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How a Hurricane Can Blow Away Your Credit Score

With Hurricane Florence pummeling the east coast, for many, priorities are being shifted.  When you think of a hurricane, you think of the dangers of high-speed winds, rising water levels, and wide spread homelessness.  What you may not think of is the effect a hurricane can have on your credit score.  While this certainly takes a back seat to safety, it should when you are preparing for the storm.

The data used in this post are from a report released in 2017 by the Kansas City Fed, “Financial Vulnerability and Personal Finance Outcomes of Natural Disasters“authored by Kelly Edmiston.

Who is at risk?

People with relatively high credit card utilization and unpaid bills are at risk of losing more than 80 points on the credit score if they are directly hit by a Category 1 hurricane.  In 2007, Hurricane Humberto slammed into the coast of Texas.  In areas of coastal Texas where:

  • 1% of people had unpaid bills, the average drop in credit score was 16.2%.
  • 5% of people had unpaid bills, the average drop was 81.2 points.
  • People had 10% credit card utilization, the average drop was 17.9 points.
  • People had 40% credit card utilization, the average drop was 71.2 points.

The average drop in credit score for all areas affected by Hurricane Humberto was 46.4 points.

How Can You Avoid or Reduce Your Risk?

The author of the report, Kelly Edmiston, addresses one of the main reasons people find themselves unprepared in the path of a hurricane.  He says, “The problem’s not so much that they’re making mistakes in preparing for a disaster, but they underestimate the likelihood that they’ll be affected.”  Suggestions for preparing include:

  • Paying your bills before the hurricane arrives. You may not be able to pay online, by phone, or by mail if you wait.
  • Notifying your credit card companies that you have to evacuate. This could get you an extension if you are late and they will know not to decline your charges if you relocate to a relatively unusual place.
  • Getting cash before the storm arrives. Many places may not be able to accept credit or debit cards and this can prevent you from over-utilizing your cards.

It can be extremely difficult to prepare for a natural disaster.  Sometimes, even being prepared is not enough.  If your credit has been affected by a hurricane, unexpected job loss, or for any other reason, you may need help getting back on track.  If you want creditors to stop calling day and night, contact Elias Dsouza.  He has the skills and experience to get you back on track.

A Quick Guide to Puerto Rico’s Bankruptcy

Puerto Rico became a United States territory in 1898.  The islands economy relied mostly on agriculture.  However, after World War II, the United States tried to modernize the territory by moving businesses there.  Of course, these businesses moved to take advantage of the lenient tax laws and cheap labor ultimately not improving the Puerto Rico in the long run.

The Economic Rise and Decline

In the 1970’s the federal government passed a tax law with a large loop hole that allowed huge businesses to operate in Puerto Rico while paying almost no taxes.  This was great for the citizens of the territory, but it created an enormous tax deficit for the U.S. government.  In 2006, the law was completely repealed and most of the businesses operating in Puerto Rico left leaving thousands of people jobless and debt on the rise.

Underground Jobs

It is estimated that one-third of the Puerto Rican job force operates “under the table” which is to say that the income on these wages is not traceable and therefore not taxable.  This lack of infrastructure leads to a tax deficit for the territory.

How Does All of This Lead to Bankruptcy?

Due to the lack of tax revenue, the Puerto Rican government cannot sustain itself.  Unable to collect taxes from its citizens, the government sold $61 billion in bonds to some of the largest firms on Wall Street.  That total is now up to $70 billion.  I addition to the debt associated with bonds, Puerto Rico owes its government employees over $43 billion in pension payments.  That puts Puerto Rico over $120 billion in the red.  Just to offer some context, when Detroit, Michigan filed for bankruptcy in 2013, it (only) owed about $14 billion.

While the magnitude of the debt is far different than a person or small business may experience, the solution for this type of bankruptcy is similar.  Currently, the United States government is working with leadership in Puerto Rico to put together a bankruptcy plan that their creditors and the court can agree to.

You may not be $120 billion in debt, but maybe you are behind on loan payments and getting harassed by debt collectors.  If you want the phone calls and direct mail to stop, talk to Elias Dsouza and Dsouza and Strachan Lawgroup Group today.

