Personal Bankruptcy: Some Things To Consider
posted 4/14/2010
Bankruptcy is a legal proceeding for people or businesses unable to repay their outstanding debts. The two most common types of personal bankruptcy are Chapter 7 and Chapter 13, named for chapters of the Federal Bankruptcy Code.
Filing for bankruptcy is generally considered a worst-case scenario because the results are so long-lasting and far-reaching: Bankruptcy can remain on your credit report for up to 10 years and make it difficult to obtain credit, buy or rent a home, get insurance or even a job.
It's also expensive and complicated: Chapter 7 bankruptcy can cost thousands of dollars in up-front lawyer's fees, plus fees for a court filing, mandatory credit counseling and budgeting courses, and Chapter 13 is even more expensive. Under Chapter 7 ("liquidation") bankruptcy, an administrator or trustee is appointed to sell most of your assets, aside from certain exempted necessities such as your primary residence, a car, clothing, home furnishings and work tools. Pensions and 401(k) accounts are usually protected as well.
Once assets are liquidated, the trustee distributes the proceeds to your unsecured creditors. In exchange, many unsecured debts, such as credit card and medical bills, are forgiven, or discharged. However, secured or fixed debts, such as mortgages, student loans, taxes, alimony and child support typically are not erased.
Eligibility for Chapter 7 is determined by a "means test," which requires you to confirm that your income does not exceed a certain amount. In 2009, the income level for a single individual in Arkansas was $33,623. For a family of two, it was $45,435; for three, it was $48,909; and for four, $56,822. The court uses the means test to determine whether or not you have sufficient money available to make at least minimal payments to creditors under a Chapter 13 plan. If you fail the means test your case will be dismissed or converted to a Chapter 13 filing.
Chapter 7 bankruptcy typically remains on your credit report for up to 10 years. Also, you must wait eight years after having debt discharged before being able to file Chapter 7 again.
Under Chapter 13 ("reorganization") bankruptcy, debtors with steady income are allowed to keep property they might otherwise lose, in exchange for agreeing to use future income to repay creditors over a three-to-five-year period. You are assigned a trustee with whom you develop a proposed debt repayment plan.
The bankruptcy court decides whether to accept or alter the plan, or to dictate another plan. After it's approved, both you and your creditors are bound by the plan's terms. Generally, you make payments to a trustee who in turn distributes the funds according to the plan's terms. Once all payments are completed, the court will formally grant a discharge of your debts.
Chapter 13 bankruptcy typically remains on your credit report for up to seven years. Also, you must wait at least two years after having debt discharged before being able to file Chapter 13 again.
Under bankruptcy law, before filing for bankruptcy you must first receive credit counseling from a government-approved organization within six months before filing. To find an approved credit counselor in your area, visit the U.S. Trustee Program at www.usdoj.gov/ust.
In addition, after filing but before your debt is discharged, you must also complete an approved debtor education program. You must receive certificates of completion from each program in order to proceed with your bankruptcy.
Portions of this article are reproduced with permission from Practical Money Skills.
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Identity Thieves' Latest Scams
posted 3/10/10
If the financial consequences weren't so damaging, you might almost find humor in how identity theft has butchered the English language in recent years. "Phishing," "pharming" and "vishing" are just a few ways criminals access personal information they'll use to open illicit accounts, rent apartments, or even charge medical procedures to someone's insurance plan.
Unfortunately, every time authorities plug one hole, crafty criminals figure out new ways to trick unsuspecting victims. Some now even steal children's Social Security numbers, ruining their credit long before they've opened a single account.
To protect yourself and your family, beware of these scams:
- Phishing: Is attempted when you receive an email, purportedly from a trusted source like a government agency or Malvern National Bank, asking you to supply or confirm account information, log-in IDs or passwords. Legitimate financial institutons, including MNB, will never ask you to verify sensitive information by email (or over the phone). When in doubt, contact the us or the identifying organization yourself. And never click on the link provided within the email – it could take you to a copycat website capable of infecting your computer.
- Smishing (for "Short Message Service"): Like phishing, only it uses text messages sent to your cell phone.
- Vishing (voice phishing): An automated voice message that directs you to call the bank or credit card company. Under the pretext of clearing up a problem (like theft), you'll be asked to share personal or account information. Keep a list of company toll-free numbers handy so you can call them directly without fearing you've been given bogus information. It's a good idea also to program the bank's and credit card issuers' phone numbers – but not account numbers – into your cell phone in case you're traveling.
- Pharming. Is attempted when hackers redirect you from a legitimate website to an impostor site to harvest (farm) personal data you've been asked to provide. Social networking sites like Facebook and Twitter increasingly are being targeted.
