Is bankruptcy the answer?

1. Is bankruptcy the answer? • Impacts of bankruptcy • Remains on your credit history for 10 years • Can still get loans, but will pay double or triple the going interest rate • Unsecured debt goes away, which places the burden of payment on everyone else

2. So what is the answer? • No catchy slogans – just personal responsibility • If you don’t have the money for it, don’t buy it • Be educated about the true cost of credit and fees • Educate others!

3. Money trouble? It's your own faultby Liz Pulliam Westonhttp://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/MoneyTroubleItsYourOwnFault.aspx?GT1=9317 • Read the important points from this article in your notes

4. Bankruptcyhttp://www.uscourts.gov/Press_Releases/2008/BankruptcyFilingsAug2008.cfmBankruptcyhttp://www.uscourts.gov/Press_Releases/2008/BankruptcyFilingsAug2008.cfm • In 2005, more Americans filed for bankruptcy than graduated from college • The first 9 months of 2009 in Utah • 10,700 bankruptcies filed • Up 62% from 2008 • #21 = Utah • In 2004, we were #1 • In 2005, we were #3 • In 2007, we were #20

6. Bankruptcy • States with highest bankruptcies per capita • Nevada • Tennessee • Georgia • Indiana • Alabama • States with lowest bankruptcies per capita • South Dakota • Texas • South Carolina • District of Columbia • Alaska http://www.creditcards.com/credit-card-news/bankruptcies-per-capita-state-rankings-nevada-1267.php

7. Reasons for Utah Bankruptcies? • Tax burden as a result of a high dependency ratio • Young families • Lower incomes per capita • High rates of unsecured debt • The total debt-to-income ratio for Chapter 7 was 194.3 percent or almost twice annual income at the time of filing. For Chapter 13, the ratio was 173.4 percent (in Lown, 2005). • Larger homes than the national average • More cars owned or leased per hh than national average • More highly educated, which correlates with more likely to overspend, and does NOT mean more financially literate

8. Bankruptcy Demographics 2008 Annual Consumer Bankruptcy Demographics Report: American Debtors in a Recession Leslie E. Linfield Institute for Financial Literacy June 1, 2009As in years past, the average American in financial distress and seeking credit counseling and financial education is a 35 to 44 year old married Caucasian with a high school degree or some college who is employed and earning less than $30,000 per year. . . . the 2008-2009 Recession is noticeably shifting middle class Americans into bankruptcy.

9. Bankruptcy Laws (10/17/05) • Means test • If your income is above your state’s median, and you can afford to pay 25% of your “nonpriority unsecured debt” you are required to file Chapter 13 • Determining what you can afford to pay under Chapter 13 • You and the court will apply living standards derived from the IRS (what is fair in your area for housing, food, etc.) to determine how much of your income is available for your repayment plan

10. Homestead Exemptions • If your home was acquired less than 40 months before filing, you can only exempt $125,000 of the value • Lawyer Liability • If information about a client’s case is found to be inaccurate, the lawyer is subject to fees and fines • Credit Counseling & Money Management • You must meet with a credit counselor in the 6 months before filing at your own expense • You must attend money management classes at your own expense before your debts are discharged

11. If you are accumulating debt, it is IMPOSSIBLE to accumulate wealth • What is your goal?

12. Budgeting for the College Student • More students drop out of college due to credit card debt than academic failure • Famous Dickens’ quote from David Copperfield • Monthly income, 20 schillings, monthly expenses, 19 shillings  bliss • Monthly income, 20 schillings, monthly expenses, 21 shillings  misery

13. Budgeting, cont. • Budgeting is very simple (but not necessarily easy) • List all sources of income • List all expenses (including paying yourself first) • Make sure you have some left over • Make a Spending Plan • Plan how to spend your money • You’re probably already very good at spending your money  just need a good plan!

14. General Spending Plan Principles • Income vs. expenses • Needs vs. wants • Non-monthly expenses

15. Questions to consider… • Which expenses are essential to your family’s well-being? • Which expenses have the highest priority? • Which areas can be reduced to keep your family’s spending within its income? • Do I/we need that? • If so, how did I/we get along without it up to this point?

16. Zero Based Budgeting • Estimate your monthly income • Starting with your financial priorities, subtract obligations until you get to zero • Ex. Your monthly income = $________ • Subtract charitable donations • Then investing money • Then housing • Then transportation • Then food • Then personal care • And last, misc.

17. Step-down Principle • Think of a budgeting category • What is the most expensive option available? • What is the least expensive option available? • What’s in the middle?

18. Example: Food • Most expensive: every meal at a restaurant • Step down: prepared foods • Step down: mixes • Least expensive: every meal from scratch • Example: Transportation • Most expensive: new car every year • Step down: new car every 2 years • Step down: used car every 2 years • Step down: used car every 5 years • Think about where your spending is. If you can step down just one step just part of the time you will save a lot of money every year

19. Too much month at the end of the money? • Increase income • Cut variable spending • Reduce fixed expenses • Look at liquidating other assets

20. Money doesn’t always bring happiness. People with ten million dollars are no happier than people with nine million dollars.” -Hobart Brown

21. Financial goals • Need to categorize goals • Short-term • Intermediate • Long-term • Priorities • Emergency fund • Insurance needs (life, health, property, disability) • Pensions/retirement • Extra investing money

22. How to save money for investments/debt reduction? • HAVE A PLAN! • If you have a plan, you are more likely to accomplish your goals • Pay yourself first • Commit to a percentage, like 10%

23. The 60% solution • 60% = expenses • Food, clothing, hh expenses, insurance, charitable contributions, bills, taxes • 10% = fun money • Anything you want! • 10% = retirement savings • 401(k), Roth IRA • 10% = L-T savings • Debt reduction, or other investments (incl. kids college) • 10% = S-T savings • Use in 1-2 years • Vacations, hh repairs, new appliances, gifts

24. Some more ideas… • Envelope system • 101 ways to save money • Link on http://financialplan.about.com/ • Go on a “Financial Diet” • Automatic deposit • Round-up in checkbook • Cut unnecessary expenses • Save loose change • Coupons  save difference • Others? • More ideas referenced on the Pearls of Wisdom page on webCT

25. Dave Ramsey – The 7 Steps to Financial Peace • Save $1,000 in the bank for emergencies • Pay off all consumer debt • Increase emergency fund to equal 3-6 months of expenses • Save 15% of monthly income for retirement • Save for children’s college education • Pay off home early • Build wealth and give a lot of it away