Remembering Burt Reynolds’…Bankruptcy

Everyone is familiar with Burt Reynolds as an actor.  He starred in movies such as Smokey and the Bandit, Deliverance, Boogie Nights, and The Longest Yard.  What you may not remember is his bankruptcy.  Like so many Hollywood stars, he worked hard and played hard.

Divorce from Loni Anderson

In the early 90’s, after 5 years of marriage Reynold and Anderson filed for divorce.  The original divorce agreement mandated that Reynolds pay $2 million and an additional $47,000 per month in “divorce related expenses”.  He continued to pay various amounts for 22 years until he finally wrote a check to Anderson for over $154,000 to end the arrangement.

Bad Investments

Reynolds admittedly was not very good with money.  He took the advice of his business manager and did not pay attention to his investments.  The first bad investment was in a regional restaurant chain called Po’ Folks.  He and Buddy Killen invested $20 million each and they had problems from the beginning.  It got bad enough to warrant the liquidation of all assets which led Buddy and Burt to make another bad investment with the salvaged funds.

Investment number 2 was in another restaurant chain called Daisey’s Diner.  The same issues caused Buddy to sink an additional $12 million into the investment.  Both Buddy and Burt eventually pulled out.  All-in-all, Reynolds lost around $20 million in these investments.

The Icing on the Cake

Perhaps the biggest mistake Reynolds made was entering into all investments as an individual.  His business manager did not advise him to form a corporation with Buddy Killen which made Reynolds personally exposed to his creditors.  His personal assets became available to creditors when loans were not paid.  Even more questionable, Reynolds told his business manager to just pay everyone he owed instead of working with creditors to settle on lower amounts and payment plans.  This left Reynolds with almost nothing.

If Burt Reynolds had Elias Dsouza at his side, many of these unfortunate events could have been avoided.  Elias has been working with individuals to protect themselves in business transactions, debt defense, and credit restoration for over 15 years.  Contact Dsouza and Strachan Lawgroup Group for a free consultation.

How Does Your Credit Card Debt Stack up Against Other People Your Age?

As of September 2018, the average amount of debt per person is $5,700.  The average balance per household is $9,333.  The total amount of revolving debt in the United States is $1.03 trillion.  41% of the people in the U.S. have some level of credit card debt.  Have you ever wondered how your level of credit card debt stacks up against other people’s in your age group?

0 to 35 – Average Credit Card Debt = $5,808

This group is among the lowest in terms of debt balance.  They are also among the least likely to have a credit card.  People in this age group typically have a lower “operating budget” so they cannot afford to manage much debt. Many Millennials are not opening lines of credit which is hurting their credit score and reducing their chance of getting a card.

35 to 44 – Average Credit Card Debt = $8,235

This is where credit card users start to pick up steam.  By this age, many people have had open lines of credit for more than 5 years.  They are typically in a higher income bracket than the previous group which allows them to get cards with greater spending limits and increases their ability to pay the bill.

45 to 64 – Average Credit Card Debt = $8,627

The “baby boomers” average the largest amount of credit card debt per person.  However, this age group also controls the largest amount of disposable income in the United States.  Additionally, they do not have as much student loan debt.

65 and over – Average Credit Card Debt = $6,326

This group is among the least likely to have a credit card.  However, this trend is changing.  Due to rising medical costs, the debt burden on this age group is increasing.  Some individuals in this group may have trouble getting a credit card even if they want one because, in the event of death, the credit card company could be stuck with the debt.  This fact often makes companies more hesitant to issue a card.

Credit card debt affects just about everyone over the age of 18.  Unforeseen events can lead to credit card overuse and things may get out of control.  If you find yourself in this position and creditors are calling you day and night or if you are ready to start paying down the debt and need guidance, contact Elias Dsouza at Dsouza and Strachan Lawgroup Group.  He has the skill and experience to get you back on track.

 

Data used in the post is from valuepenguine.com.

Donald Trump: The Master of Chapter 11 Bankruptcy

Many businesses file for chapter 11 bankruptcy, Donald Trump’s businesses seem to have this step built into their plan.  With 6 chapter 11 bankruptcies under his built, Trump has shown a willingness to throw ideas at the wall to see what sticks.  Let’s take a look at those ideas that did NOT stick.

