Financial Resolutions

New Year’s is a time to both reflect and look forward. It’s also a time of the year when people make resolutions. A pretty common resolution to clean up your finances. What are some things that you should consider when resolving to clean up your finances?

The first thing I would suggest considering is whether or not you are able to pay down the balances on your outstanding debt, especially unsecured debt like credit cards. If you are continuing to aggressively pay down these balances, great, keep it up! If, even after you make payments to your creditors every month, the balances either stay the same or even go up, you should consider whether bankruptcy is an option. Chapter 7 bankruptcy may completely wipe out your unsecured debt. If you don’t qualify for Chapter 7 bankruptcy, a Chapter 13 bankruptcy can at least help you freeze your balances and stop the high interest payments.

A second thing to keep in mind when looking ahead is your secured payments like mortgages and cars. If you have a mortgage with an adjustable interest rate, you should plan ahead. With interest rates increasing you may need to make a higher monthly payment going forward. This is something to keep in mind when budgeting. If you need a new car, you should consider your budget as well. If you’re making payments that are handling your other debts, you were probably in good position to get a new vehicle. If you’re falling behind, or struggling to keep up, it may be best to try to get one more year out of your car.

Finally, you should consider sitting down and making a detailed budget. I mentioned this previously when considering whether or not to buy a new car. It sounds simple, but it really does help to sit down and write out all of your expenses, from mortgages and car payments all the way down to small things like streaming services and daily coffee trips. It may help you realize things that you can easily cut out. It may help you look at places to tighten the budget. If your income is going to go up, it could give you the confidence to invest more money or even plan a trip you have been waiting to take.

Personally, I occasionally go through my own budget to get a better feel for my finances. I think it helps.

If bankruptcy or possibly a debt settlement are in your plans for 2023, call us at 412-414-9366. I would be happy to set up a free consultation and discuss your situation. Now is a good time to think about your financial situation and whether or not you are in a good place or if you need some help.

Means Test Update

The means test has been updated for the Western District of Pennsylvania, and has slighly increased.

The means test is a 6 month look-back at ALL sources of GROSS income. Household size is determined by IRS dependents and whether you are a married couple. If you are married and living together, the means test looks at both incomes, even if only one spouse is planning to file. The means test is discussed in more detail in this blog and on this website.

Here are the new means test limits for gross income earned in the six months before filing:

• Household of one: $30,765.00

• Household of two: $37,184.50

• Household of three: $46,706.00

• Household of four: $56,518.50

• Household of five: $61,468.50I

• Household of six: $66,418.50

• Household of seven: $71,368.50

If you have any questions about the means test and whether or not you qualify for Chapter 7 bankruptcy, call us at 412-414-9366. I would be happy to set up a free consultation to discuss your situation. I would be happy to review the means test and see whether or not you qualify.

The Problem of Rising Interest Rates

The federal reserve has raised the baseline interest rate from 0% to 3.75% in the last several months, and the rate is projected to continue to increase. This has an incredible effect on the how much it costs to service debt. Everything from mortgage payments to car payments to credit cards to personal loans will become more expensive to service or acquire. This will make it easier to accrue large amounts of debt and harder to pay the debt that you already have.

Hopefully, if you already have a mortgage, the payment has a fixed interest rate. Variable interest rate mortgages stand to increase greatly in the coming months and years. Fortunately, there are not as many variable interest rate mortgages as there once were, especially before the financial crash of 2008 and 2009. However, if you have a variable interest rate loan, you should watch your mortgage statement closely in the coming months as the payment could go up significantly. Also, if you are seeking a mortgage or any loan in the near future, you should absolutely avoid variable interest rates.

Consolidation loans will also get more expensive. This makes it harder to consolidate a collection of credit card debt under one loan. Chapter 13 bankruptcy may be a good alternative option as creditors are always repaid at 0% interest over the course of the bankruptcy plan. Therefore, increasing interest rates do not make a chapter 13 bankruptcy repayment plan more expensive. This is an important consideration because interest is often the hardest part to get under control with unsecured debt. Chapter 13 bankruptcy locks in your current amount and actually gives you a target to pay off. Your balances will actually go down when you stop having to pay high (and getting higher) interest rates.

