as having to flee your home due to a domestic violence situation, many animal shelters offer temporary housing for dogs, cats, and even exotics. Inquiring at your local shelter is a good place to start when there’s a true emergency such as domestic violence, fire, or hospitalization. The Humane Society of the United States provides an on-line directory of nationwide safe haven services on their website.
  • Keep your pet vaccinated to avoid fines and illness! Most shelters offer annual rabies clinics where they give this vital vaccination for free or at a greatly reduced rate. For example, Anne Arundel County Animal Control in Maryland offers this weekly, the price per pet only $5. Local animal shelters can usually provide information about similar programs in your area.
  • Spaying or neutering your pet is one of the best ways to keep costs down. After all, it avoids the pitfall of having, accidentally, more pets! Many shelters, and even some vet schools, offer spay/ neuter support or clinics, so you should inquire locally. Usually, these services can be provided for a discounted rate of $40 - $50 – services can be as much as five times that amount at a regular vet’s office. The national organization SpayUSA offers a list of reduced price services nationwide.
  • Finally, be practical. A long time ago, I decided that if I couldn’t afford a multi-vitamin for me, then Basil wasn’t getting any fancy supplements. On the other hand, I continued to feed him a quality dog food (even when I was eating PB&J for dinner) because I knew that the quality food would keep him healthy, which would prevent trips to the vet. The same went for preventative flea/tick medications and heartworm pills. I found the money for them because I knew they would prevent bigger problems. Believe me, your pet would rather be curled up next to you at night, after a dinner of slightly less-fancy food, than lying on a floor in a shelter somewhere. I speak for the dogs and cats here. Pets can go through the ups and downs of family life with us.

In addition to the tips I’ve given above, the ASPCA website offers some excellent, practical tips for making pet ownership affordable.

Before you give up your pet, consider the terrific physical and emotional benefits of having a dog or cat in your life. The Center for Disease Control shares some of these benefits on their website. Here are two notable quotes:

“...Pets can decrease your blood pressure, cholesterol levels, triglyceride levels, [and] feelings of loneliness...”

“...Pets can increase your opportunities for exercise and outdoor activities, and opportunities for socialization...”

It’s hard to put a price on that. I know in my case, Basil has comforted many tears through my divorce, kept me company when I’ve been lonely, and has forced me to get up in the morning to walk and feed him when I didn’t have much other reason for getting out of bed.

Sometimes, though, there are situations where owning a pet becomes impossible. The safety of people comes first, obviously, and I know it must be hard for those who have to lose a pet because they’re leaving an abusive relationship. It’s also hard to admit for any reason that you’re unable to adequately provide food, shelter, and exercise for an animal that you love. Sometimes, what is actually the responsible thing to do – giving up the pet – may not appear responsible to others. I don’t think it’s a decision to make lightly, but sometimes it’s necessary. If it is necessary to give up your pet, you owe it yourself and your animal to handle the situation responsibly. I’ll never forget a story that a shelter worker told me: she got to work and found six cats in cages on the shelter doorstep, all dead or near dead from hypothermia. That's cruel, inhumane and inexcusable.

Strategies for Finding a Safe, Happy,
and Appropriate New Home for Your Pet:

  • Use networking among family and friends as your first resource for finding a home. And, no, I do not mean guilt tripping someone into taking your animal! I mean, put forth a word of mouth and email campaign to find the right home for your dog or cat. A friend of mine, Sarah, had to go through this when she found she couldn’t afford her one-year-old lab-pitbull mix. According to Sarah,

    “It just wasn’t fair. I probably shouldn’t have had the dog to begin with… she had too much energy and I couldn’t afford to work less. I didn’t have the time for her.”
    Sarah’s story has a happy ending, though.

    “I used email and contacted friends. I offered the dog, with her crate, bed, toys, and over a month’s supply of food. She was up to date on all her shots.”

    It took some time, but Sarah eventually found a family who lived on a three acre property to take the dog.