First, the Basics of Chapter 11 Bankruptcy

Unlike chapter 7, after filing for chapter 11 bankruptcy, a trustee is not automatically appointed by the court.  A trustee may be appointed if there is sufficient evidence that the debtor has committed less than savory acts such as fraud and gross incompetence.  Chapter 11 bankruptcy is often referred to as “reorganization” of debt.  If the creditor and debtor can agree to a plan, the business can continue to operate and pay back debt in the future.  Reports show that Chapter 11 bankruptcy filed by businesses is successful 10% – 15% of the time.

Bankruptcy #1 – Trump Taj Mahal

The Trumps paid $1.2 billion to build the hotel and resort.  The plan was to use Trump products to outfit the place.  Unfortunately, no one wanted Trump water, towels, etc. In 1991, chapter 11 bankruptcy was filled in an attempt to maintain control.  Trump was able to hang on to the property until 2015 when Carl Icahn took controlling interest eventually selling to the Seminole Indians for $50 million (4 cents on the dollar).

Bankruptcy #2 – Trump Castel Hotel and Casino

This property had trouble paying the bills after Trump opened the Trump Taj Mahal.  Maybe it is not wise to compete with yourself…In 1992, Trump bondholders signed a deal to accept equity and preferred stock in lieu of the debt.

Bankruptcy #3 – Trump Plaza Hotel

1992 was a rough year for Donald Trump.  The Trump Plaza Hotel went bankrupt which led to the transfer of 49% in equity to Citi Bank.  Trump was an estimated $550 million in the red at the time of the filing.

Bankruptcy #4 – Trump Plaza Casino

This property filed along with the Trump Plaza Hotel.  Over $100 million in liabilities have been reported for this filing.

Bankruptcy #5 – Trump Hotels and Casino Resorts

Perhaps this is one of the largest screw ups by Trump.  Trump Hotels and Casino resorts acts as the parent company to three of the afore mentions properties.  In 2004, this holding company filed for chapter 11 bankruptcy with over…wait for it…$1.8 billion (with a ‘b’) in debt.  Trump was stripped of control and his title of CEO only to emerge with a new company called Trump Entertainment Resorts.

Bankruptcy #6 Trump Entertainment Resorts

Trump Entertainment Resorts (TER) is the same group that ran Trump Hotels and Casinos into the ground for all intents and purposes.  To be fair, in 2009, tons of businesses were having trouble paying the bills due to the recession and TER already had debt from previous failed ventures.  When TER filed for chapter 11 bankruptcy, they were $1.2 billion in debt.

If you or your business is upside down in your loans and you are considering filing for bankruptcy under chapter 11, you need help.  This is an enormously complex process and you need someone to protect you from creditors and guide you.  Contact Elias Dsouza for a free consultation today!

Da Brat’s Funkdafied Finances Lead to Bankruptcy

Da Brat burst on to the rap scene in the 1990’s becoming the first female rap artist to have a platinum album (Funkdafied).  While artists do not always amass a fortune, she has made over $3 million in her career.  We are a long way from the 1990’s and Da Brat has found herself in bad financial state.  Let’s review the latest celebrity bankruptcy!

How Does Someone Blow Over $3 million?

Well, to start, she has not put out an album since 2003 and that album did not do very well.  Those familiar with the music business know that a production studio fronts the money required to make an album and then they take a cut of album sales until they get their money back plus a small percentage.  When an album does not do well, the artist is on the hook for the money.  Right now, Da Brat owes Sony Music over $1 million.  On top of that, she owes:

  • Ally Bank – $12,000
  • Georgia Department of Revenue – $2,000
  • IRS – Unknown amount, but she was recently fined $1 million for not paying taxes.
  • Credit Card Debt – $2,000

The Final Blow

In 2007, Da Brat assaulted a waitress with a rum bottle in an Atlanta nightclub.  The waitress suffered enough facial cuts and bruises that she went to the hospital and later pursued compensatory damages.  Da Brat went on to plead guilty and was ordered by the court to:

  • Pay the victim $6.7 million in damages.
  • Accept a 3-year prison sentence.
  • Do 200 hours of community service.

The $6.7 million in damages really put Da Brat on the path to chapter 11 bankruptcy.  According to theblast.com, her assets total at $108,700 and her liabilities equal just under $8 million……ouch.

