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Credit Card Purchases: Why Calculating Interest Is the Most Important Step You’ll Ever Take

Posted on Friday, August 19th, 2016 at 11:02 am    

credit-cardsCredit cards are ubiquitous in American society. We get offers to take out a new credit card when we turn eighteen, prisoners get offers to take out credit cards while they are still in jail, and even the recently deceased still get offers to take out a credit card well after the day they died. It is obvious that credit card companies don’t pay much attention to whom they are loaning money to, and therefore have no idea whether they’ll get paid back. So how do they make money? The answer lies in the magic of compound interest.

Most of Lawrence & Associates’ bankruptcy clients never think about the massive amount of money they will put toward compound interest in their lives. Many schools don’t teach students how to manage their finances, and many parents don’t learn these lessons through life experience in time to pass them on to their children. For the poor and middle class, a multi-generational cycle of dependence on debt is now in full swing, where grandparents were sold on an idea that the American Dream is fueled by debt, and their grandchildren already have more debt – starting with student loans – than they can pay off in their working lives.

Some debts are necessary; almost no one can buy a home without financing a large part of the purchase. And some debts are smart; it can be a good idea to take out a low interest SBA loan for the purpose of financing a well-planned business venture. But many debts are neither necessary nor smart, and this brings us back to credit cards. It is important for anyone anticipating a credit card purchase to understand the effect that compound interest will have on their purchase. Unfortunately, a shockingly small minority of people know how to calculate compound interest.

How to Calculate Compound Interest

Before making any credit card purchase, the buyer should determine whether they can pay this purchase off at the end of the credit card’s monthly billing cycle. A credit card purchase paid off before the end of the monthly billing cycle incurs no interest, and is actually a smart decision because it improves the buyer’s credit. Only purchases that cannot be paid before the end of the monthly billing cycle will incur interest and need to undergo the following calculation:

The Compound Interest Formula looks like this:

compoundinterest
There are also a number of compound interest calculators on the internet that will perform this calculation for you, taking into account the effect of your monthly payment toward the debt. (The monthly payment toward the debt makes the formula shown above even more complicated.)

The numbers are staggering once you take a look at this. This article shows how an average credit card debt of $15,956, with the average credit card interest rate of 12.83%, results in the credit card company making a whopping $2,629,628.64 off of you in interest between ages 25 and 65. Again, that is over two-and-a-half million dollars in interest on a balance under $16,000!!!

Is it any wonder 819,240 Americans filed bankruptcy in 2015? Despite that huge number of filings, the credit card industry rakes in billions of dollars every year. As shown by the example above, the interest they charge is so astronomical that the credit card industries are mathematically certain to make tremendous amounts of money even if a large number of the people they lend to file bankruptcy or otherwise don’t pay them back. This is why credit card companies don’t bother checking a person’s credit score, or even whether they are still alive, before sending them a credit card offer. It is a volume industry, and the more money they lend the more they are likely to make.

What Can You Do If You Have Crippling Credit Card Debt?

Given all we’ve said above, a large percentage of the people reading this article are statistically likely to be in credit card debt that they have no hope of paying off. How can they get a fresh start and return to financial stability? There are many ways, but the surest way is to file bankruptcy on the credit card debt. A Chapter 7 bankruptcy wipes out credit card debt completely. A Chapter 13 bankruptcy requires you to make payments toward credit card debt, although often the debtor pays only pennies on the dollar. In either event, the debtor – who has probably paid off the original debt many times over – saves a large amount of money on credit card interest.

Bankruptcy has other benefits as well. All running interest on credit card debt must stop. All lawsuits must stop. Collection calls must stop. In a bankruptcy, for the first time, the debtor has all the muscle and all the power. Credit card companies must follow laws that are favorable to the debtor, rather than the laws that are typically more favorable to the creditor.

If you think you may need to file bankruptcy on credit card debt, call our attorneys for a free consultation. We’ll let you know if bankruptcy is right for you, and if so, what kind of bankruptcy you should file. There is no obligation to a consultation, and our friendly staff will make you feel at ease. We are working hard for the working class, and we can help you!


Understanding the Rights a Mortgage Company Has After Bankruptcy

Posted on Monday, July 18th, 2016 at 2:25 pm    

The following post is part of our Law Student Blog Writing Project, and is authored by Mark Ashley Hatfield, a Juris Doctor student at the University of Kentucky College of Law.

Understanding the Rights a Mortgage Company Has After Bankruptcy

house-304005_960_720Most homeowners in America do not own their home free and clear. In fact, a study conducted by online real estate marketplace, Zillow, revealed that the percentage of American homeowners who do own their home free and clear hovers around the low-figure of 30%. This means that roughly 70% of homeowners do not own their homes outright and are dealing with mortgage companies on a regular basis. Understanding that home ownership is one of the most significant responsibilities a person can have, it is particularly important to understand the rights you sign away to a mortgage company when you are securing money for your home. This article will examine a recent Ohio Supreme Court case (Deutsche Bank Natl. Trust Co. v. Holden) that establishes the rights a mortgage company retains even after the mortgager (the homeowner) has filed bankruptcy.