- Skimming: Where crooks use an altered ATM slot and cameras to record account information; also, when dishonest store or restaurant employees use a portable card reader to skim credit or debit card information.
- Spyware: is illicit software you unknowingly download when you open an email attachment, click on a pop-up window or download a corrupted song or game. The spyware can then record your keystrokes to obtain account information or ferret out confidential information on your computer.
Don't forget good-old-fashioned pickpocketing, mail theft and rooting through your trash.
To reduce your risk of identity theft, always:
- Shield keypads from the eyes of "shoulder surfers" at stores and ATMs.
- Shred paperwork and receipts containing personal or account information.
- Lock up your Social Security card and unneeded credit cards.
- Carefully scan monthly credit card and bank statements for erroneous charges.
- Monitor your credit reports for errors or fraudulent activity. You can order one free report per year from the three major credit bureaus at www.annualcreditreport.com.
- Refrain from making online purchases from unfamiliar websites; and look for "https" in the address.
These are only a few of the precautions you should routinely take to protect your personal information. For more tips, call Malvern National Bank or visit Practical Money Skills for Life.
Portions of this article are reproduced with permission from Practical Money Skills.
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Money Market Accounts
posted 2/9/10
The term "money market account" is one that many of us have heard, but when pressed to define its meaning, a majority of people will scratch their heads. So what exactly is a money market account? A savings account? An investment vehicle? The answer is both.
Malvern National Bank's High Performance Money Market Account has many of the characteristics of a traditional savings account, but also adds a safe, conservative element of investment. The money you deposit in the account is usually invested in short-term, fixed-income securities, such as U.S. Treasuries.
Most money market accounts require a larger initial deposit to open, and may require that the account balance be maintained at a certain level. Our High Performance Money Market Account has a $5,000 opening balance requirement. It offers higher interest rates than many savings accounts. It also has a tiered inteerest rate structure where a higher interest rate is paid for a balance over $10,000.
In terms of liquidity, the High Performance Money Market Account money falls between a traditional savings account and a certificate of deposit. Unlike CDs, which charge a significant penalty for early withdrawals, you may withdraw your money from your money market account at any time. However, only 6 withdrawals are allowed from the account during the month.
The chief disadvantage of money market accounts is that they don't always keep pace with inflation over the long term. For this reason, money market accounts are often opened by customers who are looking for an interim place to "park" a large sum of money while deciding where to ultimately invest it. The High Performance Money Market Account offered by MNB isconsidered among the safest investment vehicles.
Money market accounts may never generate a lot of buzz, but they can be a good alternative to traditional savings and do serve a need, offering some diversify and a way to spread risk across a portfolio as well as a convenient, relatively safe place to store assets while considering other options.
Portions of this article are reproduced with permission from Practical Money Skills.
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First-time Homebuyer Tax Credit Expanded
posted 1/13/10
A key feature in last year’s economic stimulus bill was the federal income tax credit designed to help first-time homebuyers. Now, as part of legislation signed by President Obama in November 2009, that tax credit has been extended – as well as expanded to include a credit for current homebuyers looking to buy a new primary residence.
Here’s how it works:
The deadline for the first-time homebuyer credit was extended to include purchases where a binding contract is signed by April 30, 2010, and closed by June 30, 2010. A few rules:
- “First-time homebuyers” are those who have not owned a home during the previous three years.
- The credit is worth 10 percent of the purchase price, up to a credit limit of $8,000 on homes costing $800,000 or less; homes priced above that are ineligible.
- Qualifying income thresholds have been raised to $125,000 in modified adjusted gross income (MAGI) for individuals and $225,000 for married couples filing jointly, from the previous $75,000 and $150,000, respectively. (MAGI is usually found on line 38 of your federal income tax return).
- The credit phases out for individuals with MAGI between $125,000 and $145,000 and $225,000 to $245,000 for joint filers.
- If you are married, both you and your spouse must qualify as first-time homebuyers to receive the credit; also, each of you must be at least 18 years old at closing and neither can be claimed as another taxpayer’s dependent.
- Purchase transactions between immediate family members are not eligible.
- You must attach a copy of the purchase settlement agreement to your tax return.
- You must repay the credit if, within three years of purchase, the home is no longer your primary residence. (Certain exceptions will be made for military personnel and when one of the homeowners dies.)
- Qualified housing includes newly constructed or existing single-family houses, condominiums, manufactured or mobile homes – even boats that function as your principal residence.
