The basic concept of the Life Sucks Budget is that for many of us there is just not enough money to pay the claims of bill collectors AND to pay the really important things of life, like retirement savings, emergency cash accounts, mortgage payments and modest family vacations. Something has to give, and too many of us put ourselves last and pay nothing towards our future needs and dreams so that we can just get by another month without receiving embarrassing phone calls or letters. The Life Sucks Budget is a call to rebalance this relationship and to put our legitimate financial and family needs first.

The fact is, many of you are already on the Life Sucks Budget but you don’t realize it or perhaps you are reluctant to confess that is what you are doing.

Spending 25 years interviewing clients about their financial habits reveals that at least half of the people I meet have no hope of being financially successful. They just want to get through the week and find a little peace in their day. They do not believe that they can win financially, and that mindset has a radical affect on their behavior.

Continue Reading Life Sucks Budget: Part II

Rule #1 of credit counseling is when you are trying to get out of debt you must forgo some expenses while paying off debt. The advice is universal. Decrease expenses. Increase income with a part-time job. Sell some stuff to raise cash. Get the debt snowball rolling. Suck it up and double down on the smallest debt and then the next smallest until all the debt is gone. Live like a crazy person until you can scream out loud I’M DEBT FREE!

And if your debt problem is that you spend money like a moron and you just need to grow up and cut expenses and work a pizza delivery job at night until you pay off the debt, that may be good advice. Dave Ramsey has built a 55 million dollar financial empire by giving out such advice.

Continue Reading Life Sucks Budget

In performing financial autopsies for my bankruptcy clients over the past 25 years I have noticed one common mistake people make. They fail to prioritize their money.

Priorities matter. Successful people have a common trait–they prioritize their day and do he most important tasks first. They write lists. They have WRITTEN goals for their day. They plan their day in advance, and then they go out an kick butt.

But when it comes to money, especially money in marriage, even organized people get messed up about how to set priorities with their money. Why is that?

I think part of the answer lies in those sappy marriage courses we take before our weddings.  You know, the ones that say how a man and women become one and cease to have separate identities. No secrets in marriage. Everything is shared. Mutual submission. Love is generous and we support one another give all that we have to each other. Sound familiar? And somehow out of this marriage class people conclude that in marriage you should have a single joint bank account that is shared and all money earned goes into it and all expenses are paid out of it. No secrets. Complete transparency. Mutual submission. Yeah, what could go wrong with this plan?

When all of your money sits in a single bank account you effectively have no money priorities.

It is moronic for a married couple to handle all of their finances out of a single bank account. This is pretend land. It’s crazytown. When all of your money sits in a single bank account you effectively have no money priorities. Buying pizza has the same priority as paying the mortgage or insurance or saving for emergencies because when money is not divided into separate accounts there is no priority to the spending, and that is just not true.

Some expenses are more important than others.  We all know that. Paying the mortgage or the insurance premium or saving for emergencies is vastly more important than paying for temporary needs, like a slice of pizza. And even if we verbally agree with this statement, if we just nod our head and do nothing more, then nothing has changed. Establishing priorities means taking action. It means dividing money into separate accounts based on their priority level.

Continue Reading Pay Yourself First Part II: How to implement it.

There is one simple habit that all financially successful people do–they pay themselves first.

That phrase has always annoyed me.  Pay myself first?  What exactly does that mean? I heard financial gurus say that phrase over and over, and it just came off as cocky and glib.

“Want to become rich boy?  Well, it’s simple. Just pay yourself first!”  What?  You can’t just pay yourself into wealth. You have to create the wealth.  Build the business. Land the great job. Earn the money, and THEN you save money and become rich.  Right?

Wrong. Want to get rich? Pay yourself first. Want to pay off the mortgage in retire with money in the bank? Then pay yourself first. Have financial problems? Pay yourself first.

In fact, the less money you earn the more important it is to pay yourself first.

Continue Reading Pay Yourself First

The Eight Circuit Bankruptcy  Appellate Panel denied an application seeking to discharge student loans because the debtor voluntarily quit a full-time job eight months prior to filing bankruptcy.

