I just opened today’s mail, and I got another letter from the IRS telling me they applied my stimulus check to my IRS debt. That sucks. I guess you only get to stimulate the economy if you don’t owe the IRS.
Now I’ve got to come up with an extra $774 to finish paying my dentist and my attorney. I’ll have to focus on the dentist first and the attorney second. My permanent crown was installed last week and I still owe $325 on the work.
I still owe my attorney $449 before I can file for bankruptcy.
Can you go broke going broke? If you can even figure out what I mean by that…
Good news? Why yes, there is some. I’m earning a fair amount of money from home working with others on their websites for an hourly rate or flat fee. With the on-going hourly rate jobs, I bill weekly. With the flat fee jobs, I bill half up front and half when finished. I’m already making as much monthly as I was when pizza delivery tanked on me. I don’t have to drive around to do it either, so that good.
Tutoring is starting out slowly, but I have two steady students and expect more in the coming couple of weeks.
I printed two fliers to put around at friend’s and colleague’s offices, one for tutoring and the other for website work. I need to get my backside over to Kinko’s, make copies and distribute them during the rest of this week.
A broadcast email will also be going out to my friends’ email list letting them know I’m available so they can help hook me up. I have a fantastic network of friends that I don’t ask to help me often enough. I’m not an island unto myself and I have to remind myself of that sometimes.
Technorati Tags: debt, income sources, IRS, stimulus check
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August 25th, 2008
Posted by
joubess |
Bankruptcy, Debt Reduction, Earnings Updates, Unexpected Costs |
one comment
Gurus and Cults
What do you think of when someone uses the word “guru”? I think of it in terms of the people I’ve heard of or follow, like Yaro Starak (blogging guru), Mike Filsaime (controversial internet marketing guru), Ed Dale and Dan Raine (free internet marketing gurus), Dave Ramsey (get out of debt guru), Dan Miller (career guru), Suze Orman (personal financial guru), Depak Chopra (spiritual guru), Richard Simmons (lose weight guru) and Rush Limbaugh (conservatism guru).
What do you think when someone uses the word “cult”? The names that come immediately to mind are Jim Jones whose followers killed their children and committed suicide en mass, David Koresh and the mass murders and suicides of his Branch Davidian cult in Waco, TX, Charles Manson and his cult who committed extremely violent murders, and Hitler and Nazi Germany whose atrocities are recorded in countless history, sociology and psychology books.
There are also benign forms of cults, like the followers of the movie “The Rocky Horror Picture Show” back in the late 1970’s and early 1980’s.
Most gurus don’t have official cults associated with them or go around murdering people or committing suicide (thank goodness), yet we as “normal humans” artificially elevate them to guru status because we find what they teach or sell very useful to us and we are grateful they are there.
Cult-Like Leaders
A few gurus get enough listeners and subscribers through the media to be considered cult-like leaders. They attract a cult-like following, and this cultism is encouraged by the guru. Two of the above list who seem to have cult-like followings are Dave Ramsey and Rush Limbaugh.
Rush Limbaugh is so obviously pompous and arrogant when he tells people that they should only listen to him and not the rest of the world or any other media, it’s laughable. There are people out there that believe him! If you don’t believe him and call his show he at best will hang up on you or will twist your words as he says the rest of the media does while putting you down and calling you stupid. I find it fascinating that people actually follow Rush. I occasionally listen to his show in the car if I have nothing else to listen to and wonder how in blazes anyone can take him seriously. He has a point once in a while, but most people do. He reminds me why I’m a moderate.
Dave Ramsey isn’t pompous or arrogant. He’s well grounded and down right humble at times. He does get on his soap box, but he doesn’t say anything he can’t back up with facts. His main medium is his radio show on which people call in and ask him personal finance questions. He has also written best-selling books on personal finance. He listens to each caller and guides them to ask questions. He may ask the caller questions and listen to the answers. Then he answers the caller’s situation from his specific point of view. which differs considerably from that of the general personal finance world. That’s all well and good. Anyone on the radio or any talk show can pretty much talk about anything they want any way they want.
