maxed out generation

Seeking qualified writers for this blog

Obviously, I've been away from this blog for awhile. I apologize to anyone who was previously reading on a regular basis. So far, I haven't come up with the right formula for reducing my sleep needs, so the press of other work keeps me from updating this site as regularly as I'd planned.

I know there are others out there in the legal profession and other professions who are interested in helping ordinary people who are in debt. If you're someone in such a profession and you keep up with what's happening in the fight against predatory credit practices, or what's happening in our education system to help students avoid crippling debt, or what's going on in legislation that impacts the credit industry, and you're a good writer interested in writing on such topics, I'd love to hear from you. There is no money attached to this mission, and no soliciting of clients, just the satisfaction of voicing your point of view and helping those in need of information.

I hope to hear from qualified writers with no ulterior motives. Meanwhile, I will try to update this site as often as I can.

Real estate appreciation is bad news for some homeowners.

Usually, when a homeowner finds out that his house has gone up in value beyond his wildest expectations within a few short years, it's good news. But if the homeowner is on the brink of bankruptcy, too much appreciation can be very bad news. Too much equity in a home may eliminate bankruptcy as an option, unless the homeowner is prepared to lose his home in a sale by the bankruptcy trustee.

Home ownership in a bankruptcy context works like this (for those debtors who are current on mortgage payments):

- If the debtor has little or no equity in his house, but is current on payments, then he'll usually keep the house in a chapter 7 bankruptcy (chapter 7 is the typical kind of consumer bankruptcy case which takes a few months to complete). The trustee's job is to liquidate any assets with significant equity to pay creditors, so the trustee has no interest in real estate with no equity.

- If the debtor has substantial equity in his house, if he files under chapter 7, the trustee will be obligated to sell the house to pay the debtor's creditors. In this situation, the debtor will usually file for bankruptcy under chapter 13 (a consumer reorganization case), and make payments to his creditors over a period of 3 to 5 years (not 100% of what they're owed usually, but some percentage determined by several factors, including how much the debtor earns in income). The idea behind this is that the debtor is paying his creditors what they would receive in payments if the case were filed under chapter 7 and the house were sold.

- What happens when a debtor has substantial equity in a house, but doesn't have sufficient income to make payments under a chapter 13 payment plan? He may decide to simply sell the house on his own, use the equity to pay creditors, and then, if significant debts still remain, file under chapter 7.

In recent years, due to the crazed real estate market, many more people have found themselves in this bind. Good luck in the real estate market can translate into very bad luck if you fall upon hard times and have to contemplate filing for bankruptcy.

A victory for California consumers against credit counselors.

Following congressional hearings last spring on the questionable practices of numerous agencies within the credit counseling industry, California authorities have settled with two such agencies accused of false advertising and other consumer rights violations. Yesterday, The Mercury News reported that Integrated Credit Solutions and Lighthouse Credit Foundation have settled for $1.9 million, and that California consumers may be eligible for refunds from this settlement.

As this article points out, the rise in consumer debt in this country has triggered the spawning of a new generation of credit counseling companies all over the country, many of which claim not-for-profit status with the IRS while partnering with for-profit management companies. In addition to tax law violations, allegations of excessive fees and false and misleading statements are surfacing in connection with these agencies.

The standard advice given to consumers is that we should check out credit counselors with the Better Business Bureau, the National Foundation For Credit Counseling, the Associaton of Independent Consumer Credit Counseling Agencies. It's a sad state of affairs that we have to be so suspicious when dealing with companies whose supposed mission is to counsel desperate people. But until Congress finally passes legislation to protect consumers against the baser motives of many of these outfits, I'm afraid there's no better advice to give.

A coincidence to prove my point about home ownership

Just yesterday, I wrote about the hazards of home ownership. This morning, I walked into my house and heard the sound of water filling the hot water heater in the basement. I thought it odd because I'd been away from home, so the tank should have been full. As I went to open the door to the basement, a sick, ominous feeling grew in the pit of my stomach. When I turned on the lights, I saw a dirty swimming pool at the bottom of the stairs. Stupidly, I ran down the stairs and started wading through the water. Later, I was informed that you're never supposed to step into a flooded room when the electricity is on. You could get electrocuted (of course). Luckily, as the plumber later told me, a few inches and a couple of hours may have saved me from death by ignorance. There was also gas leakage from the boiler when the water extinguished the pilot light, so who knows what could have happened with that combination.

Water extraction came to $283, but only because the plumber took pity on me, and the new water heater with installation will come to $1,035. This incident illustrates my point that home ownership is not all it's cracked up to be. I wish I could make this point more zealously, but right now, so soon after my close call with true disaster, I'm just grateful to be alive.

