For the average person today, getting ahead financially seems like an almost impossible feat. It’s difficult for many to envision ever escaping the rat race when the cost of living is so high and wages are so low. Seeing no way out, most just suck it up and push through, trying to make the “best of it” the only way they know how – by working harder.
WORKING HARD DOESN’T WORK
The problem with this approach is that the rules of money have changed, and working hard simply doesn’t work anymore. Most people have no idea that the rules of money have changed and that they are being penalized for playing by the old rules. Working hard used to work. Saving money used to work. However, after the rules changed in 1971, working hard and saving money progressively makes you poorer.
Because of a lack of financial education, a number of people find themselves metaphorically attempting to push a boulder up the side of a hill. A very few might make it, but for the majority the hill wins. This is what life is like today for those who don’t have a financial education and choose to play by the old rules and work hard.
The new rules require that your money work hard for you, instead of you working hard for money. You can look at this as “growing money on trees.” The rich don’t work hard for money. The rich have their money grow on trees, and so should you!
WORK TO ACCUMULATE ASSETS
The rich work to accumulate assets. In very simple terms, assets are things that place money in your pocket. Some examples are businesses, stocks, real estate, and precious metals. When we speak of growing money on trees, the asset is represented by the tree. Whether it is a business, real estate, stocks, or precious metals, the tree – as an asset – represents something that places money in your pocket.
How the asset performs is represented by its quality of DIRT. DIRT stands for debt, inflation, retirement, and taxes.
IT’S ABOUT HAVING GOOD DIRT
Having a sound financial education provides you the ability to increase the amount of money that goes into your pocket because of a high quality of DIRT. The poor and middle class suffer due to a lack of financial education. This is why they end up deeply in debt, destroyed by inflation, sold the riskiest of investments, and paying the highest in taxes.
Playing by the old rules is a losing proposition and dangerous! Learn to have your money work hard for you. Learn to grow your money on trees through assets – just like the rich.
The bill collectors are calling you and everyone you know, your wages are about to be garnished and you can barely pay the necessities. You know you need to file bankruptcy. So what is stopping you, the fear of losing your car, truck, or motorcycle?
In most cases when you file bankruptcy you can keep your vehicle. Of course, it is a little more complicated than just file bankruptcy don’t worry about your car. This article will explore several scenarios I have dealt with in the past dealing with bankruptcies and client’s vehicles. Motorcycles come with a caveat, here it is… Motorcycles are slightly different from other vehicles in that they can been classified as non necessity luxury items so contact your attorney to see what your specific options are regarding motorcycles.
Scenarios in a Chapter 7 Fresh Start Bankruptcy.
Scenario 1. You owe nothing on the car and it is not worth that much. You do not make enough money to cover even your basic needs, you have a car and you do not want to lose it. Chances are if you have a car in this situation you own it outright. Whether you can keep it or not will depend on the value of the car. In Washington, for example, the automobile exemption for an individual is $3450.00. Washington also allows a wildcard exemption of $3000.00. If your car is worth $4500.00 in its current condition, an individual could use the full motor vehicle exemption and then use $1050 of the wildcard. That will fully protect your car and still save $1950.00 of your wildcard. Your car is safe.
Scenario 2. You owe nothing on the car but it is worth more than the exemption value. This is the most complicated scenario in a chapter 7 bankruptcy and may be better dealt with in a chapter 13. Nevertheless, there are options in a chapter 7. Let’s say the car is worth $10,000.00. As discussed above, you can use the current vehicle exemption of $3450.00. You can then add to that the wild card exemption of $3000.00. That protects $6450.00 of value in the vehicle. meaning that you have $3550.00 unprotected. Now we have a couple of options.
1) Let the trustee take and sell the vehicle and use the proceeds to pay off some of your creditors. If you do this, the trustee will cut you a check for $6450.00 and use the $3450 that is unprotected to pay some of your creditors. You could then use this money to help get a new car or to buy a used car outright.
2) Try to work out a deal with the trustee to repay the unexempt equity. Trustees are usually willing to work out a reasonable payment plan to allow you to keep something like a vehicle. Common terms might be to pay back the equity in six equal installments, or to make a down payment with a monthly payment that ends in a larger payment when you get your tax refund. You need to be careful with this useful arraignment, if you default on your payments your discharge could be denied or revoked.
