Pondering Archives - Northern California Bankruptcy Lawyer

Give More Than Thanks

Ever feel the disconnect between buying your groceries for the Thanksgiving meal, then dropping some loose change into the kettle for the needy?

Lots for my family, but leftovers for those who are hungry

That seems to be the message.

Those of us who are prospering are doing well, but lots of neighbors and elders struggle mightily. Food insecurity is everywhere.

One in six Americans goes hungry. The average Social Security check is less than $1300 a month, for instance. Families with children struggle even more than elders.

So, I write a check to my local food bank equal to my spending on my family’s Thanksgiving dinner.

I challenge you to do the same.

It’s one day and one check. But for that day, there can be parity between what we give ourselves and what we give others.

It is inexcusable and callous that there are hungry kids around us. Your loose change isn’t going to make much of a dent.

Take up the challenge and give more than thanks at Thanksgiving. Give dollar for dollar.

Then let’s devote ourselves to implementing solutions to pervasive hunger in a country so rich.

Don’t Brag About What You Saved Unless It’s True

By Cathy Moran

It’s a mark of our consumer economy that we use the word save in connection with our spending.

I saved $15 on this blouse.

That’s well and good for today. You bought something you wanted, or maybe even needed.

But unless you put the savings aside for later, you did nothing more than spend somewhat less today, without thought for tomorrow.

Your savings on today’s purchases won’t be available to buy necessities in your old age. The money you “saved” is gone, spent today on something else.

Our language doesn’t help

We are aided and abetted in our savings mind-game by English usage. Saving is a virtue we applaud.

But “save” has two, almost opposite, meanings.

According to Merriam Webster, save means both

a: to put aside as a store or reserve : accumulate

saving money for emergencies

b : to spend less by

save 25 percent

Don’t confuse the two.

The more meaningful savings are when money gets set aside for use later,

-to pay for an emergency

-to fund a big purchase

-to support a comfortable old age

We suck at savings

Actually, lots of us are good at “saving” in the Definition B sense. We comparison shop, we follow the sales, we use coupons and garner reward points.

It’s the savings as creating a reserve that we flunk.

Average monthly social security check is $1400.

Too many Americans couldn’t handle a $400 emergency. Half of Americans have less than $1000 in savings. Half of Americans have no retirement savings.

What will we tell ourselves in our old age about our prowess at saving? Will we have a slick word-game that puts food on the table or gas in the car?

How about making Definition A our go-to plan for savings.

The second-best reason to contribute to a retirement plan

But my home is my retirement plan

How to open an IRA account

I’m Done Talking About Importance of Retirement Savings

By Cathy Moran

Shedding debt so you can save for retirement is the most compelling reason to file bankruptcy in my book.

Get rid of the debt that’s dischargeable so you can fund your retirement, I exhort.

Between the crippling cost of housing in the Bay Area and parent loans for college, there is so little margin for discretionary spending that I begrudge every dollar my clients spend on credit card debt.

I cringe when I see families paying American Express instead of their IRA. I acknowledge the reality of the obligation to the credit card folks. But the consequences of not paying are vastly different for an individual than they are for credit card issuers.

American Express, and every other consumer lender, built into its pricing model the fact that not everyone who borrowed money on their plastic card would repay. They still make money whether you pay off your card or not.

American Express doesn’t have to retire, and you do.

With few exceptions, every client I meet without an employer funded or sponsored retirement program has only pennies set aside for retirement.

All that said, when I ask about what the client has saved for retirement, I’m met with one of two retorts:

My house is my retirement is one, superficially convincing in the land of runaway home values. (Houses don’t make good retirement plans, however.)

But the second is: I don’t plan to ever retire.

Sometimes the “I won’t retire” is an acknowledgment that they can’t support themselves without a job. Other times, they are indulging in magical thinking that they will always be capable and valuable to an employer.

The facts of aging, of course, are different. We’re living longer, markedly longer. Dementia is on the rise. The average Social Security check is around $1300.

No more pretty talk

So, I’ve had it with serving up polite talk about “retirement.” In this era of blunt speaking, let’s take off the gloves:

My question to clients henceforth is “how are you going to pay for old age?’

We can dance around whether we’re ever going to “retire”; but presumably, we’d all like a long stretch before we die.

And that long stretch requires funds if old age is going to be comfortable.

So, my mantra going forward is discussion of funding old age.

The ugly truth is that savings for old age requires discipline and some degree of self denial. And many of my clients demonstrate enormous amounts of discipline in making minimum payments and keeping all the financial balls in the air.

Yet none of that discipline is exerted to provide for their old age.