This is not my beautiful paid-off house

Most of my friends from my generation (tail end baby-boomer, pre-GenX) own their own homes. The few who don't are mostly divorced single mothers who are of an age and educational background which make the prospect of upward mobility in their careers and comfortable retirements somewhat shaky. We worry about them and want them to do whatever they can to acquire a house because something deep in our American psyches tells us that real stability comes with owning a piece of the land and a roof. The thinking seems to be that husbands come and go, but a house is forever. Of course, recent trends in the real estate market that have seen some of our properties double in value over the last few years have made us feel even more smug in this sentiment. We forget that the market is fickle.

I don't know about the wisdom of counseling a friend who is less than twenty years from retirement and living on a fixed income to buy a home at all costs rather than rent one. Sure, you can get lucky with your investment, even lucky enough to fund your retirement from the equity that builds up. But houses are notoriously unreliable -- roofs cave in, foundations crack, termites invade, heating systems break down, trees fall, plumbing leaks, basements flood, and real estate taxes go up along with market values. If you get into home ownership without a substantial rainy day fund, you could easily find yourself having to empty out your bank accounts and tap into your retirement savings to maintain your house, or even end up losing your property through foreclosure. Many people find that when they total up the cost of maintenance over a period of several years, that amount exceeds the tax benefit from their mortgage interest deductions over that same period of time.

If you buy a house in your forties or fifties, and get a thirty-year mortgage, you won't have paid off the mortgage by the time you retire. I bought my house six years ago, and I know that I'll never live in it mortgage-free because when my daughter is grown, I intend to down-size and live in a maintenance-free apartment. Why? Because home ownership is bloody stressful, and one little body can't possibly need so much space. The goal of living in a home that I own outright and doesn't rob my bank account has eluded me as well as many people I know. Yet, oddly, we still wish home ownership upon all our friends. Old beliefs die hard.

In search of students to interview about credit card debt

I am in the process of writing a book about students in debt, focusing on the cultural and economic forces that have brought about the current crisis in which vast numbers of young people are starting out their lives loaded down with unmanageable debt. The dream of upward mobility in this country endures despite tuition costs having risen far beyond the reach of middle-class families while, at the same time, the availability of financial aid has declined. Upon graduation, students often find that entry level jobs in their fields come with low salaries and few benefits, and that the cost of housing in desirable urban areas is prohibitively high.

Inevitably, in this climate, students are drawn to rely on credit cards to get them through tough times. The loosely regulated credit industry has seized upon this vulnerable group to profit through high, volatile interest rates, late fees, and early dependence on credit.

I'm interested in how students are managing to survive in this environment, what strategies have proven successful, whether students believe that our educational system is working for the middle-class, what drastic measures some have taken to escape the tyranny of debt. I know from my participation in discussion forums, particuarly the ones at at www.creditboards.com, that some individuals have had success in dealing with their debt head-on by educating themselves about their rights as debtors, negotiating with creditors and sometimes filing for bankruptcy protection.

If you'd like to share your story, please email me at hk@maxedoutgen.com. Interviews can be conducted by email or telephone, or both. All identities will be kept confidential.

Personal bankruptcies follow business failures

In an article in the July issue of Entrepreneur magazine, "Down and Out," Joanne Cleaver reports that between 13 and 14 percent of people who file for personal bankruptcy do so as a result of failure in their small businesses. This information is based on findings of the Consumer Bankruptcy Project, a study of 2,000 households that filed for bankruptcy (one of the directors of the project is Elizabeth Warren, co-author of The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke). Cleaver points out that even though small business owners generally have higher incomes and more assets, when they fail, they fail in a much bigger way. The study shows that credit card debt is a big part of the reason that small businesses fail because of "the degree to which high interest rates outstrip the business growth."

The fact of the matter is, it's difficult for small business owners to refrain from resorting to personal credit cards to fund their businesses during difficult times. When you risk losing your home because the bank has taken it as collateral for your guarantee of company debts, and you still have hope (perhaps foolishly) that the business will survive and succeed, there's an inevitable sequence of events that often take you and your business to the bankruptcy court.

On a brighter note, true entrepreneurs always find a way to come back into the game. Being in this rather grim profession, I can't help but admire someone who, months after financial catastrophe, is already starting another business.

