Avoiding Financial Traps in the Pandemic

In my blog over the last year I’ve provided many tips on how to save money and avoid the financial traps that can lead to bankruptcy.  Unfortunately the world is full of opportunities for you to give up your hard-earned money unwisely.  With the current pandemic creating much fear and uncertainty there are even more dangers out there.  Don’t be a sucker!  Be informed!

Becoming an informed consumer is a big step toward avoiding these minefields—and developing the financial power that will keep you out of debt trouble.

Here are some tips for today on how to avoid money traps.

            Avoid the “Free” Trial Offer.  It’s said the best things in life are free.  But maybe not.  Ever wonder why businesses are willing to offer that free trial?  Sure, it may build customer loyalty and maybe you’ll happily become a repeat buyer.  But companies know that many of us will never read the fine print and they make no attempt to remind us when the free period is over.  Instead your “free” subscription or service converts to a paid one. You are left with an unwanted monthly expense and now they have a steady revenue stream.  Your loss is their gain.  And since they use credit cards to secure these “free” offers, the interest you’re paying each month amounts to an even greater loss to your bottom line.  And many companies make it virtually impossible for you to cancel these offers, so that simple one-second click takes hours of phone calls and emails to undo. They are making a calculated bet that you’ll get frustrated and give up, but you simply can’t afford to do this.

Second, never buy something just because it’s on sale.  Taking advantage of sales rather than satisfying a real need can instantly sabotage your monthly budget.  Just because you have a coupon or the opportunity for a great deal doesn’t mean you need to act on it — especially if the good deal is for something you would not otherwise purchase.  Be a buyer, not a shopper.  Make a list of what you want before you go to Costco or the mall and stick to it.  And leave your credit cards at home.  You’re less likely to splurge if you use only money you have—either in your pocket or on your debit card.

Third, say no to upgrades and add-ons.  We’re constantly bombarded with them—do we want more insurance coverage on the car rental?  Do we want a warranty on our laptop?  Do we want a bigger size at McDonald’s?  Fast food, electronics, retailers, car dealerships–upgrades make for huge profits so companies really push them.  To avoid this trap, do your homework.  Know ahead of time what you really want.  For example, quiz your insurance agent about how much your own insurance covers you in a rental car.  If you later decide an extended warranty or other add-on is appropriate, fine.  If not, just say NO.  And stick to it.

Fourth, stay away from payday loans.  These are being advertised these days by well-known celebrities as if they were a community service.  And they appear very attractive—who hasn’t needed some ready cash on a moment’s notice?  But such loans involve great financial danger. They have mega interest rates—often 100% per year.  And they’re hoping that instead of paying the loan in full in a week or two, you’ll instead roll the loan over, with new loan charges.  This can easily be the beginning of an intractable problem.  I often see folks with multiple payday loans who have no hope of getting out of them.  It is shame when such folks find that bankruptcy is their only answer.  So in a financial pinch, sell some unused items, work some extra hours, but avoid payday loans at all costs.

Finally, never co-sign for others.  Ever.  Well, maybe for your mom.  But your best friend or even your brother can lose their job, and when they do that car will be repossessed and the bank will be coming after you—for the entire unpaid balance.  The myth that you’re only on the hook for half is just that—a myth.  So the next time you’re asked to co-sign a loan, blame it on me—tell them that a lawyer told you not to.

Folks, with virtually everyone adversely affected by the pandemic, financial hardship will be a common plight.  Hopefully, the economy will recover swiftly enough that everyone can regain employment and get back up.  If it doesn’t, or if you have a special situation, we are always available to discuss how bankruptcy might be a solution.  There is no charge or obligation to speak with an attorney at our firm.  Please call us if you have questions.  831-424-1764.


I’m out of a job! What do I do?

I’m Salinas Bankruptcy lawyer Clark Miller.  For over 30 years I have helped many individuals survive financial disaster and obtain a new start.  This experience has given me countless examples of ways folks can get back on their feet after a debt breakdown.  Now, with unemployment of over 15%, I have suggestions for actions to survive the current shelter-in-place restrictions.