Before all the followers leave me flaming comments, I listen to Dave’s show and I agree with many things he says. He is right a good amount of the time. But…
Financial Cult
Dave developed a cult following out of putting the fear of debt into his followers. If you’re a member of the MyTotalMoneyMakeover.com website, you’re given different ranking names in the forums as you post more messages. Some of those names are a bit disturbing, like “drank Koolaid” and “shaved head”. The Koolaid reference refers to the way Jim Jones poisoned his followers. Charles Manson and his followers shaved their heads while they were on trial for murder. Other cults shave their heads and don’t commit murder. But I don’t find those references very funny. I remember when those events happened, I watched them on the news and they were nothing short of horrifying.
My current ranking name is “don’t give me advice, you’re broke!”. Some of the rank names are funny and witty, but those two are in very poor taste and I believe should be changed. There are other names that could easily replace them, like “so broke I can’t pay attention”. I’m sure there are others that are just as witty without the very negative cult connotations. Another rank name that’s less offensive and tongue-in-cheek, but I think other sayings could replace is “sold the kids”. Of course we’re not selling the kids!
I’ve also found that the MYTMMO.com subscribers are the very hardcore cult members. I joined because of the budgeting tools and being able to get all three hours of the podcast, all for $81/year. That’s very inexpensive for the quality of the tools and the podcast. But the forums are a different animal, and if you post on them, you’ve got to have thick skin and keep in mind that many of these people have gone off the deep end. You’ll get beat up at some point for posting something someone doesn’t like. The moderators are supposed to keep things above board, but I find the actual moderation to be lacking in enforcing the rules. Only those who blatantly violate the serious rules get their posts removed or edited. I don’t know if anyone has been thrown off the forums.
The problem with following the Dave Ramsey cult mentality is it seems to give the cult-like believers license to beat you up verbally in the forums and post nasty comments on your blog if you do something they disagree with, like file for bankruptcy.
Dave also has a network of counselors and endorsed local providers for other services like real estate, investing, and accounting. The ELPs are independent and do their business in the spirit Dave preaches.
His certified counselors are a different story. I’ve met with one and talked to another on the phone, and I listen to Dave’s podcast regularly. I’ve been told I’m not bankrupt by one counselor who didn’t look at my numbers before he said it and another who said they recommend settling all debts at once which contradicts what I’ve heard Dave say on the show many times. Dave recommends saving up and settling with one collector then lather, rinse and repeat until all old, sleeping debts are paid. He definitely doesn’t recommend waking sleeping giants until you’re ready to deal with them.
I’ve also heard Dave seemingly contradict himself, but since I listen to several podcasts in a row in a short period of time, he’s really not contradicting himself. He’s giving advice based on the caller’s individual needs. I haven’t found his counselors (the two I’ve spoken with anyway) to listen as well or say too much that isn’t scripted, however.
Financial Peace University is another bone I have to pick about the cult-like nature of Dave Ramsey. FPU is a fantastic program and when the class is taken in a group setting members do get a lot of support. But in some groups people can also be pressured unmercifully to do things that are not in their personal best interest. One example is for a single parent to get a second job. The church or group is supposed to pitch in and help her/him out with free baby sitting and whatever, but I find the whole FPU and Total Money Makeover (TMMO) concepts to favor married couples with children over single parents. Dave is perfectly okay with a mom or dad staying home with the kids while the other parent takes on two or three jobs. The kids are being cared for by one of their parents and Dave preaches parenting is a higher calling. But when a single parent is pushed into multiple jobs and spends even less time with the children than he/she did already, that isn’t in the best interest of the children. There are more important things in this world than money and getting out of debt in 2-3 years.