The debtor, Erin Kemp, is a 36-year-old single mom raising a 13-year-old daughter in Arkansas.  She obtained a psychology degree in 2010 and for the past 17 years she worked for a bank earning up to $45,000 per year.  However, eight months prior to filing bankruptcy she quit her full-time bank job due to problems with depression and anxiety and took a part-time job at Lowe’s earning $13.46 per hour. She supplemented her income by performing home daycare services as well.

Continue Reading 8th Circuit BAP Denies Discharge of Student Loan

Since February 5, 2018  debtors filing bankruptcy in Nebraska have been allowed to sign their petitions and other court documents using digital signatures pursuant to  General Order 18-01.  So what have we learned about the use of  digital signatures in bankruptcy since then?

I recently had the pleasure of speaking to an official at the Administrative Office of the U.S. Courts who was seeking some feedback on how digital signatures were affecting the bankruptcy practice. (Nebraska is the only bankruptcy court the nation that allows debtors to sign documents digitally.)  Here are some of my observations:

Continue Reading Digital Signatures in Bankruptcy Update

The 8th Circuit Court of Appeals has turned away an appeal of a $28.1 million dollar judgment awarded to 6 plaintiffs (commonly referred to as the Beatrice Six) for damages imposed by a federal jury for a reckless investigation and manufacturing false evidence orchestrated  by the Gage County Sheriff’s department. The plaintiffs spent two decades in prison for the rape and murder of Helen Wilson, but DNA testing revealed that the murder was actually committed by another individual.

Gage County previously hired a law firm to help plan a potential Chapter 9 bankruptcy case to avoid payment of the judgment (see Can Gage County Discharge Intentional Wrongdoing in Bankruptcy?),  and now that the appeal has been lost it appears that the county must make a final decision on whether to file a case.

This case is familiar to us, as it is to Nebraskans and much of the nation. It returns after three prior opinions by this Court, two trials, and, now, one jury verdict that is contested on this appeal. We are asked here, in large part, to sweep the pieces off the board—to overturn our prior rulings—in order to vacate the jury’s verdict. We decline to do so. And, after careful examination of the remaining claims on appeal, we find no other reason to disturb the verdict or rulings by the district court. Thus, we affirm.

There is little doubt that a county whose annual budget is roughly the same amount as the judgment in question cannot afford to pay the judgment in one financial year, but there is also little doubt that the county would have no problem paying the judgment over a term of years with modest real estate tax hike.

Ultimately, the Nebraska bankruptcy court will have to decide whether a Chapter 9 case filed with the sole purpose of denying just compensation to 6 plaintiffs wrongfully incarcerated for 20 years of their lives can be approved when the county has ample revenue sources to pay the debt in full over a reasonable period of time.  Should the bankruptcy court even entertain the notion of allowing a Chapter 9 plan to be confirmed until the county shows a good faith effort to pay a significant portion of the judgment? Can the county actually propose any plan in good faith if it fails to increase taxes by even 1% to pay some of this judgment?

Money is a complicated topic. It is often very obvious what a person must do to improve their financial situation, but getting someone to change their financial habits and attitudes is hard. Good financial advice seems to go in one ear and out the other as clients continue to repeat the same destructive patterns over and over again.

At a core level, we generally know when we are behaving badly. An alcoholic is aware that they drink too much.  An obese person knows they need to eat a healthier diet. A gambler knows they cannot win back their losses at a slot machine.

Money disorders share this problem, but what makes them even more challenging is that a person may not even be aware that they have a disorder.  Instead, those who suffer from money disorders may actually think they are making wise money choices and they are at a loss to explain why things do not go well or they blame others for their failures.

Professor Brad Klontz has written a great deal about the psychological aspect of money behavior, including a book I recently read entitled Mind Over Money, Overcoming the Money Disorders That Threaten Our Financial Health.