3) Try to get a new loan on the car after the bankruptcy is finished which would allow you to pay the equity to the trustee. You would then have a car payment to pay the newly incurred loan.
Scenario 3. You owe less on the car than what the car is worth. If you are looking to file a chapter 7 to obtain a fresh start and avoid making a chapter 13 trustee payment, you should be able to protect that car. Say the car is valued at $15000.00 and you still owe $12000.00. In this case you have $3000.00 in equity. Because the automobile exemption is worth more than the equity you have in the vehicle, your car will be protected. You will need to speak with your attorney about what to do during and after the case, but you will need to maintain your loan payment if you wish to keep the vehicle.
Scenario 4. You owe more on the car than it is worth. In this scenario you might owe, for example, $15000.00 on a car that is only worth $7000.00. You have several options under this scenario.
1) decide to let go of the car. Why pay more than double the value of anything? You could surrender the vehicle and then look to purchase a vehicle with better terms after the discharge;
2) You could continue to pay on the vehicle at the terms provided in the loan agreement;
3) We could seek a redemption loan whereby you get a new loan that is only up to the value of the car in its current condition. In this case you need to qualify for the new loan and there may be additional attorney’s fees but it could potentially save you a lot of money and keep you in a car that you love.
Scenario 5. Bonus Scenario! You have unexempt equity in your vehicle but you also have tax liens which attach to personal property. This one is a little tricky, but if you have no other equity in any other property and the amount of the tax lien is greater than the unexempt equity in your vehicle, the trustee is not likely to bother with you or your vehicle. The down side to this is that if they were to take and sell the car for the unexempt equity, they would then use that money to pay off or to pay down your tax lien. If the trustee leaves you and your vehicle alone, you are still going to have to find a way to deal with those taxes once your bankruptcy is done.
Scenarios in a Chapter 13 repayment plan bankruptcy:
Scenario 1. You owe nothing on your car and it is worth less than the exemptible amounts. Under this scenario, your vehicle would have no impact on your chapter 13 plan payment.
Scenario 2. You owe nothing on your car but it is worth more than the exemptible amounts. Under this scenario, we have to offer the unexempt value to the creditors in the form of your trustee payment. While this goes beyond the scope of this article, we can pay the unexempt value by way of the trustee payment over a period of time lasting as long as 60 months. This is a valuable tool if you have a car that is worth a lot of money and you cannot bear to part with it.
Scenario 3. You owe money on the car and you want to keep it. This scenario gets complicated depending on whether the loan on your car was taken out at the time that you bought the car. It also matters as to how long ago you bought the car. If you bought the car more than 910 days ago, we can cram down what you pay on the car based on its current value. So say that you owe $15000.00 on the car but it is only worth $7000.00, we can propose a plan that only pays that creditor back $7000.00 as a secured claim. We can also lower the interest payment on the car depending on the rate that the loan is for and depending on the jurisdiction. If you bought the car less than 910 days ago, we may still be able to lower the interest rate that you pay on the car, but the full dollar amount of the outstanding loan would have to be paid back as a secured creditor.
Scenario 4. You owe money on the car and you just do not want it any more. In this scenario a chapter 13 can also be a good option depending on what the rest of your financial situation looks like. We can propose a plan that surrenders the collateral. The lien holder will come and get the car. They then have to sell it and credit your account for the amount of the sale. In the chapter 13 they are then able to file an unsecured claim for the remaining balance. The benefit to you though is that you will end up paying less than you owed (possibly zero) and paying no further interest on the loan.
Conclusion: As you can see, there is no simple answer to what happens to a car in a bankruptcy. The good news though is that there are many options that allow you to keep your vehicle and still other options that will allow you to escape from a bad deal. If you find yourself in financial difficulty and the thought of losing your only car is stopping you from filing, call your local bankruptcy attorney to discuss which option might be best for you.
There are many reasons it would be financially advantageous to purchasing a house. You may have recently graduated from college, are a newlywed, expecting your first child, or have accepted a new high-paying job. There are long-term financial advantages and tax benefits to homeownership, but one of the largest roadblocks to purchasing a house is often the down payment. Below is a list of suggestions that you can use to save money towards a down payment on a new house.
• Create a Household Budget – Write out a list of all your monthly expenses. Go through your checkbook and receipts for the past three months and find out exactly how much you are spending per month. Create a budget that you can live with that limits your expenses. Track your spending, this will help you realize what expenses you may be able to eliminate.