The whole push behind TMMO is that it’s supposed to be done in 36 months. Realistically, you can’t put your retirement savings on hold for 5 or more years while you pay off debt. You lose too much compounding. I’ve run some numbers and I don’t believe you can put your retirement savings on hold at all if you’re over 35. Yes, you get out of debt, have no payments, and build wealth, and that’s good. But sacrificing your retirement for “Gazelle Intensity” is stupid tax in my opinion. You could be leaving 3 years worth of company match money on your 401k on the table. You’re also paying more taxes when you don’t put money into a tax-deferred retirement account. That can be a lot of money.
Time is something you never get back and compounding during that time can never be recovered unless you have so much money you can cover the loss with principal. But, unlike Dave, many people will just make it to $1 million in assets by retirement and some won’t make it. They’ll be in the $500k to $999k range. In twenty years, I don’t think that $1 million will go that far. Those with less may have to keep working.
Not saving up at least a couple of months of expenses in an emergency fund is also not the best advice. The last time I had to have transmission work on a car several years ago, it cost over $1000. I’m sure the price of the same work has gone up considerably. In reality, $1000 emergency fund to keep you from using credit in an emergency just doesn’t work. Too many things that can happen to your family, your house and your car cost far more than $1000. What happens then? You borrow money for the emergency. I like the advice about the emergency fund in Financial Peace a lot better. Dave recommends at least 3 months of expenses in the emergency fund before you tackle the debt snowball intensely. Then you really can pay cash for emergencies.
Dave talks a lot about how risky being in debt is. I agree. It carries a lot of risk people don’t look at. But some of the strategies Dave recommends to get out of debt carry risk, too. You also have to remember that Dave didn’t get out of debt using the TMMO. He had to file for bankruptcy and learned over time what to do about paying the bills and getting out of debt. It took him a few years to go completely broke and become bankrupt. It took more years to work his way out of that. In his case, he was bankrupt and the advice in Financial Peace is what he learned and began to live by.
I don’t understand how his cult followers, especially those on the MyTMMO.com forums can say they live by TMMO but ignore parts of it that may not apply to them but do apply to others. A key example of this is the quote in TMMO where Dave says if you can’t make the minimum payments or get current on your debts, you’re in more risk than TMMO was designed for and you need to read Financial Peace and get individual help with your finances. Dave wrote it and it stayed in the revised edition of TMMO. I think he means what he wrote. I don’t understand how people can tell me that if I asked Dave he wouldn’t say what he wrote in the book. And if he wouldn’t say what he wrote in the book, why buy the book? Why listen to him if he can’t make up his mind about what you should do?
I find Dave to be consistent with what he writes and advises on his radio show most of the time. When he deviates it’s usually because of a caller’s unusual circumstances. His organization isn’t as well-versed in his ways, however.
What Should We Regular Folks Do?
Most of us keep our own counsel and wits about us in learning from and following the teachings of a guru. We take what we need and ignore what we don’t. This is healthy. We should always think for ourselves. When we give up thinking for ourselves we are getting ourselves into serious trouble. Why? Because no one knows us or our family’s situation as well as we do.
We can listen to and learn from a guru, but we must always make our own decisions based on our knowledge of ourselves. When we don’t quite fit a guru’s teachings we should consult others who are knowledgeable about the matter in question, who may have a different point of view than the guru, and who are willing to sit down with us and listen to our full story and look at our documents in detail. A self-help book or radio show host is no substitute for the counsel of an accountant or psychologist or doctor or lawyer or an independent personal financial counselor.
Dave filed for bankruptcy protection when he went broke, so I consider an organization that is extremely against bankruptcy run by someone who used it is at least a little hypocritical.
I do agree with Dave that Americans need to get out of debt and too many people use bankruptcy when it won’t actually help their financial problems. People with IRS debt, student loans and back alimony and child support will not benefit from filing for bankruptcy. None of those debts are bankruptable. People who could pay their debts off in 24-36 months with some budget tightening and amputating toys and the payments associated with them won’t benefit from bankruptcy either. I know Dave is speaking to many people in that situation when he tells them they’re not bankrupt, because they really aren’t. They just spend too much and need to learn how to cut back and live below their means.