According to Klontz, adult money behaviors are generally learned in childhood and they are often related to a traumatic event or “financial flashpoint.”  Conclusions formed by a child experiencing an emotional event involving money tends to flow over into their adult life. These early emotional money experiences create a “money script” that are played out repetitively in our adult life, both good and bad.

In our experience, financial pathology typically manifests itself in one of three ways.  We might repeat destructive financial patterns learned from our early socialization . . . We might also flee to the polar opposites of those patterns in an attempt to avoid repeating the experiences . . . Or we might alternate between those two extremes”

Everyone acquires a Money Script during their childhood that they put into play as an adult.  Such internalized money scripts become part of our personality and shape the way we view the world. Parents have a lot to do with shaping a child’s view towards money and the money scripts that play in their heads as they grow into adults.

There are may types of money scripts.  Some view the spending of money as a way to express love, so to not spend money on others as they request is to deny them love.  Some equate the acquisition of money as a sign of evil and greed so they give away all their money to stay pure and holy. Others view the spending of money as dangerous and they save every penny they earn while they wait for financial disasters to jump out of nowhere. Many spend money publicly to show their success to others and derive a sense of self-worth in the process.

But if you are not aware of what money scripts you are running, how can you determine if they are correct? Is spending money on your child the same thing as showing love? Is not spending money on your child a way to show dislike or disapproval? Obviously one can refuse to spend money on a child if more important items–like paying rent or utilities–need to be paid first, but that doesn’t mean you don’t love your child. But in the mind of many, such refusals mean just that, and so they take care of the child’s wants first and then scramble to pay the rent.

The beginning point in financial therapy is to review the financial history of your family and then to write down some of the spoken and unspoken money rules leaned in childhood. Does saving money really mean your greedy? Does spending money really show love? Are the money scripts in your head really the right kinds of rules to have? Who is in control of your money, the little child whose parents were less than terrific with money or the adult you have grown to be? For most of us, the child still rules. Maybe it is time for the adult to update the rules.

 

 

Nebraska becomes the first bankruptcy court in the nation to allow debtors to sign bankruptcy petitions digitally.

An amendment to Nebraska Rule of Bankruptcy Procedulre 9011-1 became effective February 5 allowing attorney to use services like DocuSign and SignEasy to obtain client signatures on official court pleadings.

The immediate reaction? One central Nebraska attorney emailed me this:

This is fantastic! My client signed, we were notified, I signed, all before I could even drop her hard copy in the mail (mail leaves [our small central Nebraska town] at 12:30, so timing wise we have a completed document before the mail left the building)!  I am so pumped!

Nebraska is a big state spanning 450 miles across. It commonly takes 7 to 10 days to get documents signed and returned in the mail, and that is especially vexing when a client’s wages or bank accounts are being garnished. Allowing the use of digital signatures is truly a blessing for small town debtors who do not have quick access to a lawyer, let alone a bankruptcy attorney. (12 of Nebraska’s 93 counties have no lawyers at all.)

Debtors in our largest cities also benefit by not having to take time off work to sign routine documents they have already viewed via email.

Nebraska bankruptcy attorneys are lucky to receive this historic change in court procedure. Allowing digital signatures will encourage them to make changes to documents that improve the accuracy of bankruptcy schedules since it will be so much easier to get updated signatures on the fly.

Most attorneys will continue to gather old fashioned ink signatures on paper, and there is nothing wrong with that. But for those of us who represent clients in all 93 Nebraska counties and who are in constant email contact with clients to view and discuss developments in their case, the use of digital signatures is truly welcome.

Sincere thanks is due to Judge Thomas Saladino who was willing to review the signature process and to make changes to Nebraska’s court procedures.

Image courtesy of Flickr and Charles Knowles

Before a person can file bankruptcy they must take an approved credit counseling class and their attorney must file a Certificate proving the class was taken with the court.  The idea is to make sure that consumers are being educated about alternatives to bankruptcy, and when this new requirement was introduced in 2005 there was hope that such a class would significantly decrease the number  of bankruptcy cases being filed each year in the United Sates.