Imagine the following fact-pattern: a family refinances a mortgage on their home, signs a promissory note to ensure the lender the money will be paid back, and in a few years, when hard-times hit, the family is unable to make the mortgage payments. Consequently, the family, after seeking advice and attempting to resolve the issue, files for bankruptcy relief. Perhaps you have heard a similar story or experienced a similar situation yourself, but for Glenn and Ann Holden, it was not just a story they overheard, it was their personal experience.

On September 1, 2005, the Holdens refinanced the mortgage on their home and Mr. Holden signed a promissory note for $69,300 in favor of Novastar Mortgage, Inc., and both Holdens signed a mortgage identifying Mortgage Electronic Registration Systems, Inc. (MERS) as mortgagee (lender). Around November 1, 2005, Deutsche Bank purchased the debt, and the next month, the loan servicer, JPMorgan Chase Bank, received physical possession of the original note, indorsed in blank (“a signature by the creator of an instrument, such as a check, which enables any holder of the instrument to assert a claim for payment”), on behalf of Deutsche Bank. Thereafter, the Holdens made their mortgage payments to Chase Bank. Less than four years later, in August of 2009, the Holdens were struggling to make their mortgage payments. After seeking advice from Chase Bank, the Holdens decided to default on their loan in order to be able to seek a modification on their loan. Unfortunately, the Holdens were still unable to receive a modification on their loan and resulted to a petition for Chapter 7 Bankruptcy. The bankruptcy court subsequently granted the petition and discharged the Holdens obligation on the promissory note. Shortly after, on September 17, 2010, Deutsche Bank received an assignment of the mortgage from MERS. I know this paragraph is very dense with facts, but understanding the facts of this case is important to make sense of the court’s ruling; so feel free to re-read it a few times if necessary.

The court battle itself would begin nearly a year after the recording of the mortgage assignment when Deutsche Bank filed a foreclosure action against the Holdens on August 12, 2011. Here are where the detailed facts come back into play. The Holdens filed an answer and counterclaim premised on the fact that Deutsche Bank did not actually own the promissory note or the mortgage at the time it commenced its foreclosure action against them. This is an argument stemming from the fact that, as you may recall, the note was endorsed in blank. Meaning there was no proof, besides the testimony offered by Deutsche Bank, that the note had been transferred to it from Novastar. After this initial filing, the case proceeded through the Ohio court system making its way to the Ohio Supreme Court as follows: Deutsche Bank won on a summary judgment (no question of fact that Deutsche Bank was the rightful owner of the note) motion at trial; Ohio’s Ninth District Court of Appeals reversed the trial court’s decision explaining that Deutsche Bank had failed to show they were the owners of the note; and Deutsche Bank appealed to the Supreme Court.

Before the Supreme Court of Ohio was the issue of whether Deutsche Bank had standing (“whether the claimant has sufficient personal stake in the litigation to obtain a judicial resolution of the controversy”) to foreclose on the Holden’s home in order to collect the debt of which they were owed. The peculiar facts of this case, as you may remember, is that the Holdens had already filed for bankruptcy by the time the foreclosure was commenced. Not only had they filed, but they were granted their petition, and relieved of the debt owed under the 2005 promissory note. This little twist in the facts forced the court to look to its precedent for guidance.

The court stated that they had previously recognized that “upon a mortgagor’s default, the mortgagee may elect among separate and independent remedies to collect the debt secured by a mortgage.” After listing several remedy options for the mortgagee, the court stated that it has “long recognized that an action for a personal judgment on a promissory note and an action to enforce the mortgage covenants are ‘separate and distinct’ remedies.” Thus, simply because a note has been discharged and mortgagees are legally unable to seek a personal judgement against the mortgagor on that note does not mean that the mortgagees are barred from raising an action on the mortgage itself. Essentially, although the bankruptcy court had relieved the Holdens of their obligation on the promissory note, their home was still not safe from foreclosure because the owner of the note and mortgage still had a property interest created by the default on the mortgage.

Stated succinctly by the court,
Where a promissory note is secured by mortgage, the note, not the mortgage, represents debt… When a debtor declares bankruptcy, the creditor’s surviving right to foreclose on the mortgage can be viewed as a ‘right to an equitable remedy’ for the debtor’s default on the underlying mortgage. (citations omitted)
The court, after stating its position, stated that Deutsch Bank still had the burden of proving that it was the rightful holder of the note. Clarifying one of its older opinions, Schwartzwald, the court said that this burden did not include a magical combination of documents. The party bringing the claim simply needed to show that it had a personal stake in the outcome. Here, even though the note showed no physical signs of being transferred to Deutsch Bank, the facts presented were enough for the court to deem that Deutsch Bank had standing to bring the foreclosure action.

