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How to Recover From Bankruptcy

In our modern day economy, people file for bankruptcy more than often you would probably think. People get into more debt than they can handle, and they must file bankruptcy in order to be relieved of their debt. Any financial advisor or lawyer will tell you that you should do everything in your power to save your financial situation before you file bankruptcy. Filing bankruptcy is a last resort option for those who are absolutely panic-stricken and desperate.

The reason they would say this is because filing for bankruptcy is a very serious action to take. An official statement of being bankrupt can greatly affect your financial future for years to come. For example, the fact that you filed for bankruptcy will appear on your financial record for 10 years after the file has been made. This will greatly affect your credit score, your ability to get a credit card, ability to get a job, and your life insurance premiums.

Needless to say, filing for bankruptcy is not a decision you want to make flippantly. It comes with very serious consequences.

Henceforth, filing for bankruptcy should be a decision that you make when no other decisions are open for you to make. It should be the decision you make when you’ve backed yourself into a corner with debt and the only option is to throw in the towel and give up.

Unfortunately, as mentioned above, too many Americans in recent years are having to make this decision. The recent downturn in the economy has greatly affected Americans’ attitudes about and behaviors regarding their financial situations.

But what happens after you are officially declared bankrupt? Is there any hope at all for you? The answer is yes. It may not seem like there is hope for your miserable financial situation, but there is indeed hope.

There are several things you can do to start recovering from bankruptcy. The overall goal you want to keep in mind is that you don’t want to go down the same path that you went down previously.

This is a logical goal, because the path you went down previously led to bankruptcy. If you make decisions differently in the future, hopefully this new path that you take will not lead to bankruptcy.

To begin working on this goal, one of the most important things you’ll want to check is your credit reports. Making sure that they are up to date is of utmost importance.

Checking to make sure your credit reports are up to date entails being certain that any and every discharged debts and/or closed accounts are reported. In order to help with this, you can request one free credit report per year from each of the main three credit-reporting agencies (Equifax, Experian, and TransUnion). Another crucial thing to do after filing bankruptcy is to face the real problem at hand. If you have a problem with spending, face this issue.

Ignoring or running from the problem is never going to help the problem get resolved. The only way to fully deal with the problem in a healthy way is to face it and work through it.

Working through the real problems at hand could mean a lot of different things from different people. Some people may need to seek financial counseling so they can work closely with a financial planner to help them get back on track.

Some people may need to see a therapist so they can start working through some of their anxieties or other issues surrounding money. Still others may need to work through rocky relationships with family and friends who may have been affected by their out of control spending.

Something that everyone that faces unexpected expenses can benefit from is learning basic financial skills so that bankruptcy does not occur again. One imperative basic financial skill to learn is how to make a budget. There are many resources online for making budgets that are free and open to the public to use. These resources include step-by-step guides on how to make and keep budgets.

Some websites even include free excel spreadsheets that you can download in order to get a jumpstart on your budget. Making a budget is not difficult; the hard part is sticking to it.

Hopefully, though, individuals who have gone through the pains and hassles of filing for bankruptcy will be self-disciplined enough to stick to a budget that they have made for themselves.

Filing for bankruptcy is sometimes necessary, but there are ways to cope with the decision once you have made it.

Real Estate Refinancing And The HELOC Monster

Should your financial situation merit taking your currently higher APR and slapping it down a few notches, here’s some quick tips you should all consider before refi’s. Of course, read on for various detailed information to be leery of when residential real estate or commercial investments are piquing your interest.

Financing Tips

Financing of residential properties with five or more units differs to a great extent from financing residential properties with one to four units. The financing of a five-plex and up generally falls under the commercial lending guidelines—it’s a different rule book altogether.

The key differences between commercial financing of five units and above and residential financing are unlike residential financing where the lenders rely on the income of the borrower to pay the loan, commercial lenders put more weight on the strength of the income from the property. A multi-residential apartment building is looked at as a business in the lenders’ eyes. The lender wants to see copies of the following in order to evaluate the property:

Copies of the last two years’ financial statements for the property

Copy of the most recent rent roll

The lenders are going to analyze how the cash flow of the property covers its expenses and if it meets the lender’s debt coverage ratio requirements.

The HELOC On The Block

Some lenders will give you a secured line of credit behind a first mortgage. For example, say your rental property is now worth $700,000. You have a five-year, fixed first mortgage on the property for $400,000 and at a great rate with your bank. Breaking it will result in a hefty penalty. A secured line of credit in a second position provides an avenue for pulling equity without touching the first mortgage. This way you can keep a great rate on the mortgage and avoid any penalties associated with breaking it.