Unemployment Insurance.  Apply for state unemployment immediately.  There will be delays given the huge rush, so “get in line” early.  Remember, there in California there is a one-week waiting period before benefits can begin.

Take advantage of the stimulus relief.

–In your unemployment application, take advantage of the added $600 /week in benefits through June 30.  This is in addition to California’s maximum UE of $450/wk.

–Your $1200/person stimulus check should have already arrived.  If not, inquire of the Small Business Administration at sba.gov.  Initial benefits went only to those persons having filed tax returns in 2018 and/or 2019.  But every adult can apply, even those who have not worked.   There are additional benefits for your dependent children.

If you can’t pay your rent, contact your landlord immediately.

Monterey County and most local cities have eviction restrictions in place, but DO NOT simply discontinue your rent.  Contact your landlord in writing if the pandemic has affected your income and ability to pay rent (which means just about everybody).  Most ordinances permit a two to three month remission of rent (unfortunately the rent is NOT canceled; the landlord has a right to recover it over the next 12 months).

Take advantage of your bank’s mortgage forbearance program.

Virtually all banks now have in place programs to permit a remission (lowering) of your mortgage payments for a limited time.  Check your bank’s website.  Again, do not simply stop making your payment—you must apply for the relief which is in the nature of a mortgage modification.

Check to see if your employer has a financial relief program.  Many employers offer such services that may cover essential expenses such as medical bills.

Do not forget to contact your credit card companies.  As with landlords and banks, credit card issuers are way ahead in having in place programs to delay or lower payments.  But you must apply.  Nothing makes a credit card issuer more nervous than repeated missed payments.

Pay attention to the news about further relief efforts.  The initial measure by Congress to provide relief to citizens expired quickly and the second is nearing the end.  Unless the pandemic ends quickly Congress is sure to again extend benefits.  If you did not already apply, be first in line with any new program.

Folks, with virtually everyone adversely affected by the pandemic, financial hardship will be a common plight.  Creditors will judge you less harshly if you’re in difficulty if you show that you are in action to address these issues.  Hopefully the economy will recover swiftly enough that everyone can regain employment and get back up.  If it doesn’t, or if you have a special situation, we are always available to discuss how bankruptcy might be a solution.  There is no charge or obligation to speak with an attorney at our firm.  Please call us if you have questions.  831-424-1764.


Learning To Budget

Here are some tips for getting control of your financial life:

First, figure out where your money is going. Budgeting is important, but before starting a budget sit down with pen and paper, your recent paychecks, and bills for the last three months. Write down your total monthly income. Then write down all of your monthly bills. Include groceries, utilities, rent, gas, car payments, insurance, everything. Whatever you have left over, when you subtract your bills from your income, we call disposable income –money you get to save, pay down debt, and spend on yourself.

The next step is to set your priorities. Setting your priorities for that disposable income is one of the important steps. Which is more important, buying new clothes or paying down debt? You may have bills that you could cut by making better choices. For example, a phone bill could be cut in half by going with a smaller plan or less expensive phones. Also, ask yourself if you could allot a smaller grocery budget. A family of four could easily live off of $125 for groceries per week as opposed to, say $175.

Third step, pick a monthly allowance. With the money that you have left over after all bills are subtracted, you can give yourself a monthly allowance to spend. This is money that you can use for anything you want. Clothes, movies, going out to eat. By doing this, you give yourself some room to play, but not so much that you go over budget. Pick a reasonable amount according to your budget, you still want to have money in the bank to get your through to the next paycheck, or in case something should come up you didn’t plan for.

Fourth, create an automatic savings plan. Include this in your bill section. Set up a savings account and fund it with an automatic deduction from each paycheck. If you can only afford $10 per paycheck, do it anyway! It WILL eventually add up, and you may be thankful someday you have that money to fall back upon. That savings cushion can shield you from having to go into debt should your car break down.

Fifth tip, always look for ways to save. Part of budgeting well means looking for as many ways to save as possible. Some ideas include carpooling to work or school, clipping coupons from the newspaper, and swapping out babysitting with friends. When grocery or clothes shopping, look for items that are on sale. Buy in bulk when you can—toothpaste, soap, detergent, paper products. Doing little stuff like this will help, I guarantee it.