    “I visit her sometimes,” Sarah says, “and they send pictures.” She adds, “It’s for the best.”
  • Another great resource is a reputable breed rescue organization such as Yankee Golden Retriever Rescue or Persian and Himalayan Cat Rescue. This works best if you have a purebred animal, but sometimes the organization will accept a mix or “similar-type.” The reason this is a good resource is these organizations generally do not euthanize, foster dogs in temporary homes, and have an understanding of the kind of home your dog or cat will do best in.
  • Tell your veterinarian that you need to find a home for your pet. Vets (and veterinary assistants) see lots of pet owners every day and they know who the responsible owners are. This can be a great resource. The same goes for groomers, dog walkers, trainers, feed store owners, or any other professional who may know and like your pet.
  • The popular website Petfinder.com will not allow individuals to post pets there for adoption. However, Petfinder does offer a great search engine for finding animal welfare groups by zip code. Sometimes an animal welfare group may not be able to take your pet in, but will be willing to make a courtesy posting on Petfinder for you if they believe your animal is a good prospect for adoption.
  • Contact local shelters until you find someone willing to take your animal. Check for no-kill policies. Provide, if possible, a monetary donation to the shelter to help them support your dog or cat until they can place it. NEVER, ever just drop your pet on a shelter doorstep. In many states, that’s illegal and punishable with fines or jail time!
  • Be careful when giving away your pet! You don’t want your pet to end up in the wrong hands, so request references/ visit the home of anyone you’re going to give your pet to, even if the person claims to be a representative of a rescue organization. Do a little research. You are going to all this trouble to avoid having the pet meet an unhappy ending! It would be terrible to give your pet away and find out later that the home or organization was not what it claimed to be.

Needing to find an animal a new home is a very hard situation to be in, but it can have a happy ending. The right situation can come along like serendipity. Five-month-old SeamusRecently, I interviewed Alyson, a single woman in her fifties who has always loved animals (and has owned many pets) but has been without pets for a while because she's had to care for her mother. After her mother’s death, Alyson wished for a new animal, but part of her was still grieving and this held her back from rushing out to get one. Then, one afternoon, she was at an old friend’s house and mentioned that she’d been thinking of getting a pet. The friend encouraged her to take Jack, a litter-box trained Dwarf rabbit that the friend’s 14 year-old daughter just simply didn’t have much time for anymore. A first-time rabbit owner, Alyson quickly takes out her camera phone to show me a picture of Jack, saying,

“I saw him out in the garage and he was so cute and looked so lonely, I just thought, it’s time. And [Jack] really has personality. If he wants my attention, he jumps up and begs for affection. It’s good for everyone. My friend -- Jack's previous owner -- feels happy because she’d been plagued with guilt about the situation. She and her kids can come to visit. I’m happy to have this delightful pet. And Jack’s happy because I can’t get enough of him. Everyone’s happy.”

Finally, if you do find yourself in a situation where you have to give up an animal, you should honor that animal by putting yourself on pet probation. I’m not saying, never own a pet again, but I am saying, make yourself wait 3 – 5 years, until your life situation (financial, housing, etc.) is stable enough that you know you won’t get into the unfortunate position of having to part with an animal you love.

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Wednesday, January 21, 2009

Stay-at-Home Moms: Returning to Work for Financial Security Reasons

Stay-at-home Mom Returns to Corporate AmericaI have been a stay-at-home mom to two little girls, for the last eight years. I was privileged to be able to be there for all their "firsts"- first steps, first words, first day of kindergarten. Now that they are both in school, it's time for me to re-enter the work force. Why am I going back to work? Well, there are a few reasons. I want to feel as if I am contributing to the household financially. I sell a little bit here and there on eBay, but that's barely enough to pay the monthly premium on our family health insurance. Money is really tight right now in our house, and it's getting harder and harder to get by on one income. My husband is self-employed, delivering steak and seafood to restaurants, and business has suffered because of the recession. I guess fewer people are eating out these days, so orders haven't been as fast coming in. We have about $15,000 in credit card debt. All three of our cards are at about 28% interest, and we can barely afford to pay the minimum, which averages out to about $250 a month. Sometimes we try to pay a little more, but most months we pay just enough to get by- and the bills just keep coming.