The images of impoverished elders are not pretty. Don’t find yourself supplying another heartbreaking picture of failure to plan for old age.

We Live In An Economic House Of Cards

By Cathy Moran

I’ve long said to bankruptcy clients that bankruptcy can’t fix an income problem, it can just ameliorate an outgo problem.

In the last round of frantic bankruptcy filings a decade ago, one symptom seemed to be that too many families in the Silicon Valley couldn’t really afford to live a middle class life here.

They filled the gap between economic realities and their expectations with credit cards until the house of cards came tumbling down. I could provide the tourniquet that staunched the credit card outflow.

But it seems the problem of struggling families isn’t just an outgo problem: it’s income based and it’s everywhere, not just California.

A United Way study, released last week, shows 43% of American households can’t afford a bare bones budget. That’s 51 million households that can’t afford the basics of food, rent, child care, transportation, health care and a cell phone.

Even with reportedly low unemployment, the income generated falls short for a huge swath of our populace. The people the United Way set out to study were those they dubbed ALICE: Asset Limited, Income Constrained, Employed.

What they found calls out for national attention and a reordering that keeps all of our families self sufficient.

My skill-set in bankruptcy is no match for people on the edge of destitution.

Google & Me

By Cathy Moran

Google and BankruptcyInBrief share a birthday, I’ve learned.

I’m sure you saw the similarities in a flash.

The Mercury News reports that Google was founded in 1998, the same year I bought a book and set out to make a web site about bankruptcy.

I knew nothing about programming, and less about web design. But I knew that there was a crying need for sound information about bankruptcy, the options and the opportunities. And it wasn’t there when I started writing.

Bankruptcy in Brief grew exponentially, just like the Google empire <g>. Starting with four pages, I kept writing til it was 150 pages.

This site, Bankruptcy Soapbox, is the loudmouthed cousin to Bankruptcy In Brief, where I can be opinionated, topical, and colloquial about what’s happening in the world of bankruptcy, debt, and our economy.

It’s all been fun.

But I sure missed the Stanford class that Larry and Sergei took that resulted in Google.

Image courtesy of Wikimedia and Fir0002.

Bankruptcy Statistics Are Always Singular

By Cathy Moran

Who cares whether bankruptcy filings are up or down?

Bankruptcy professionals, certainly.

Economists, probably.

But if it’s you and your checkbook, you take little comfort that lots of others are filing. Nor when everyone else seems to be making it OK while you flounder are you reassured.

My friend Wendell Sherk is right about bankruptcy following economic expansion. Some expansion always falls flat. Bankruptcy is the remedy.

And for the society, bankruptcy is a powerful remedy. It allows risk taking without live altering consequences. It allows those who’ve made bad decisions or simply had bad luck to start over.

Bankruptcy evens the odds in the eternal tension between borrowers and lenders, debtors and creditors.

Bankruptcy keeps people in the above ground economy, allowing a legal and effective protection for future earnings.

Look backward or forward

But bankruptcy statistics are the sum of individual decisions.

Parents who have to decide whether being bound to past commitments is the best choice for their family. Whether putting off providing for retirement, or even a cash reserve for emergencies is wise. Elders who are saddled with credit cards they can never repay. The underemployed balancing old debts and new needs.

It takes some courage to admit to yourself, and then to others, that you can’t do what you’d rather do: pay everyone what you promised.

But, in the real world, you are your harshest critic.

Few others sit in judgment of those who file bankruptcy. If they notice at all, it’s with a sense of “there but for the grace of God...”

Better off with bankruptcy

A university study several decades ago concluded that one in seven American families would be better off if they filed bankruptcy. It tried to explain why far fewer than that were doing what was in their best interest, but instead struggled on with their debts.

The number who would be better off if they filed bankruptcy cannot be lower now.

In the end, it’s about what makes you more self sufficient going forward.

Image courtesy of Pixabay.

Rising From The Ashes Of Financial Disaster

By Cathy Moran

Life doesn’t end with bankruptcy. Bankruptcy doesn’t mean that the good times are all in the past.

There’s the future, too.

Jay Fleichman’s analysis of the bankruptcy of Halsey Minor, the founder of CNET and once, a very rich man, didn’t go far enough.

Win some, lose some, said Minor.

Jay added, Don’t lose sight of the benefits to the society that preceded Minor’s crash.

The good before the crash

Minor’s ideas and entreprenuership created jobs, technology, and wealth.

And then the fruits of the first success soured. Minor’s subsequent ventures failed.

He filed Chapter 7 and tossed in the towel on this chapter of his business life.