There is no real good advice for how to deal with higher interest rates. They affect everyone and make everything more expensive. The idea is to decrease the attractiveness of taking out loans and therefore slowing down the economy. To whatever extent you can avoid taking out loans, obviously you should do so. But unfortunately that is not always an option in life. If you need to buy a home you can’t just wait until interest rates drop. One positive side effect of higher interest rates when buying a home is that it tends to decrease the actual cost of the home, sometimes greatly. If you need to buy a home now, the best case scenario would be to pay the higher interest rates in the next several years and then refinance to a lower rate when interest rates drop.

Higher interest rates are a problem for almost everyone. If you have been considering a loan consolidation but now find it less affordable, contact us at 412-414-9366 to set up a free consultation. Chapter 13 bankruptcy may be an option to step outside of the pain of higher interest rates.

Gather Up All Of Your Collection Notices

In Chapter 7 bankruptcy it is important to include all of your creditors in the schedules. This guarantees that the underlying debt will be discharged from your financial record. Discharge wipes out that debt forever, it cannot be collected on or transferred to anyone else. There are no tax implications as the debt is discharged, not forgiven. Therefore, the creditor cannot write off the debt and send you a 1099C (which would require you to pay taxes).

When I file a Chapter 7 bankruptcy for a client I run a bankruptcy specific credit report. This credit report should catch most of your major debts. However, some things are not reported and some things slip through the cracks. A common example is medical bills. Medical bills rarely are disclosed on credit reports. When you file Chapter 7 bankruptcy you want to make sure that all of your medical debt is discharged. It is important to gather up all medical statements and provide them to your bankruptcy attorney. This may require you to call your medical providers to get any bills or statements. You should also track down any collection notices you may have received from third parties who are collecting on medical debt.

It is likewise important to find any collection notices for any credit cards. While the underlying debt should be discharged in any case, it still will make your life easier if all of the collection agencies are notified when you file bankruptcy.

If you have retained an attorney to follow Chapter 7 bankruptcy, make sure to keep any collection notices in the lead-up to filing. All utility bills are also worth gathering up as they sometimes do not show up on the credit report. If you owe individuals such as old landlords (or even individual people), you should include them as well even though they will probably not be on the credit report.

If you have any doubt whether or not to provide something to your attorney, error on the side of giving them everything. If you have any questions about what can be included in a chapter 7 bankruptcy, call us at 412-414-9366. I would be happy to discuss your situation and set up a free consultation!

All Income Counts Towards The Means Test In Bankruptcy

The bankruptcy means test is a six month look-back at all sources of income used to determine whether or not you can file Chapter 7 bankruptcy. I will normally ask potential clients to provide me with paystubs for this period of time. However, the income that is considered for the means test in bankruptcy goes beyond what is in a regular paystub.

For instance, if you receive cash from an employer, or from sales or your own business, without a paystub, it still counts. If you are a 1099 employee who doesn’t receive a paystub, that counts as well. Gig economy income for jobs such as Uber or Doordash, even if very limited and used to pay bills, must be disclosed. Any income from any employer (in any form) will count towards the means test.

Sometimes, late in the filing process, a client will disclose cash income or one of the situations above. The means test will need to be redone to account for this additional income. If you have any doubt, tell your bankruptcy attorney about the income. It will alleviate problems in the future.

Also, non-employment money can sometimes be counted towards the means test. This would include unemployment compensation, child support, and household contributions. While most people would not think of these sources as “income”, they are for purposes of the test..

VA benefits, it should be noted, do NOT count towards the means test.

If you’re considering filing bankruptcy, call us at 412-414-9366. I would be happy to set up a free consultation to see if filing bankruptcy is an option for you.