Next, know your temptations. We all have our temptations, areas that we find easier to spend money in than others. If you love to buy things on Ebay, stay off Ebay! If you love to buy books, as I do, stay out of the bookstore! Look for ways to enjoy your hobbies without spending as much. For example, check out your local library for free books, movies and music options. If you love shopping, try thrift or re-sale stores.

Next option, find cheap entertainment. My wife and I figured out how much of our money was going to entertainment. Movies, concerts, eating out, and shopping were taking up too much of our budget. So we figured out an amount to spend per week on entertainment, and when that was gone, we had to get creative! We’ve enjoyed an array of different fun outings as a result. Picnics, walks, bike rides, movie matinees, and many other wallet-friendly things  have become part of our recreational rituals.

Last for today, set long-term goals. One of the best savings motivators is planning long-term goals. It’s a budget tip that’s guaranteed to get you places! If you start saving up for a new laptop or a vacation to Italy, or even having a baby, you will be more encouraged to save for that purpose. Just give it a try and you’ll see what I mean!

As powerful as it is, it can take a little while to get the hang of budgeting, so don’t despair! Be patient, stick with it. You will get it eventually, and then you’ll be sharing tips for handling a budget with your friends! It’s not difficult, it just takes a little self-discipline and the realization that everything we may want is not what we need.

Even if you ultimately have to come see me about a major financial problem, I want to be sure you’ve tried every possible alternative. If you have questions about bankruptcy visit my website, cypresscoastlaw.com where you can access my complete library of Friday Financial Focus shows. Or call me at 424-1764, that’s 424-1764. If it turns out you do need a bankruptcy, I’m the man to see. Initial consultations are always free.


Going Above and Beyond for Your Financial Success

Your first in-person consultation with Salinas Bankruptcy Attorney Cypress Coast Law is always FREE. There is no financial obligation unless you decide to retain us.

We are one of the only local bankruptcy law firms that, in addition to Chapter 7 and Chapter 13 bankruptcy filings, offers the option of filing for the more complex Chapter 11.

We always have your best interests at heart. We offer all major bankruptcy filing options that are available to you. We can also suggest alternatives to filing for bankruptcy.

We go above and beyond in our commitment to your financial success by offering all of our clients access to a highly effective credit repair program. Bring your credit score back up to 720 very quickly after filing for bankruptcy with this program! This course has a $1,000 value, but when you file with us, it is FREE!

We will also continue to support you over the years in reestablishing your credit. After your case is completed, you may return annually for us to assist you in running your credit report. We will work with you in-person to ensure that it is accurate and that all information is correctly stated. If errors appear we will fight to get them corrected for you WITHOUT CHARGE!

Our staff of highly trained and experienced attorneys and paralegals are professional, courteous and committed to your case. Your success and satisfaction are our primary goals.

The high level of service we provide to our clients is incomparable. We are here for you. And remember, first consultations are always FREE.


Renegotiate your Debt

It never hurts to call around to each of your creditors and attempt to have your interest rate lowered. Be familiar with your recent use of your card to show that you’re a valuable customer-someone your creditor doesn’t want to lose. Set aside some quiet time to call. If you’re unsuccessful with the telephone rep, respectfully but firmly ask to speak with a supervisor. I’ll bet you’ll have at least one or two successes on your first try.

Folks, gaining power over your finances is a series of these small steps. But those first small steps can lead to feelings of frustration and hopelessness-a feeling that the problem is so big that nothing can be done. And because we can’t solve the whole problem at once, we often discourage ourselves from even trying. I’m here to encourage you to take those small steps, and to create those good habits, that can make changes in your life.


A Financial Start Without Guilt

Over the last few years I’ve provided many tips designed to help you develop power over your finances. This power is what will motivate you to develop the good habits that will keep you out of debt problems.