Understanding extended warranties on cars

When I take my car in to the dealership where I bought it, I expect the service department to let me know if a needed repair is covered under my extended warranty. Recently, someone shared with me an experience which makes me wonder whether, along with the paperwork evidencing my warranty coverage, I've also misplaced my trust. This individual took his car in for a major repair and was given an estimate of $1,500 and told that his warranty did not cover the repair because his vehicle mileage exceeded the maximum warranty mileage. Later, thinking back to the time of purchase, he recalled that the very same dealer had sold him an extended warranty that covered repairs for a much longer period of time. In fact, he was "persuaded" to purchase an extended warranty for almost $2,000 when his credit report proved to be less than stellar. Along with a higher interest rate, financing was made contingent upon his purchasing the extended warranty. I can understand the higher interest rate, since that arguably relates to the greater risk assumed by the financing company. However, I don't understand how the purchase of a supposedly optional warranty reasonably relates to a customer's credit rating. In my opinion, requiring a customer who is already required to pay a higher interest rate to purchase a warranty as a condition of financing is equivalent to charging a double penalty. My question: Is this practice permitted by law?

Of course, the dealership's failure to recognize the extended warranty a couple of years later, despite its sophisticated computer records, only added insult to injury. It's hard for me to believe that a dealership that would coerce a customer to purchase an extended warranty in the first place would then innocently forget about its existence later on.

The Village Voice reports that college graduates are joining the uninsured masses

I just do not understand how a culture that prides itself on being the most advanced one on this earth can still deprive its citizens of something as fundamental as basic health care. Years ago, whenever I found out that someone I knew didn't have health insurance, I was aghast, especially when that person was educated and employed. Our deplorable health care system now affects a much wider demographic, among them young college graduates.

This is the subject of "One Sick Fall" (by Solana Pyne), the latest in a series of articles in The Village Voice on Generation Debt - The New Economics of Being Young. As this piece points out, today's graduates face gloomy prospects as they go out into the workplace, where, because of the rise in insurance costs, employers are less likely to provide health benefits. For many students, who already have the weight of huge student loan and credit card debts on their minds as they go into the world, this is just another mind-boggling blow. I don't remember it being this tough when I left school. Back then, tuition at the private university I attended was a fraction of what it is today (not so preposterously out of line with what my family could afford), financial aid in the form of federal grants covered a meaningful portion of my tuition and expenses, and many entry level jobs I was qualified for paid enough to cover rent and other living expenses in addition to providing full health insurance coverage at no cost to me.

I have deep respect for college graduates who have to face such a hostile world(never mind what those who go on to graduate school have to face). When health insurance has become a luxury, I have to wonder how we're better off than people in third world countries.

Let's make a deal.

I get alot of emails from people who can no longer make their minimum monthly payments on credit cards due to interest rates that have risen as much as 10% from the original rate they were paying. We live in a culture where we don't bargain for most things (cars and houses are the exceptions). When I travel to other places in the world, I'm always surprised to find that outside of the U.S., the price of everything in the marketplace seems to be open to negotiation. In this country, people tend to think that bargaining is pathologically tacky, unless a lawyer or agent is doing it for us.

From personal experience, I know that the interest rate on my credit cards can go up astronomically within a very short period time if I forget to pay them on time for a couple of months. I finally got smart, and now I pay most of my bills online and get my reminder notices by email. Even though I've been on the straight and narrow for a long time now, I found that my interest rates weren't going down in recognition of my good payment behavior. In the spirit of the cobbler's children who have no shoes, I had fallen victim to inertia about my own financial concerns. So, I recently called one of my credit card companies and negotiated an 8% reduction in my interest rate, reminding the customer service department that I'd been a damned good customer, especially after I got my act together and started paying online.

Now, I'm going to apply my bargaining techniques everywhere (well, maybe not at the grocery store - that might be a little tacky).

Award-winning documentary filmmakers highlight the true price of the American dream.

Earlier, I wrote about Trueworks, an independent documentary film production company that is in the process of shooting a new film called "Maxed Out," about the real lives of people in debt. A previous film by Trueworks, "Parents of the Year," just picked up the Audience Award at the AFI/Silverdocs documentary film festival in the short film category. The film is about an immigrant family from Mexico, the Garcias. The parents finance their dream of putting their three children through college by picking up recyclable cans and bottles in trash cans in Venice Beach, California. The extended version is scheduled to air on HBO this fall.

I went to one of the screenings at this festival and caught up with Trueworks' producer-director, James Scurlock. "Maxed Out" will be shot in various locations throughout the country, and the filmmakers are still talking with individuals who are willing to be a part of this documentary. If you have a story to tell, contact Lee Thompson at trueworks by email: lee@trueworks.us. Or, feel free to send me an email, and I'll pass along your story and contact information.

Magazine award certificates - what's in the fine print?

Like everyone else I know, I hardly have time to read my important mail, much less junk mail. Usually, I ignore awards certificates from credit card companies offering me free gadgets I don't need or magazines I'll never read. My sister showed me something yesterday that looked to me like a typical magazine subscription award certificate. This is what it says:

As a valued Cardmember, you are entitled to claim Awards worth up to
$101.00 from the choices on the back. Simply select your favorite
magazines and redeem your Awards Certificates right away for fifteen
months, which includes three extra months at no cost, for the annual
price.