Since I have actively been seeking a job, I have had four interviews, each with the typical questions about skills, experiences, and qualities that I could bring to the job. None of them had the result I was hoping for. Every employer wants someone with more experience, and I don't have a lot because I have been at home with my children since I was 21. I have a lot of skills, such as multitasking, and working under stress, but my time as an at-home parent doesn't count toward my resume. It's a catch-22. I can't get a job due to lack of a work history, but I can't get any experience until someone hires me.

In order to return to the working world, I have taken classes online, and researched extensively on corporate America and what employers are looking for. I know there are a lot of people out of work these days, and most of those people definitely have more skills than I do. It's hard to get back into the game, after being at home for so long. When I finally do land a job, hopefully it will be during the hours my children are in school. That will save me a lot on daycare expenses. Child-care centers in my area charge about $120 a week, per child. If I cannot find a job with the hours I am hoping for, I will probably ask my family for help with caring for my children. It's important for a parent to have a support system in place when they decide to return to work, and I'm really fortunate to have a loving and helpful family.

As far as salary goes, that's negotiable. I'd like to make at least ten dollars an hour, but right now I'd take anything above minimum wage. High-paying jobs are scarce these days, I know. I'd take a job with no medical benefits, because my husband, children and I already have insurance, which I finance through my eBay selling.

I'd really like to find a job that allows me to set up an IRA or a 401k, because I have not begun to save for retirement. I have no delusions that Social Security will be enough to keep me afloat when I get older, so I'd like to be able to start putting some money away.

Returning to the corporate world is tough (it has been so far, anyway.) I'll keep you posted on my progress, and provide other useful tips in my next post.

And, of course, if you have any advice for me, please post your thoughts in the comments section of this entry. Thanks!

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Sunday, January 18, 2009

Ease Your Mind By Taking Control Of Your Finances

Ease Your Mind By Taking Control Of Your FinancesIf you are feeling like you don't have any control over your finances you are not alone. Whenever there is an economic downturn like we have recently experienced it is normal to feel a sense of panic regarding your finances. Admittedly there are many things you may not have control over when it comes to your money, however there are some areas where you can and should take charge of your finances to have some peace of mind during these troubling times.

  • Do you know where your investments are? Many people allow their retirement accounts or other investments to go on auto pilot during good times. There is no better time than the present to dig deep and get a better understanding of your portfolio.

  • Don't panic if your home has lost value. Unless you are in the market to move or sell right now, you shouldn't worry needlessly about your home losing value. The housing market goes up and down and having your house lose value is simply part of home ownership. However if you are struggling to make your mortgage payment due to having “too much” house you should consider looking for help now before you get too far behind to help yourself.

  • Secure your job. This tip may be easier said than done in the current employment market. With many people losing their jobs and companies downsizing everyday it is clear that you may not be able to do anything to prevent job loss. That being said, you should make every effort possible to do the best job you can do. Now is not the time to be slacking at work. Get there on time, try to limit time off and be as efficient as possible while you are there in an attempt to secure your job.

  • Pay down debt and reduce expenses. This common sense advice should be followed regardless of the economy but is especially important in a recession. While you may have no control over the state of the global economy, you do retain control of your individual spending. By cutting costs and paying down debt you put yourself in a better financial position for the future.

  • Put major purchases on hold. If possible put off any major purchases that will further strap your budget. Now is not the time to incur more debt or tie up your existing disposable income for additional payments.

  • Protect your credit. Credit is a precious commodity as lenders try to reduce their risk in the current economy. Protect your existing credit by always making at least your minimum payment, on time, every time. If you skip a payment or pay late, creditors may see you as a risk and respond by applying higher interest rates or reducing your available credit, both of which hurt your financial position and credit score.