Maybe you did not smash a bottle of rum over the head of a waitress.  Maybe you did not finance a failing music career.  However, you may find yourself in a position where filing for bankruptcy is the best thing you can do to protect yourself.  If you think this might apply to you, contact Elias Dsouza at Dsouza and Strachan Lawgroup Group.   Elias can guide you through the complexities of bankruptcy and get you back on track.

The 3 Largest Bankruptcies in U.S. History

Many people were affected by the recession.  People lost their house, car, life savings, and more which led to bankruptcy.  However, bankruptcy was not limited to individuals and families.  Some of largest bankruptcies in history were actually filed by companies.

 

3 – WorldCom

Fueled by a hungry CEO, Bernie Ebbers, WorldCom managed acquisition after acquisition in the 1990’s.  The worlds # 2 long distance phone company and # 1 internet network had to keep its stock price up to pay for many of these acquisitions.  In one of the largest corporate frauds in history, this company took “cooking the books” to a whole new level.  To elevate the value of the company, they recorded over $9 billion in fraudulent transactions.

Before declaring bankruptcy under chapter 11, WorldCom had assets worth $103.9 billion.

2 – Washington Mutual

Everyone knows the housing market in California is well…challenging.  No one knows that better than Washington Mutual.  When housing values dropped more than 9 percent (equal to the drop during the great depression) in 2007, Washington Mutual found itself holding mortgages (mostly in California) worth far more than the asset they financed.  They couldn’t sell the mortgages to other companies which led to a net loss of $67 billion in 2007.  The final dagger for Washington Mutual was the loss of customer deposits.  When Lehman Brothers went down, people everywhere started pulling all of their money out of investments and banks.

Prior to declaring bankruptcy, Washington Mutual had $329.7 billion in assets.

1 – Lehman Brothers

You may be familiar with the term “subprime mortgage”.  These are mortgages that were given to unqualified people without the necessary documentation.  If this sounds like a bad idea, that is because it is.  Just ask Lehman Brothers.  This firm acquired 5 companies that were underwriting subprime mortgages during the housing boom in 2004 and 2005.  By 2006, they controlled $146 billion in mortgages which is wonderful when everyone is paying on-time.  Unfortunately, as we all know, that became a difficult proposition around 2008.

With a portfolio massively leveraged in mortgage loans and the stock market beginning to faulter, Lehman Brothers looked abroad for investors.  They were close to a deal with Korea Development bank.  When that deal fell through, stock holder confidence fell to an all-time low which marked the end.

Lehman Brothers filed for bankruptcy with $639 billion in assets and $619 billion in debt.

The Moral of the Story

No matter how much money you have, things can happen that leave you upside down in debt.  Regardless of fault, you can protect yourself.  If you are defaulting on loans and getting phone calls from debt collectors, you need help.  Elias Dsouza of Dsouza and Strachan Lawgroup Group has the skills and experience to give you that help.  Contact Elias to get started on the right path today.

How to Close Your Small Business in 5 Easy Steps

When you started your business, you did not do it with this day in mind.  That day is here nonetheless.  The business is no longer viable and you have made the decision to close it.  Do not fret, you will be back in the game soon enough!  However, you must first deal with this steaming pile of failed business.  Doing it the right way makes all the difference if you intend to start over at some point.

 

Step 1 – What is the Steaming Pile of Failed Business Worth?

Take stock of every asset your business still owns.  Everything is worth something.  If you are closing the business, it is probably because the plan is not working and you may have accrued some debt while trying to save it.  The remaining assets will help offset any liabilities you still have.

Step 2 – Make the Announcement

While this step is very difficult, it is better than firing everyone one day as they walk in the door.  Notify employees of the date their employment will end, contact your customers directly, inform your utility companies, landlord, and anyone else that will be affected by the loss of your business.  While you do not HAVE to necessarily do some of these things, it could benefit you to leave bridges un-scorched so when you raise from the ashes one day you will have friends.

Step 3 – Haggle and Settle

Liquidate your assets.  This money will be used to settle up with your creditors and anyone else you still owe.  You may be able to negotiate to reduce the value of liabilities you still have.  If you have creditors to worry about, they may be thrilled to talk to you about ways you can pay a lesser amount as opposed to filing for bankruptcy which leaves them with empty-handed.

Step 4 – Pay the Man

Meet with your accountant and file any and all tax returns.  This includes federal and state returns.  While this can be stressful, you should not put it off because you can incur fees and interest on unfiled returns.