The takeaway from this case should not be a newfound (or increased) fear of dealing with mortgage companies. Instead, the key takeaways should be a better understanding of your state laws and how mortgage relationships may affect you in the future. Here, the Holdens filed bankruptcy in hopes of being relieved from their debt. The Ohio court was not so inclined to share the same belief, however, and established a principal that allows the holder of the mortgage “standing to foreclose on the property and to collect the deficiency on the note from the foreclosure of the sale of the property.” Learn from this case. Make sure you understand the mortgage process and have a firm grip on your financial situation before signing the dotted line.


The Injured Plaintiff’s Bankruptcy — Pitfalls for the Civil Litigator

Posted on Friday, June 24th, 2016 at 11:21 am    

Justin Lawrence recently wrote an article for the Advocate, Kentucky’s trial lawyer community’s premier publication, about what needs to be done when a person who is injured by an automobile accident, slip and fall, or workplace injury files for bankruptcy while their lawsuit is still pending.

Justin regularly advises other attorneys on the best course of action to take when personal injury, workers’ compensation, social security disability, and bankruptcy claims come together, so injured men and women get the best results possible.

Click here to read his article on the injured plaintiff’s bankruptcy.


What are the effects on my spouse if I file bankruptcy?

Posted on Thursday, June 9th, 2016 at 7:30 pm    

In this video, Justin Lawrence talks about the effect on a non-filing husband or wife when their spouse needs to file bankruptcy. What happens to their assets? Which debts get discharged? And what happens to the non-filing spouse’s credit score? Watch this video to find those answers and more!


How Long Do I Have to Wait Between Bankruptcies?

Posted on Monday, June 6th, 2016 at 1:18 pm    

In this video, Justin Lawrence discusses the complicated rules governing how long you must wait between bankruptcy filings, depending on what kind of bankruptcy was filed previously (Chapter 7 vs. Chapter 13), what kind of bankruptcy is being filed now, whether a discharge occurred in the prior bankruptcy, and whether a discharge can occur in the current bankruptcy.

Although the rules are complicated, Lawrence & Associates’ experienced attorneys can cut through the clutter to ensure you file your bankruptcy at the time that is best for you.  Have questions?  Call today!


How does filing bankruptcy affect my credit score?

Posted on Thursday, May 26th, 2016 at 11:28 am    

In this video, Justin Lawrence addresses a problem many people worry about before filing bankruptcy:  the effect that filing bankruptcy will have on their credit score.  Several rules of thumb are given that address when the opportunity to take out a loan will become available, how long interest rates will be affected, and how long the bankruptcy will show up on a credit report.


The Dangers of Taking Out Debt Before Filing Bankruptcy

Posted on Friday, May 20th, 2016 at 2:40 pm    

Justin Lawrence from Lawrence & Associates talks about the dangers of taking out debt before filing bankruptcy, including the 90 day presumption of abuse used by bankruptcy courts to discourage the use of credit cards and loans within 90 days before filing a bankruptcy. This video applies to both Chapter 7 and Chapter 13 bankruptcies, and examples including credit card debt and buying a new car are given.


How Much Will Your Payments Be in a Chapter 13 Bankruptcy?

Posted on Monday, April 25th, 2016 at 1:25 pm    

For Greater Cincinnati and Northern Kentucky Chapter 13 bankruptcy filers, Justin Lawrence from Lawrence & Associates helps you estimate how a Chapter 13 payment to the bankruptcy trustee is made. Knowing how much you might have to pay will give you peace of mind. Don’t worry when you can get more facts about your Chapter 13 bankruptcy payment and be sure this is the right path for you!


Two Steps to Preserve a Claim When a Tortfeasor Files a Bankruptcy

Posted on Thursday, April 14th, 2016 at 10:07 am    

Check out this article written by Justin Lawrence, in which he discusses how an injured person can preserve their claim when the person who hurt them files for bankruptcy.  Many lawyers cannot practice in both bankruptcy and in injury areas of practice (such as personal injury, workers’ compensation, and social security disability).  Lawrence & Associates has experience in each of these areas of practice, which gives our attorneys a unique and comprehensive perspective when these worlds collide.

If you have been injured or have been put on notice about a bankruptcy, click here to read this article for more information!


The Difference Between Chapter 7 and Chapter 13 Bankruptcy

Posted on Tuesday, April 12th, 2016 at 11:16 am    

In this video, Justin Lawrence from Lawrence & Associates describes the basic differences between Chapter 7 and Chapter 13 bankruptcy in a nutshell.

Chapters 7 and 13 bankruptcies are the kinds of bankruptcy that are available to most consumer debtors, which includes nearly every individual filing bankruptcy. Learn the length of time you could be in each kind of bankruptcy, the restrictions on filing each type of bankruptcy, and the requirements for each type of bankruptcy once it is filed.

Watch the video for more details!

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