Folks, for those trying to make a new financial start, whether aiming to avoid bankruptcy, or even rebuilding after filing for bankruptcy, the most important foundation of a fresh start actually has nothing to do with money or specific financial do’s and don’ts. The first, and most important, step is to absolve yourself and your spouse or partner of guilt. The past is past, and we are going to focus on the future. Whatever mistakes you feel you have made with money, whatever moves you wish you had or hadn’t made, are irrelevant. We are free to move forward only when we remove the emotional shackles of regret and self-blame. This cleansing step is especially important for couples. You are in this together, so no finger-pointing or arguing about any past decisions. Having said that, here are some suggestions for today.

In my bankruptcy practice it is common for clients simply not know the present state of their finances. But getting present to your finances is a huge step toward getting control. And it’s impossible to map out a route to your destination if you don’t know where you’re starting from. So the first step is to take a “before” picture of your finances: open every single financial statement—bank account, credit card, mortgage, 401(k), brokerage account—and take a look. Do the same with your regular monthly bills. Only when you have everything in front of you can you set priorities about what to do next.

Set up a file folder for each account so you can stay up-to-date on each one. (Always elect to receive paper statements—resist the suggestion to receive email statements, they’re too hard to keep track of).

Second step—your checking account. Having trouble keeping track of your checking account balance? Tired of bouncing checks? A checking account actually is a key tool to gain control of your finances, it you’re in control of it! Try opening a new checking account and starting fresh (keep just enough in your old account to cover outstanding checks—you can close it later). Have your paycheck directly deposited into the account. Next, sign up for on-line banking, where you can set automatic payments on your regular bills. No more missed payments! With on-line banking is easier to stay present to the money you have. And get that ATM card. Use it for your daily purchases, not your credit cards. (Hopefully you long ago heeded my advice to put your credit cards in a drawer—don’t have them handy. They’re too easy to misuse).

Third, get very familiar with the status of all your credit cards. List them by name and account number with the balances, interest rates, minimum payments, and due dates. This can be confronting for some people but it is absolutely necessary. Since the cards are already put away in a drawer you’re now going to develop a plan of paying them down. Start with setting automatic payments from your bank account. Concentrate on the card with either the highest interest rate or the lowest balance that can be paid off quickly. Make paying down the cards one of your highest priorities.

Finally, it is not a sin to negotiate with your creditors. Call them and explain your situation frankly. Make it clear you’ll do everything you can to work with them. Most lenders will agree to a workable plan if you explain your limited options. Have your budget mapped out so you can present a specific option—aim to cut your payment by a third, say from $600 to $400. If you get nowhere with the phone rep, respectfully but firmly ask to speak with a supervisor.

Folks, gaining power over your finances is a series of these small steps. But because each step is small we can become discouraged. Debt problems can easily seem overwhelming.  I’m here to encourage you to take those small steps, and to create those good habits, that can make changes in your life—you’ll changes before you know it. Even if you ultimately have to consult me about a bankruptcy, I want to be sure you’ve tried every possible alternative. If you have questions about bankruptcy or getting control of your finances call me for a free first consultation–at 831-424-1764. I’m in Salinas at 217 West Alisal Street, corner of Riker Street. If you find yourself in serious debt trouble, I’m the man to see.


When Your House Becomes the Problem

For six months at the Salinas Californian I’ve been giving advice about putting your credit cards aside, living within a budget, starting an automatic savings plan, getting medical insurance, and other tips for avoiding financial difficulty. I’m the only bankruptcy lawyer you’ll ever hear with advice about how to avoid filing for bankruptcy. All very important tips. But today I want to talk about what can be your biggest problem: your house.

Folks can talk rationally about credit card and medical bills, student loans, even those dreaded pay-day loans, but it’s hard to really talk rationally about home ownership. Most people love their houses, and have grown up cherishing the concept of home ownership. But occasionally your mortgage can become a monster. Blindly refusing to consider an alternative to home ownership can be hand-cuffing yourself to the “Titanic.”