However, someone with twice their annual income or more in unsecured debt would benefit from bankruptcy protection. Bankruptcy is a method of debt reduction and elimination. It should be the last resort, but it shouldn’t be off the table entirely. With Dave Ramsey’s team, bankruptcy is off the table entirely in my personal experience. When I’ve spoken with Dave Ramsey counselors, the first thing I’ve been told is I’m not bankrupt before the counselor even looks at my financial situation, which none has looked at thoroughly enough to make any sort of judgment one way or the other. Those I have spoken with also know how to push your guilt buttons when you do come down to reality and consider filing for bankruptcy or actually file, as in my case. That’s wrong in my book.
When you’re in debt so badly that you have collectors harassing you, suing you, and filing writs against you once they have a judgment, you can’t pay enough each month on the debts to make the balance decrease and your balances are increasing, you’re in a far greater risk pool than the TMMO crowd.
I don’t agree with Dave when your debt is huge and bankruptable. Keeping debt and not making progress on paying down the balance quickly is ridiculous, especially when it comes to getting on with your life and putting off retirement savings for more than 24-36 months. If you put off retirement and only have $1000 baby emergency fund for more than 3 years you’re putting yourself at far greater risk of financial disaster. Something will happen that will cost more than $1000, and you won’t have the money or the credit to cover it. Then what do you do? Good question.
Putting off saving for retirement is especially risky. If you’re over thirty you lose a lot of compounding by not putting money away for retirement. If you’re over 40 you really can’t afford to put off retirement savings just to get out of debt faster. In my opinion, if you can get out of debt in 5 years and still keep an emergency fund of 3 months of expenses and continue to contribute 10% to 15% to your retirement fund you should do it that way. It’s a lot less risky. You can find ways to cut your spending and acquire extra cash without cutting out retirement savings. If you have a 6 month emergency fund, take it down to 3 months of expenses instead of $1000. If you’re putting more than 15% toward retirement you could reduce your contribution to 10% - 15%, especially if your company matches your contribution. If you’re not taking advantage of the company match, you’re leaving free money on the table, and to me, that’s stupid tax.
Make Your Own Decisions
In dealing with the whole Dave Ramsey cult thing I’ve relearned a lesson I’ve been taught before:
- think for yourself
- get advice from more than one source
- make your own decisions
If the outside pressure you’re experiencing is not in your best interest, you should consider amputating it. If you’re easily guilted into doing something against your best interest, stay away from those who are pouring on the guilt and pushing your buttons.
It’s your life and you have to live with what you choose. No one else has to do that. So seek broad advice, make your decision, and stand your ground. Nobody guaranteed you or your decisions would be popular. Don’t seek popularity and external approval. Do what is right for you.
What’s Wrong with Following a Financial Cult?
Like all cults, members are discouraged and pressured into giving in to the collective ideas of the cult. Members are strongly pressured to do what they’re told rather than think for themselves and do what is best for them. The cult and its beliefs are more important than the individuals who belong to it.
When someone starts using phrases like “drank the Koolaid” and “shaved my head”, be very cautious.
Technorati Tags: cults, Dave Ramsey, financial cult, gurus, MyTMMO.com
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July 11th, 2008
Posted by
joubess |
Dave Ramsey, Debt Reduction, Legal Issues, Saving |
19 comments
This is part I of my experience. I’ll post additional parts as I continue through the process. Right now I’m guessing this will be about a 3-part article based on what my attorney told me.
I met with my attorney Wednesday, May 28. She went over the laws of Chapter 7 bankruptcy in the State of Louisiana and we discussed my income sources and expenses, and why I want to file for bankruptcy.
My attorney’s name is Elizabeth Hall. She specializes in bankruptcy and I found her name on a bus stop bench that I’ve been driving by for the last 2 years going to and from tutoring. I checked with the Louisiana Bar Association and found she’s been practicing law here for 20 years and specializes in bankruptcy. The entire process costs $799. That includes her fee and court costs. There are very few things for which she charges an extra fee, and so far, none of my information requires them.