Step 5 – Closing Time

  • Bank accounts – At this point, your bank accounts are most likely bruised and limping. It can be expensive to keep them open because most business checking accounts incur fees if the minimum balance is not maintained.
  • Your business – This is the end of the road. Time to move on and come up with the next great idea!

Closing a business can be very complex and overwhelming.  Do yourself a favor and obtain the services of an experienced business attorney in Broward County, Florida.  Elias Dsouza has been working with business owners for over a decade and has the skills needed to steer you safely onto your next venture.

A Quick Guide to Asset Redemption in Chapter 7 Bankruptcy

Did you know that you do not have to liquify all of your assets when you file for Chapter 7 bankruptcy in Florida?  You can file for asset redemption if you have “secured debts”.  Secured debt is debt that has collateral that can be used to pay off the debt.  For example, if you own a car, but still owe a lender money for the car, you can file for redemption on the car during Chapter 7 bankruptcy.

 

So, Why Would You Want to File for Redemption on Your Secured Debts?

Simply, you can save a ton of money.  When you file for redemption on a secured debt, you are asking the court to allow you to pay the lender fair market value for the collateral of the debt in one payment.  Say you owe $8,000 on the car we talked about earlier, but the car’s fair market value is $6,000.  You can ask the court to allow you to pay the lender one payment of $6,000 to eliminate the debt.  This option saves you from having to pay a ton in interest and you no longer have a car payment to worry about.

 

What If You Cannot Afford to Pay the Lump Sum for Your Secured Debt? 

It is reasonable to assume many people cannot afford to pay a lump sum to eliminate a secured debt.  After all, we are in the middle of bankruptcy here.  If you cannot afford to pay a lump sum, you can apply to participate in a redemption program.  A redemption program will:

  • Allow you to keep your asset.
  • Pay the creditor fair market value for the asset.
  • Allow you to pay back the “loan” in installments.
  • Usually, allow you to make fewer payments over the life of the loan.
  • Lower the amount of each monthly payment.

These programs sometimes incorporate a one-time attorney fee that is much smaller than the interest you would pay on the original loan and you can usually apply online.  An experienced debt attorney can easily help you through this process.  For over 15 years, Elias Dsouza has been helping people manage and retain their assets through bankruptcy in Plantation, Florida.

Chapter 7 Bankruptcy: The Tax Considerations

Believe it or not, filing for bankruptcy under Chapter 7, liquidating most of your assets, and starting over is not the end of the story.  Chapter 7 is unique because a separate estate is created using your non-exempt assets (see Chapter 7 posts for more information).  The assets within this separate estate can derive their own income, create their own costs, and they are taxable.

Who Prepares Taxes for a Bankruptcy Estate?

Your non-exempt assets are placed in the care of a trustee.  This trustee is court-appointed and is responsible for preparing the Federal and State taxes of the bankruptcy estate and calculating tax due.  If the trustee does this incorrectly or misses any deadlines, the bankruptcy estate is responsible for paying any fees or interest incurred.  In addition, any tax return owed to the debtor that was not received before filing for bankruptcy can be intercepted by the trustee to fund the estate.

 

Who Prepares Taxes for You During the Bankruptcy Process? 

After filing for Chapter 7 bankruptcy, you are still responsible for filing your personal tax return.  However, there is an election afforded to you as the debtor which allows you to create two “short tax years”.  The first taxable “short year” closes the day before the bankruptcy case starts.  The second taxable “short year” starts on the day the bankruptcy case begins and ends on the last day of the normal taxable year.  If you do not elect to separate the year, the bankruptcy will not affect your tax filing which means you will not receive the tax benefits of filing for bankruptcy.

 

Do Not Forget to File Your Personal Taxes After Filing for Bankruptcy

According to Publication 908 on irs.gov, if you do not file your personal return after filing for bankruptcy, your case might be dismissed by the bankruptcy court.  If you did not file and you were notified that you must file, you have 90 days to do so or your bankruptcy case will be dismissed.

 

The tax implications of filing for bankruptcy are enormously complex and it is often important to retain the services of an attorney who understands these issues.  Dsouza and Strachan Lawgroup Group of Plantation, Florida has the experts you need.  Elias Dsouza has been helping people through the bankruptcy process for over 15 years.