Sounded like a good deal to me -- a year plus three months for free. But then I thought, wait a minute, what's this about the "annual price?" So, I looked all over the form, and in microscopic print is the statement that by redeeming the award, you authorize the credit card company to charge your account for the annual price. So, what they're offering for free is just the three extra months. Someone is paid to come up with ambiguous language to fool people into believing, at first glance (which is about where it ends with alot of people, myself included), that the subscriptions are free.

Which leads me to wonder (1) how small can print be before it's legally too small? (there must be some regulation that governs this), and (2) what kind of dehumanizing training do you have to undergo to become a writer of awards certificates like this?

What is poverty?

In an article in The Boston Globe, America's hidden issue of poverty, Robert Kuttner states" "The great hidden issue in America is the scandal that tens of millions of Americans who work full time -- often more than full time -- barely get by and can't get ahead, while CEOs get zillions. The blue-collar middle class jobs are vanishing; what's taking their place are retail and service jobs that top out at $10 an hour or less. You can't live decently on that."

As I read this, I wondered about the definition of poverty. The U.S. Census Bureau assigns poverty thresholds to families based on the size of the family and the ages of the family members. The poverty thresholds are "statistical yardsticks" reflecting what families need to live on. If your family income falls below the threshold for your family, then you are living in poverty. In 2003, a family of four with two children under the age of eighteen had to make less than $18,660 in order to be considered poverty-stricken according to the Census Bureau.

There are also poverty guidelines put out by the Department of Health and Human Services, which are the numbers used to determine eligibility for certain federal assistance programs. In 2004, a family of four making less than $18,850 is considered to be living in poverty according to these guidelines (unless the family lives in Hawaii or Alaska where the numbers are higher).

I'm not sure I get how these numbers work, but I know that in the D.C. area, as well as many other metropolitan areas of the country, a family of four can't live on less than $20,000 a year, even if the family is living in a tent. No wonder people are living in their cars.

Credit counseling firm Ameridebt has filed for bankruptcy.

If you go into the Ameridebt website, you'll see the following message:

Unfortunately, AmeriDebt is no longer accepting new clients.
However, if you are looking to get help with your debt,
you may want to consider 800CreditCardDebt.com

Ameridebt has been under attack for deceptive practices by the Federal Trade Commission and several states. Regulators and customers allege that Ameridebt deceived its customers by charging high fees and operating as a non-profit concern while its real motivation was to make profit for its founders. The chapter 11 filing came after a settlement of $8 million in a class action suit was tentatively approved by an Illinois state court. Of course, that $8 million won't go very far considering there are 500,000 customers that have been ripped off by Ameridebt. The Washington Post reports that the FTC has objected to the settlement on the grounds that even if half of the 500,000 potential class members file a claim, that would result in a payment of a maximum of $32 per person.

Ameridebt and other credit counseling outfits are still under investigation by the IRS in connection with their non-profit status. With so many of these outifts under attack for deceiving customers, you really have to think twice and do your homework before turning over your last dollars to these "non-profits."

Chuck Jaffee on Suze Orman's claim to fame

Chuck Jaffee, in an article he wrote for Investor's Business Daily has this to say about Suze Orman:

If you knew Suze like we know Suze

Anyone who has ever heard my radio show knows it's no secret that I am no fan of pop-culture personal finance guru Suze Orman, but I couldn't help but do a double take when during one of her recent shows on CNBC.

In talking about debt, Orman said: "One of the books I wrote, I did a whole section on good debt and bad debt. In fact, I was the one who created that terminology, good debt/bad debt in the United States back in 1999."

A quick check of a not-too-complete database found hundreds of stories written throughout the 1990s using the terms good debt and bad debt and describing them roughly in the fashion Suze claims to have originated. (Good debt is generally considered to be an investment in who you are and who you will become, so mortgages, student loans and, sometimes, car loans are the kind of things that qualify. Bad debt comes from paying for today's wants with tomorrow's cash, thereby jeopardizing your ability to meet your future needs. Think credit card debt.)

A couple of those articles were my own, although the financial advisers I quoted on the subject must have found out about good and bad debt while visiting foreign countries, since Suze hadn't created the terms here and wouldn't for several years.

No one corners the market on good financial advice. Anyone who suggests they do, who acts as if their way is the only way, probably is espousing methods that falter under intense scrutiny.

One other Suze note: She won a daytime Emmy Award this week in the "best service show" category (Martha Stewart was robbed!). Upon learning she had won, Orman said: "For the first time in my life, I am seriously speechless."

Here's hoping she wins a lot of awards.