• Open a Savings Account – After creating your monthly budget, devote a certain amount or percentage of your monthly income to savings. Your savings should be used only for special purchases or holiday spending to avoid using credit cards or creating new debt.
• Bank Account Fees – Check your bank statements to find out if you are paying a monthly service fee for your checking and/or savings accounts. If you are, it would benefit you to research banking options from other institutions. You may not only eliminate monthly fees, but possibly receive a bonus for opening a new account.
• Credit Cards – If you carry balances on your credit cards, you’re paying an extraordinary amount of interest. Be prudent, focus on paying your credit cards off or consolidate the debt to an installment loan with a lower interest rate.
• Shopping – When going to the store for groceries, clothing, bathroom and household necessities, always write out a list and stick to it. This will help you eliminate impulse buying. Many individuals purchase unneeded items when they shop and regret the purchase later.
• Entertainment Budget – Most people do not have a household budget, therefore they have no idea how much they actually spend in entertainment dollars. Institute a weekly or monthly entertainment budget, based on your past spending habits. Your plan should include money to continue your normal routine, such as: money for lunch, dinner, and/or going out with your friends. If you pack your lunch and eat at home a few more days per week, you will undoubtedly save money.
• Insurance and Mobile Phone – Compare the rates that you are paying for your auto insurance and cell phone to currents offers. If rates have gone down, you may be able to save on both of these expenses.
There are countless ways to eliminate expenses and save money, implementing just a few of these cost-saving measures in your monthly budget will help you save faster than you may have thought possible. There is no magic pill or instant solution to saving money; it will take a variety of changes as well as time to save the money needed for a down payment. As an alternative to saving the down payment for a house, most lenders will allow gifts from family members as well as grants from nonprofit organizations and government agencies. Check with your lender to find out if you qualify for any down payment assistance grants in your area.
Specifically, captive insurance can help your business clients potentially greatly lower their insurance costs, have more control in managing their insurance, and obtain coverage that might otherwise be unavailable or not affordable. Some forms of captive insurance allow an insured or its assign to maintain an ownership interest in the underlying insurance company. As with any successful business, an owner of a captive can work with his or her advisers to best manage their insurance company. Another potential benefit is that of business and estate planning.
This author stresses that a captive should never be formed unless the primary reason is business purpose. Captives should never be marketed by advisers as “wealth management” or “estate planning” tools. In fact, improper marketing of an otherwise compliant captive can lead to the loss of the captive’s tax status as an insurance company, resulting in taxation and penalties of nearly one hundred percent of premiums.
Yet it is a fact that a successful captive may be useful in business and estate planning. Ownership of a captive may be facilitated by a partnership or trust which is owned, controlled by, or benefits a business owners’ descendants.
As an example, suppose that a business owner (Senior) wants to establish a captive insurance company in order to lower his insurance costs. The insurance company could be owned by a generation skipping trust currently controlled by Senior’s children. The captive’s premiums must be actually verifiable and the coverage must be wholly justifiable. The insurance sold by the captive needs to comport with all relevant statutes from both a regulatory and an IRS standpoint. If the captive’s claims are less than actually anticipated, it may have retained earnings or profits. Depending on the type of captive insurance company, the tax rate levied on underwriting profits can be as little as zero percent. Over time, the insurance company’s profits may be distributed as capital gains, dividends, or even loans to the beneficiaries of the insurance trust. The captive could even provide a funding source for future business opportunities.
The ultimate effect of a compliant and successful captive could be to transfer a portion of the pre-tax premiums from Senior’s business over to Senior’s children, grandchildren, etc., without income, gift, or estate tax. The bottom line for any accountant or wealth adviser is that captives should be looked at as a way to garner significant insurance cost savings with a possibility of secondary benefits.
Again, the author cannot overemphasize the importance that the captive must be designed to and operate as a compliant insurance company. The company must have real losses, real exposure to third party risk, and cannot be in any way an alter ego of or a savings account for the business owner.
Captives can be a tremendous tool helping businesses lower their insurance costs. This author has seen an example of businesses saving millions of dollars in a few short years by properly using captives.
Equally stunning, however, are the adverse tax consequences of an improperly marketed or managed captive. The advisory team chosen for this type work should have many years of captive insurance experience and, ideally, should be supported by a large regional or national law firm.