If your mortgage payment has become a burden, either because your income has fallen, you have an adjustable mortgage with an increased payment, or your living expenses have risen, take action quickly. First, consider applying for a home loan modification. While the government’s Home Affordable Modification Program has expired, most lenders still have formal loan modification programs in place. I have seen many more of these applications approved lately than in previous years. Principal reductions of five and even six figures are not uncommon. Not only can you reduce your payment, if you are behind you can apply to roll your arrearage back into the principal.

Even if you wind up having to file bankruptcy you can still achieve a huge savings through such a modification. Keep in mind, however, that such applications involve paperwork that can lead to frustration and there is no guarantee of success.

On the good side, such modification programs are free and you can apply yourself. Beware of those who would charge you a fee to take you through the process—many people have been victimized by scams.

If your modification application is unsuccessful, you need to take a long clear look at your house situation. Is your mortgage more than your house is worth—that is, are you under water? By how much? With your income and other expenses, how easily can you make the present mortgage payment? If making the mortgage every month will require heavy lifting on your part, are you prepared to make every payment for the years it will take for your home value to increase to where you again have an equity?

It may be in your interest to pursue a short-sale of your house, where your mortgage lender would agree to a sale where it would accept less than the full amount owed. This can avoid a foreclosure and get you out from under on the mortgage. But, as with loan modifications, short sales can be frustrating and you are likely to end up with little or no cash at closing. Be sure you use a real estate agent with a proven record of successful short sales. And speak to your accountant—even if the loan is retired there may still be an income tax consequence.

Finally, if you have only one loan on your house, it may be possible to just walk away and let the bank take back the house. California law ordinarily protects a homeowner from any personal liability on a foreclosed first mortgage. But this protection does not automatically protect you from a second mortgage or home equity loan–even if the house is gone you could still be sued.

Whether you are a candidate for bankruptcy or not, it is always wise to consult a bankruptcy or real estate lawyer before taking any final action. Be sure your house loan or loans do not contain a hidden trap!

In future months I look forward to bringing you more tips to help you avoid money problems and achieve power over your finances. There are plenty of folks in bankruptcy court. You don’t need to be one of them.


Rebuilding Your Credit

Something folks often ask me about is rebuilding credit after a bankruptcy. While this show is devoted to helping you avoid bankruptcy in the first place, I thought it might be helpful to consider ways to get back on board after any financial problem. I am not a credit-repair specialist—these are just things I’ve picked up in my 30+ years of experience.

The first step, stay employed. This means maintaining your health and staying on good terms with your employer. Not having a job doesn’t make you a bad person, but it’s hard to get credit if you’re not working. A steady job over time makes you an attractive candidate for credit—even if you’ve had some bumps in the road. And never leave a job without knowing exactly how you’re going to replace the income—hopefully with a new job you can count on.

Second, try to maintain the same residence. Again, it often happens that we have to relocate, but frequent moves do not look good to prospective creditors. A year or two at the same address shows stability and consistency in your life.

Third, for every single expense that you pay each month, never be late, not even by a day. Not just credit cards and house payments, but utilities, car insurance, and medical bills. In fact, schedule two different days each month to pay your bills—that way you won’t miss one by accident. Better yet, set up automatic payments through the “bill-pay” feature on your bank account.

Fourth, get medical insurance. The biggest reasons folks fall into financial difficulty are job loss and illness. You can’t do much about it if your employer closes the plant, but you can protect yourself from unexpected illness. Even with Obama-care, large medical bills are still a principal reason that folks have to file bankruptcy.

Fifth, although I ordinarily recommend against any use of a credit card, it’s not hard to get one with a modest balance, or even a secured credit card. Once you have it, use it responsibly and make your payments religiously. On your credit record it will look like a regular credit card.

Sixth, go today or tomorrow to your HR department and set up a voluntary wage deduction to fund a savings account with a local credit union. Not a lot—say $20 or $30 a paycheck. And use a credit union—it’s a lot easier to develop a personal relationship than with a bank. And this is a special account—you never make withdrawals short of major emergencies. (If you have to save for car insurance or house taxes, have a separate savings account.)   The purpose of this account is to show that over time you are in control of your finances since you’ve made a contribution on every payday, didn’t run up new debt, and didn’t withdraw any of the money. That is solid gold proof that you’re serious about rebuilding your credit.