- You can claim the tax credit for a 2010 purchase on either your 2009 (via an amended return, if necessary) or 2010 taxes.
The good news in this bill for current homeowners is that they too may qualify for a tax credit if they want to move to a new primary residence, whether because of a job transfer, downsizing at retirement or moving to a larger home or a new community. Although the same income thresholds, purchase cost limit and closing deadlines apply, there are a few unique features:
- Instead of $8,000, the maximum credit amount is $6,500.
- You must have lived in your current home for five consecutive years out of the last eight.
- The newly purchased home must become your primary residence and not a second home or investment property.
- You are not required to sell your current residence; thus, you could rent it out or turn it into a second home.
To learn more, visit www.federalhousingtaxcredit.com. Because of the complexity of tax law governing these transactions, consult your tax advisor before finalizing a purchase or deciding which year to claim the credit.
Reproduced with permission from Practical Money Skills.
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How Much House Can I Afford?
posted 11/23/09
When considering purchasing a home, ask yourself an important question: How much house can I afford?
As a part of your home buying or home refinance process, it's a good idea to obtain your credit report. Review it for accuracy so that you can calculate your own financial ratios.
Generally, having an overall debt-to-income ratio of 36% or less AND having a mortgage payment-to-income ratio of 25% or less is required. These ratios utilize your gross income before any deductions. Knowing these ratios ahead of time will enable you to save time when searching for a home that fits your budget.
To calculate your ratios, click on the "Financial Calculators" link on the left column of this page. On the "Financial Calculators" page, choose the "Mortgage Calculators" link. Then click on "Mortgage Qualifier". From there you can enter your income information to determine just how much of a monthly mortgage payment you can afford. Once you determine that amount, you'll be able to shop for a new home in a respective price range. You'll also be able to budget for the new payment amount.
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The 3 C's of Credit
posted 10/19/09
Your credit score is a measure of factors that may affect your ability to repay credit. It's a complex formula that takes into account how you've repaid previous loans, any outstanding debt, and your current salary.
A credit score is dynamic and can change positively or negatively depending upon how much debt you accrue and how you manage your bills. The factors that determine your credit score are called The Three C's of Credit - Character, Capital and Capacity.
Character: From your credit history, a lender may decide whether you possess the honesty and reliability to repay a debt. Considerations may include:
* Have you used credit before?
* Do you pay your bills on time?
* How long have you lived at your present address?
* How long have you been at your present job?
Capital: A lender will want to know if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if your income is halted due to layoff or other reasons.
Capacity: This refers to your ability to repay the debt. The lender will look to see if you have been working regularly in an occupation that is likely to provide enough income to support your credit use.
The following questions may help the lender determine this:
* What is your current salary?
* How many other loan payments do you have?
* What are your current living expenses?
* What are your current debts?
* How many dependents do you have?
Remember too, that holding several credit cards can hinder a higher credit score even if the cards have a ZERO balance! Closing some or all of them can possibly have a positive effect on your credit score.
Having good credit is very important, especially if you wish to borrow money from a financial institution.
Reproduced with permission from Practical Money Skills.
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First Steps To Obtaining A Mortgage
posted 10/7/09
Whether you’re considering a first-time mortgage, refinancing your existing mortgage or a new home mortgage, here are some timesaving steps to help you.
Many times, a real estate agent likes to know you’re pre-qualified for a certain priced home to save both you and him/her time. In order to begin pre-qualification you’ll need a credit report to begin the process.
You can obtain a report at annualcreditreport.com, which is free once per year. Or even better, log on to any of the websites of the three credit bureaus and purchase a report from either experian.com, equifax.com or transunion.com. It’s always wise to obtain what’s called a 3-in-1 report to see what each of the three bureaus are reporting as your history. There can be variations! The cost is about $30 for a 3-in-1 report and you pay by credit card.
Make sure to review the report for complete accuracy, dispute any errors you may find and make certain the debt in the report is truly yours. Look for mistakes that are listed as your debt but you know is not. Dispute these charges immediately. Your credit report should only be YOUR credit history.
Another good step is to review the four reasons that your credit score is what it is. These reasons are in the order of their priority so it’s a good place to start to begin working on improving your score if you need to.
It’s also a good idea to review the number of credit cards your report shows as being “open”. Even if they have a zero balance or they may not have been used for years they can still lower your score. Maybe you’ll need to close some of them to help your score.
Here’s something to really remember: If you do dispute an item on your credit report, do it immediately, especially if you’re ready to move on your mortgage. Credit disputes are NOT speedy. They can take as long as 45 days. So if there’s something in your report that’s not accurate, attack the problem ASAP.
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