Her retainer fee is $100 and she’ll file the case when the full $799 has been paid to her office. She accepts payments until your case is paid for before she does all your paperwork and files your case. She says all bankruptcy attorneys do it this way because all the clients are in financial trouble and no one will take on any credit risk with people like us.
I had another attorney, but he raised his prices considerably and I decided if I don’t have enough money to pay my bills, I don’t have enough money to line his pockets. My previous attorney also does a lot of other work, so I figured I needed someone who specializes in bankruptcy to handle my case.
It’s a really small world. I’ve met my attorney’s dad. He was a chemical engineering professor at LSU when I was a student. I never had Dr. Hall as a professor because I was in chemistry, not chem-e, but many of my friends had him and really liked him. He was like me. He got a bachelor’s degree and worked in industry for awhile before he went back and got his Ph.D. and decided to teach. I don’t have the Ph.D., but the teaching with industrial experience is similar. My industry experience is what gives my students the edge above their classmates.
Anyway, the meeting lasted about 45 minutes and she gave me a lot of paperwork to fill out and bring back. I retained her that day, so she is writing letters to the two creditors who sued me to cease and desist from collections calls and letters. Capital One Bank and Eaton Group attorneys sued me. Eaton Group is in Baton Rouge and Elizabeth knows them personally, so getting that taken care of is easy. I have to locate and bring the law suit papers from Capital One to her. They weren’t in my stack of paperwork and I’m not sure where they are. I seem to lose things so easily these days. As soon as I find them, I’ll bring them over to her so she can write to them as well.
Bankruptcy in Louisiana
Here is a list of the what you must have to file:
- Take a Pre-Bankruptcy Credit Counseling course dated within 6 months of the date of filing and obtain a certificate of completion
- Sign a contract with the attorney that acknowledges you understand that bankruptcy fraud is a felony, all bankruptcy cases are audited, any questionable documents or acts are investigated by the FBI, and if cause is found, you will be prosecuted by the U.S. Attorney General (scary, but part of the new law)
- Personal information and list of dependents
- Current employment information (including spouse if married)
- A list of all sources of income, the amounts and when you are paid
- A list of all real estate you own
- Details about your home’s value and mortgage(s), including any foreclosure proceedings
- Vehicle information, including debt owed and whether in danger of repossession
- A list of all checking and savings accounts
- A list of all asset accounts, including retirement and college savings accounts
- Child support (paid to you or to whom you pay it)
- A detailed list of your material possessions, exempt and non-exempt
- Any tax debts you owe
- A complete list of secured and unsecured debts (some information is collected more than once), including creditor or collector, address, approximate balance, interest rate, co-signer information, and monthly payment if applicable
- A list of monthly expenses
- Answer several questions about your financial history
- Answer several questions about your family, such as if your parents are living, and if not, when they died, how much you inherited and where the money and assets are
- Copies of the following: driver’s license, Social Security Card, Vehicle registration, Vehicle title if owned outright, bank statements, pay stubs, the previous two years of tax returns, and your credit counseling certificate
Exempt items are all your basic household furniture and appliances, clothing, and computers, especially if you use them in a business or to earn any sort of an income.
Your house is exempt if you have less than 25% equity in it and your paid-for car is exempt if it’s worth $7500 or less.
Non-exempt items are TVs, DVD players, DVRs, VCRs, stereos, alarm clocks (WTF?), game systems, iPods and any other non-computer electronic devices. Non-exempt items are valued at thrift store prices. For example, TVs are valued at about $50 each. An alarm clock is valued at $0.50.
On the day you file, you can only have $500 worth of cash, savings, money in your checking account and non-exempt assets. If you have more than that, the trustee will take it to stand against your debts. Any tax refunds and stimulus checks will also be seized unless you can show you spent them on necessary items or paid for normal living expenses with them. Since I just got my 2006 refund and I’m expecting my 2007 stimulus check and possibly a refund, I’ll need to wait until I’ve used that money up before I file.