The good to come

[Read more…]

Staying Out Of Bankruptcy Trustee’s Crosshairs

By Cathy Moran

Benefit Concept

Clients who want the benefits of bankruptcy without any change in the way they want to live life have been the theme of my practice lately.

This seems to come out when we do a Schedule J budget in a Chapter 13: they want $300/month in recreation, $1400 in food, and $300 in clothing.

While nothing meaningful goes to creditors.

Those are figures that stand out in a bad way to a trustee.

How bankruptcy works

A basic premise of Chapter 13 is that you must have money in excess of your on-going living expenses to qualify.

Usually, these days, clients are in Chapter 13 because there’s something they must pay: mortgage arrears, priority taxes, or a car or two.

Since those “must pays” have built up to the point that bankruptcy is necessary, the existing budget won’t do it. Something has to change.

Yet these same debtors don’t see that a reasonable price to pay for time (to pay), peace (from collectors), and discharge (of all the other debt) is a scaled down style of living.

Change is necessary

While I try to explain that change is required, I hear the Victor Herbert song “I Want What I Want When I Want It” playing in my head. [Read more…]

Melania Trump Sold The American Dream Short

By Cathy Moran

The infamous Melania Trump speech at the Republican convention shared more than a paragraph or so with Michelle Obama.

It shared Michelle’s aspirational thought that in America, any child with hard work and perseverance can succeed.

“The only limit to your achievements is the strength of your dreams and your willingness to work hard for them.”

For those who are exceptional, driven, and lucky, it’s true.

But what about those with significant, or even average, talents who don’t have luck or all consuming drive? Our self satisfaction over the dramatic rags-to-riches story masks the loss to our communities of the less exceptional. [Read more…]

Why Creditors Should Get Less in Chapter 13

By Cathy Moran

Spending every dollar they make, and then some, is often how our Chapter 13 clients got into financial trouble.

Yet Chapter 13, as practiced, validates the practice of continuing to spend 100% of each month’s income during the life of the plan. In doing so, we squander the chance to use Chapter 13 to teach new budgeting habits.

Shame on us.

It was more obvious before BAPCPA: we calculated the debtor’s projected income and living expenses, and all of what was on the bottom line was paid into the plan.

Now, we use Congress’ objective measure of what it should cost to live, and pay 100% of the arbitrary formula into the plan. There is no provision in the Chapter 13 means test for savings other than long term retirement savings required by an employer.

I’m not knocking saving for retirement. In fact, as debtor’s counsel, my most oft-repeated reason for clients reluctant to take the plunge and file bankruptcy is to provide for retirement.

American Express does not have to retire, and you do. What have you saved for that day?

But every household needs some savings for today, for tomorrow, and next month.

The Supreme Court’s Ransom decision reinforces the sense that saving is not a financial virtue.

A debtor with a paid for car is not reminded that the old car will need to be replaced, and saving toward that inevitability is a good thing. Rather, the car is paid for and we’ll indulge in the idea that the car will last another 5 years and devote that cash flow to unsecured creditors.

We have effectively mandated that, instead of putting a serious down payment on the next car, our client will again finance the next purchase at whatever interest rate is available to the newly discharged. The cycle of borrowing is perpetuated.

Debtors are required to take a class in personal financial management to get their discharge. Those classes surely do not promote consuming 100% of one’s income. Short term saving is needed to provide for the unexpected and the infrequent. Otherwise, you continue to live on the financial brink.

It is ironic, but true, that a Chapter 7 debtor can begin reforming the way she handles money almost immediately after filing bankruptcy. A Chapter 13 debtor lives for 3 to 5 years with a budget that makes no provision for an emergency fund.

I would like to think that Chapter 13 is rehabilitative, that it uses the duration of the plan to build new and better habits of money management. That isn’t what’s happening. As it is, the system’s distaste for savings while debts are unpaid perpetuates budgeting to spend every single dollar the debtor handles.

The language of our confirmation order provides that the debtor’s post petition income is submitted to the supervision and control of the Chapter 13 trustee. What kind of financial professional is the Chapter 13 trustee if that supervision and control doesn’t encourage some level of savings?

Or is the required financial management class just window dressing whose lessons don’t really apply until the creditors have gotten their pound of flesh?

This article was originally written for the Variety of Views feature at ConsiderChapter 13.org.

Image courtesy of kenteegardin

I challenge you to do the same.

Our language doesn’t help

We suck at savings

More

No more pretty talk

Look backward or forward

Better off with bankruptcy

The good before the crash

The good to come

How bankruptcy works

Change is necessary

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