Well, it’s been more than 12 years since these classes have been required, and I have yet to meet a single person who chose not to file bankruptcy because of it. I suppose there probably is a person out there somewhere who was persuaded to avoid bankruptcy, but I can’t name a single person in the thousands of people I have met since 2005 that actually decided to not file bankruptcy because of that class.

Nevertheless, I support the concept of educating clients of each available debt solution. In fact, that is pretty much we do on the initial meeting with new clients.  I’m not here to “sell” anybody a bankruptcy case. My job is to identify possible debt solutions and then to help the client select the appropriate course of action. Ironically, the better I explain how non-bankruptcy alternatives work and how much each alternative costs, the more likely it is that a client will choose to file bankruptcy.

But I have to wonder, what would it be like if those who wanted to enroll in a credit counseling repayment plan had to speak to a bankruptcy attorney first?

I wish Jim and Francine Bostick would have spoken to me before they enrolled in a debt management plan in 2010. They owed $120,000 of credit card obligations at the time.  Jim, age 67, was in the early stages of dementia.  Jim and his wife, Francine, age 57, were persuaded by Housing and Credit Counseling Inc. of Topeka, KS, to enter into a 5-year repayment plan.  Instead of spending time with her husband in his last years of life, Francine took on a second job to make ends meet. When they completed their $2,496 monthly payment plan, the National Foundation of Credit Counseling sent out a press release touting the wonderful job done by their counselors. Not everyone thought this was such a wonderful result. See NFCC Celebrates Utter Stupidity and Puts Older Dementia Patient in Debt Management Plan.

Financial writer Liz Weston has criticized the credit counseling industry for not being forthcoming about the failure rate of credit counseling programs and for failing to point out more feasible debt solutions, like filing bankruptcy.  See Do Debt Management Plans Work?

Yet there’s one change needed that isn’t coming: Borrowers need to be told that bankruptcy could be a faster, cheaper solution.”  Liz Weston.

So what would I have advised Jim and Francine?

  • I would have closely examined a list of all their property to see if any of it would be at risk in a bankruptcy case.
  • I would have reviewed their current and past income to see if they qualified for Chapter 7 relief and, if that income was too high to qualify for Chapter 7, I would have assessed what they would have to repay each month in a Chapter 13 case.
  • I would have looked at debt settlement options and looked for possible assets they could sell to offer creditors without making monthly payments or entering bankruptcy.
  • I would have examined their lifestyle to see if they could downsize their home or sell of unnecessary assets to settle or pay the debts.
  • If their income was very high I may have recommend they look at a credit counseling repayment program, but since they had to take on 2nd jobs I doubt that was the case.
  • I would have considered doing nothing at all.  Elderly debtors living on Social Security income who own no real estate are often best off doing nothing at all.  Social Security cannot be garnished so if they could endure the collection calls and collection letters, senior debtors are often best off doing nothing at all.

But in the end, I am sure I would have recommend that they strongly consider the bankruptcy option and spend more time focusing on Jim’s health.

You see, my job is to help clients chose their optimal debt solution.  I’m not here to sell bankruptcy.

I’m fine if debt settlement was their preferred option since we handle those matters as well.  I frequently advise clients to try credit counseling programs when I think a bankruptcy will do more harm than good. I even encourage clients to manage their own debt reduction plans and to empower themselves by learning about the Dave Ramsey “debt snowball” approach.  It’s all good.  All debt solutions have their place, but when you sit down with a debt professional you should receive an unbiased opinion. That’s what it means to be a professional–to put the client’s needs first.

If credit counseling clients had to see me before they started a debt repayment program, I’m guess half would opt not to start the program.  Given that 50% to 75% of all credit counseling repayment programs fail, it appears that credit counselors are pushing clients into programs to make the agency money regardless if that is their client’s best option.

If you are trying to figure out how to get out of debt, look at all your options.  Get the best advice from the most professional folks in Nebraska.  Consider these options.

 

Image courtesy of Flickr and Rachel Kramer