Between the time you start the filing process (retain an attorney) and get everything ready for the trustee, you have to keep track of all your spending, especially any amount over $500. They look back into your financial life and accounts 6 months as well. Since I use the MyTMMO website for budgeting, I have a record of all our expenses since April of 2007. You can sell any items for cash as long as you account for the spending of the cash, so garage sales are okay. You can also buy exempt items if you can show a real need for them, like a new refrigerator if your old one breaks down and can’t be repaired for less than the cost of a new one.
Since tutoring hours are down over the summer and delivering pizzas only pays about $1,800/month, I’ll have to wait until August or September to file. The tax refunds are what I’m using to live off of this summer along with part-time tutoring and delivering pizzas, and what little I earn online which isn’t much yet. I’ll also have to reduce my savings and use that money to pay for living expenses.
If my income goes up considerably over the next few months I may have to file for a Chapter 13 bankruptcy. Your debts aren’t discharged. The trustee negotiates with each of your creditors and comes up with a payment plan with them. You pay a certain amount of money each month for 5 years and at the end of 5 years, all debts that were in the bankruptcy are discharged. If my income goes way, way up, I’ll negotiate and pay the debts myself. I hope that happens, but I’m a realist and don’t think it will. If I thought that, I wouldn’t have retained an attorney.
I still owe my attorney $699, so some of my refund money will go to pay her. My car needs two new tires and my transmission needs to be flushed. I also need a couple of things done to the house that will cost a few hundred dollars. She said to just keep all receipts for car repair and the like until the whole process is over.
From the day you file, it takes the trustee about 3-4 weeks to complete your bankruptcy, discharge all your debts and reaffirm any debts you plan to keep. I’ll be keeping my house so I’ll be reaffirming my first and second mortgages. The trustee will also require a full accounting of the student loans I co-signed on and whether I’ll have to start paying them. He or she will set up a payment plan with them if I have to pay. I’m not sure I’ll have to pay because I haven’t heard from those companies in quite awhile and my friend is working 60 hours a week, so I think she’s paying them herself. She says she’s paying them. I would have heard from the companies if she wasn’t paying. I heard from them late last year when she was laid off and wasn’t making payments.
Conclusions
Basically, your earnings, living expenses and spending habits will be scrutinized, but you’ll be fine as long as you’re behaving yourself and not hiding assets. Most of us in this boat who tried to pay our debts but can’t aren’t going to have trouble here because we’ve been budgeting, not eating out, working extra, and covering basic expenses of daily living and getting to and from work first. Most of us have also sold most of the non-exempt items to help pay down our debts.
I looked up the statistics comparing the percentage of people who file for bankruptcy legitimately and those who abuse it, and the maximum percentage of people who abuse the system or commit fraud is 10%. Those who commit fraud are being caught, prosecuted and put in jail. The statistics were the same before the new bankruptcy law took effect. The difference now is you have to have both pre and post bankruptcy financial counseling, and the U.S. Attorney General’s office is much more aggressive about tracking down those who commit fraud and prosecuting them.
My To-Do List
- Find Capital One law suit papers and take them to attorney
- Complete pre-bankruptcy credit counseling and obtain certificate
- Fill out the 26-page packet of paperwork from attorney, make copy for my records and return to her office
- Collect all required supporting documents
- Copy all required supporting documents and take them to attorney
- Pay attorney’s fee each month until paid in full
- Continue living on a frugal budget
- Keep all receipts
- Keep all expense records up-to-date
I hope you never have to go through a bankruptcy, but if you do, it’s not as horrible as many make it out to be. Many call it a life-changing experience, but for me, the weight of the debt was the life-changing experience and this is relief from that weight. Please leave your thoughts in the comments.
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Technorati Tags: bankruptcy, Chapter 7, detail, Louisiana, procedure
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June 4th, 2008
Posted by
joubess |
Bankruptcy, Debt Reduction |
7 comments