By taking control of what you actually have control over, you can reduce your stress level and feel confident in your money management plan. However if you find you are losing control or are unable to follow the steps outlined it may be time to ask for help. There are many options available for debt relief if you find yourself in a position where you no longer have control over your finances. Your problems won't solve themselves, be pro-active and face your situation for a better financial future.

Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

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Monday, January 05, 2009

Short Sale, Long Consequences

Short Sale, Long Consequences: A story about divorce, foreclosure and the IRS
Short Sale
It is August 2008 and I have been divorced for two years now. What a two years it has been. Left with nearly $15,000 in credit card debt by my reckless and deceitful ex-husband, and just out of graduate school working part-time jobs to get by, it seemed like I would never catch up. Oh, and there is the deadly “foreclosure proceedings begun” on my credit report, which I’m told will be there for the next seven years. Nonetheless, it is August 2008; I am divorced, happy, and free, with a new love in my life, and more than two thirds of the debt paid off. I am able to go off the debt management program that has helped me reach this goal. I plan, and take, my first vacation in more than five years.

What do I come home to? A notice and bill from the IRS that they are increasing my 2006 reported income by more than $5,000, meaning I owe them about $800, because my ex and I sold our foreclosed house in a short sale more than two years ago.

Just when I think life is getting better, something surfaces, something bites my (thankfully, tanned) backside.

Of course, my first reaction is that this is an injustice. For one, the mortgage company (since gone bankrupt itself) never told me that I would be liable for claiming the waived debt as income, and never furnished me with a 1099 form. (In a recent phone call, their rep claimed they sent it to my ex, logical as he was the primary borrower.) For another, there is the sting of personal injustice: my ex had let the home fall into foreclosure behind my back. I still don’t know what happened to all the money that was supposedly going towards mortgage payments, thousands and thousands of dollars. (Of course, I do have my suspicions, most of which involve my ex’s internet affairs, substance abuse, and sending money to his con-artist brother in Europe for weird and always unsuccessful business ventures.)

The irony is, it was me who decided to file taxes separately for 2006, although we were technically still married for half of it, because I didn’t want to be associated with him any longer, even in the eyes of the IRS. If we’d filed jointly, he’d now be liable for half the short sale income. In fact, I might even be eligible for an IRS protection called “Innocent Spouse,” that waives the liability of a spouse when debt or income has been concealed. (He never shared the 1099.) As it is, however, two tax professionals and the IRS help desk in Providence, RI have convinced me that I am liable for the amount and will be held responsible, especially since my ex doesn’t seem to have filed income taxes at all for that year. As both of the accountants told me, “The IRS goes after the person with the deeper pockets.” It seems unimaginable but that person is me!

Ademola, another member of the www.FedPrimeRate.com Money Blog, wrote an entry about this recently. Bush and Co. have issued a special moratorium that currently prohibits taxing short sale amounts. It’s a good idea; with so many people facing foreclosure and crisis, this waiver is a welcome relief, I’m sure. After all, in my case the short sale amount, and subsequent tax, wasn’t thousands and thousands of dollars. In today’s market, however, large short sale amounts are a distinct possibility for those trying to sell their homes, especially if there’s a need to sell quickly. Read more about the moratorium here.

My story, though, is still a teaching story, I think. When you’re in financial and personal crisis, as I was when I negotiated the short sale, it’s easy to jump at the first relief without considering the long-term consequences. Don’t get me wrong, the short sale was probably still my best option, but I would have handled the taxes differently. I wish I had slowed down and asked myself questions, not yes/no questions, but open questions like: What do I need to know about a short sale?

That’s the thing about crisis: It seems like the time to act fast. Maybe, that’s really the time to slow down and do research. To ask an expert. To ask yourself: how will this affect me two years from now, when I come home from vacation, tanned, happy, and newly in love? How will this affect me when I’m almost-financially-secure again? How might this affect me in eight years or eighteen? In the moment when it’s hardest to think about long-term, we sometimes most need to.

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