Last, folks, I urge you to avoid those heavily-advertised “experts” who would, for your hard-earned money, propose to “fix” your credit or “eliminate” your debt by mysterious means. At best these are hucksters looking to score some easy money—yours. At worst they can tarnish your credit for years by using unethical or even illegal methods. And remember, the only way to create a “new” credit record is to commit fraud. Such methods can get you in serious trouble. Stay away!

Please remember that rebuilding credit will take some time but you will succeed—so make a mini-project out of it and practice all of the good tips I’ve recommended for staying out of financial trouble.

For additional tips and answers to your financial questions, join me for my free educational series, Sip, Savor & Learn. We’ll next be meeting on Thursday, April 28 at 5:30 pm at my Salinas office, 217 West Alisal, across from the Main Fire Station. We’ll get together, nibble some snacks, share a glass of wine, and learn how to avoid those credit traps that can lead to financial disaster. Joining me will be will be loan professional Oscar Mora of Treehouse Mortgage—we’ll be discussing protecting your home in bankruptcy, and obtaining a mortgage after bankruptcy. There’s no charge, but call for a reservation, 424-1764.


Financial Myths

In my bankruptcy practice I’m often amazed at the number of credit myths that many folks carry around. Distinguishing between what’s reality and what’s nonsense is not straightforward—so folks will often not ask questions at the risk of appearing foolish or uninformed. So let me deal with some of these myths today.

  1. One credit report is enough. Simply, wrong. The three major reporting agencies—Experian, TransUnion, and Equifax, each use slightly different criteria in assessing your credit history that can result in a spread of 50 or even 100 points. Also, an error may appear on one report and not another. If you’re checking your credit, always use a service that checks all three agencies.
  2. Self-checking my credit hurts my credit score. Not true. When you check your own score this is a “soft” inquiry that has no effect on your score. An inquiry when you apply for credit is called a “hard” inquiry that can temporarily affect your score.
  3. Debit and Credit Cards Affect Credit Scores Equally. Not even close. With a credit card you are in effect borrowing from a lender, who you will repay with interest. A debit card on the other hand withdraws your own money from your account—there is no credit transaction and thus no risk to a lender.   Debit cards therefore do not affect your credit score.
  4. Paying the Minimum Balance is Sufficient. A minimum payment on a credit card will usually result in it being paid off in 20 years or more. Plus, a history of just minimum payments is not good for your score. If your cash is limited and you’re prioritizing payments, a good rule is to be sure to make the minimum payment on every account other than the one with the highest interest or lowest balance, and then concentrate on paying that one off.
  5. You only owe half of a co-signed debt. When you co-sign for another you are promising that in the event of default you will be liable for the entire balance. If your friend loses their job, the creditor is going to come after you for the whole amount. If you’re both working they may come after both of you, but if your friend is unemployed, or absent, that leaves only you.
  6. I Don’t Make Enough to Save. Also incorrect. Saving is the core of every financial plan. Every single person who has an income should have some form of savings—whether it’s dropping leftover change in a jar or having an automatic deduction from your paycheck into a savings account. If you don’t save, you won’t have money when emergencies come up, and you won’t have money when it comes time to retire. Plus, saving is a habit—once you have it, it becomes easier until it’s second nature.
  7. Library Fines Don’t Count. Oh yes they do. If you owe money and don’t pay your creditor—whether the gas or water company, the library, or the homeowners association—they can and will refer you to a collection agency, which will quickly report your non-payment.
  8. I Can Start Over With a New Credit Identity. Folks, there’s only one way to create a new credit identity and that’s to commit fraud. Such techniques often involve falsely obtaining a new Social Security number or even using one that’s been stolen, which constitutes identity theft. This can result in a criminal prosecution or, at the very least, smear your credit reputation for years.

Folks, I’m hoping you stay away from these harmful myths. If you find yourself in debt trouble always seek out the advice of a financial professional or experienced bankruptcy attorney. The only foolish question about your financial wellbeing is the one that doesn’t get asked.