With a schedule “A” bank, the line can go up to a max of 65% of the value, while lenders that do not fall under the regulations of schedule “A” banks (such as credit unions) can go up to 95% in many cases, depending on creditworthiness, whether the line is in first or second position. Those lenders allow a HELOC in a second position only trailing anyone’s original loan with certain institutions; so, depending on whom your first mortgage is with, those lenders may or may not permit such a setup.

Conclusion

In the above example, if you are to request a HELOC with the bank that holds the first mortgage, you will receive $55,000 in a secured line while keeping your mortgage intact. On the other hand, a lender that does not fall under the schedule “A” banks will give you $160,000 (subject to approval and depending on who your first mortgage is with). Bear in mind that refinancing anything, especially today, comes with credit restrictions and other stringent requirements; always know your mortgage broker beforehand, and know how they deal with residential real estate and commercial property transactions.

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What Does It Mean To Invest On Margins?

If you are investor, you might think that certain investments are beyond your reach. While going for the big buys may be a good way to guarantee future financial security, doing so can also be a big risk of you only have a small account. If you want to buy but you do not have the means, you might want to consider buying on the margins.

The Basic Definition

Investing on the margins is a relatively simple process. To begin, the investor borrows money from their broker, generally against the value of their existing portfolio. The investor can then use that money to invest in anything that he or she likes, and must pay back the money borrowed within a relatively short period of time. Whether the investment goes well or poorly, the investor will only be left owing the broker the amount of money that he or she borrowed. This can lead to major profits or losses, depending on how much was borrowed and the investments made.

In Practice

In practice, an investment on the margins represents a unique way to invest. Though devoid of any real kind of financial security, it can allow an investor to buy a great investment at a much greater level than he or she might otherwise be able to do. While the money borrowed does have to be paid back (generally within twenty-four hours), it might give an investor a chance to make a major purchase that would generally be out of research. Investing on margins is generally recommended for expert traders, as the downsides can be quite severe for those who are not ready for them.

The Risks

If you are a fan of financial security, an investment on margins may not be for you. While it magnifies rewards, it exacerbates the risks. If the stock that you buy falls, you will find yourself owing your broker the money that you borrowed. This means that in those situations that an investment fails that you will be stuck owing much more than your initial losses. This can turn a paper loss into a very real loss, and leave you owing more to your brokerage company than you might be comfortable investing on a good day.

Investing on the margins is not for everyone. If you are prepared to take the risks, though, you might reap great rewards. There are no guarantees in investing, though, and the risk is always with the borrower.

Municipal Bonds As Secure Investments

The diversified portfolio

A basic concept of sound investment strategy is the diversification of the investment portfolio. Financial stability is a goal that should be high on any investor’s list. One source of stability is diversification. The process of diversifying a portfolio involves placing assets in distinct classes or “buckets” of investments. The choices are between assets that have different reactions to various market conditions. One class may be sensitive to an increase in the rate of inflation, such as precious metals. That investment would be balanced by another class that thrives in low inflation economies, such as high-growth equities. A classic dividing line in the discussion of diversification always addresses the contrast between bonds and stocks.

Risk versus reward

The economic principle of risk versus reward is fundamental to investing. A simplistic statement of the principle is that an investment that represents a higher risk should earn a higher return. And, the alternative, lower risk justifies a lower return. The art and science of investment strategy is invariably centered on finding a balance between true risk and true return. The qualifier “true” is used because it is not easy to know what the actual risks are or what the final return will be.

The benchmark to all investment returns

At the current time, all investment risks and returns are measured against the rates for U.S. government bonds. The presumption is that there is as close to zero risk as possible in such an investment. Every other investment choice will represent a higher risk and command a higher return. That is why a corporate offering of debt will be a multiple of the rate on U.S. debt. Likewise, a so-called junk bond will command an even higher multiple to reflect the higher risk.

Local governments and risk

Most state, county and city governments issue some form of debt. These are referred to as municipal bonds. These bonds are backed by one of two methods. The first is as general obligations of the respective governmental entity. These bonds are guaranteed by the total taxing authority of the entity. The second type is revenue bonds. These debts are backed by a specific source of revenue, such as a sports stadium.

Many people see municipal bonds as relatively risk free. As a result, many of the rates earned on general obligation “munis” are only slightly higher than U.S. rates. Because of their tax-exempt status, the effective rate of return attracts many investors seeking financial stability in a portion of their portfolio.

An investment adviser can provide valuable insights into how bonds can be an important component of a diversified portfolio.