About Credit Cards & Bankruptcy - What Small Business Owners Need to Know

If you are reading this, chances are that you already know that you should not mix your personal credit and your business credit for a wide variety of reasons.

• Business credit is deductible. Failure to separate it from your personal credit makes it huge drag to keep track of.
• Business creditors treat their customers much better than they treat people who behave badly with their credit cards. When a business fails to pay its American Express bill for a couple of months, American Express just stops letting them charge on it. Pay the bill, and you can go back to using it.
• Businesses get a lot more credit a lot faster.
• Finally, it really just doesn't make sense that you personally should be accountable for your business when it may well be the case that you share your business with others. It really limits your business if you are reluctant to hand an employee or a contractor a personal credit card or give them a personal check.
  

Failure to establish a separate set of credit cards and bank accounts for your business under its own name, and with no tie to you, is usually something that will result in personal bankruptcy sooner or later. A bad year will pull down not only your business, but you personally. You'll have no port in any storm.

So, assuming you have 10-15K, you should use it to quickly and efficiently establish your business credit.

There are a million ways to do this. One way to do this is to:

• Set up an LLC, preferably in a state with no state taxes required.
• Put some money into an account at a bank.
• Get a Dun & Bradstreet number.
• Tell the bank you need a credit card in the businesses name. If you have money in the business bank account, they are likely to do this.
• Buy something and pay it off over a period of months.
• Keep 10-15K in the business bank account for a period of months.
• When time permits, ask the bank for a line of credit.

The result? A good credit rating and a line of credit you can draw on for business expenses that is separate from your personal account.

You can do this more quickly, for just a little more money, by purchasing a "Shelf Corporation" which is literally a business set up by someone else specifically so it could be sold to people who want to establish credit quickly.

Now that you've reviewed this short article, you should be able to keep your business and personal credit separate which will dramatically reduce the chance of personal bankruptcy.

Understanding the Economic Crisis - What You Must Know to Prevent Foreclosure and Bankruptcy

Most of the folks in the country, and in fact most of the people in the world, are completely perplexed by the deep economic recession which faces us. You may be losing your job, fighting to protect your home, strugging to prevent bankruptcy, and all the while you may be wondering what went wrong. The truth is, understanding how and why we are in these dire economic straights will help you protect yourself and your family in the months and years to come.

The first step in understanding the problems we face here in the United States is to imagine that you are playing Monopoly. You know, the board game where you buy property and get $200 every time you make it around the board. Let's imagine you and some friends have been playing for a while, merrily rolling the dice and buying the properties you land on. Now imagine that someone reaches into the game and takes away half of everyone's money and almost all the money in the bank. Now you only get $50 when you make it around the board.

Imagine how your playing behavior will change.

• You purchase far less property because you have less cash.
• You really hate having to pay rent for properties you land on, because you have less cash.
• You really hope you'll get sent to jail, because at least there you pay no rent and your cash is preserved until (hopefully) the rules change again.

In effect, this is exactly what has happened to the United States and much of the world. A huge percentage of the "liquid money" available to consumers in the US and around the world has disappeared. Thus, the "rules" of our economy have changed, and not in the ways you probably expect.

Understanding the "Game"

When you went to school, at some point, they tried to explain to you how and why money is printed in the US. You deposit $100 into a bank, they keep $10 in cash and give the other $90 away in a loan. In effect, the bank tells the world you have $100 and the other guy has $90. In effect the bank just made $90.

That is how we used to make money. About ten years ago, we started doing something more complex and, as it turns out, more risky.

Imagine a 10 people, each of whom has borrowed to purchase a house that costs $1 million dollars ($1M). So, in effect, the bank has created about $10M. Actually, they've created slightly less than that, but lets just call it $10M.

Each of these folks pays what they owe with interest. Lets assume they pay $50K per year.

Someone, at some point, realized that, in effect, this was an income stream of $500K per year. And they turned that into an investment. They told investors, if you give me money to buy these loans, we'll get that revenue stream of $500K per year. Investors thought that was a fine plan. They bought into that investment, thinking it was safe. Investors used the stock they purchased as collateral for their own loans . . . just as they would have used any other "business income" to justify a loan.

And this "trick" of turning loans into investments wasn't just applied to homes. It was applied to credit cards, film production loans, car loans . . . Almost every class of loan was treated this way.

In effect you had loan payments being treated as investments which were used as collateral for other loans.

House Prices Shot Up But Wages Did Not

It will not surprise you to know that if loans are treated as lucrative investments that can be bought and sold, loans start being made very frequently. Credit becomes "loose".

When people buy a house, the amount they can afford to pay for the house has to do with how much they get paid in wages and how much they can borrow. House prices over the last decade or so shot up quickly because credit was easy to get.

Unfortunately, wages did not keep pace with the growth in credit. More and more folks used their credit cards and their home loans to buy things, because prices were going up and wages were not.

And Then Something Went Wrong

In order to turn a collection of loans into an "investment", especially a highly rated investment, investment managers would buy "insurance" that would guarantee that if people stopped paying the loans, someone else would pay instead. These insurance plans were called "credit default swaps" or CDS's.

AIG was a company who sold a lot of these kinds of insurance plans, and last year they found that people were not paying their mortgages at a much higher rate than they expected. It became apparent that AIG, and companies like them, really could not make good on their "insurance policies". And that meant that trillions of dollars of investment were now much higher risk than expected.

It also meant that banks were now confronted with millions of mortgages that might be bad. That meant they were insolvent. Banks stopped loaning one another money. After all, if you are a bank and you have a bunch of loans that may go into default, and a bunch of credit cards that might go into default, and you know the Federal Reserve will close your bank down if they find out you don't have the money and assets you are supposed to have . . . you aren't going to share your cash with other banks. You aren't going to make many new home loans. You aren't going to issue new credit cards.

Do You See Where the Money Went?

When banks don't make loans, house prices have to fall because the price people can pay for a house has to do with how much they make and how good a loan they can get. If they can't get a loan, the price they can pay for a house goes down.

Businesses can't get loans either, and that means they can't ride out this rough patch in the economy. They start firing people because they can't earn enough to pay them.

When people don't have money, they can pay even less for a house. And when millions of houses are in foreclosure, the price of a house falls even farther.

What Does This Mean to You and Your Family

The truth is, there's just less money around and that means the price of everything has to change. Some things will "re-price" faster than others. Wages are falling quickly, because people are frantically cutting what they charge for their time because jobs are disappearing. House prices are falling because house are cheap. Perversely, if you got a mortgage back when credit was cheap, you paid a lot for your home.

Loan Modification and Loan Renegotiation will let you bring your home loan back in line with reality.

If you've lost your job, or had to take a lower paying one, your credit cards may have been charged up to a point you literally can't repay. That is when credit counseling and debt consolidation can be helpful. Even bankruptcy can make sense when you just can earn enough to pay your mortgage, your living expenses and your credit cards.

A Final Note

It is very unlikely, if not impossible, for the credit and wage market to reset to what it was even three years ago. Contacting a cross section of professionals who can prevent foreclosure and protect your assets is the rational thing to do.

Prevent Bankruptcy/Stop Foreclosure - Obama's Average American Bailout is On the Way

After a presidential election that focussed on the economy and its impact on the American consumer, and after well over a trillon dollars spent on bailing out big employers and financial institutions, a new set of programs has just been announced that could provide help to you and your family if you are struggling under the weight of credit card debts or a bad mortgage.

The new bailout bill will have a significant impact on the economy, but it won't help you unless you take action.

• Do not wait for credit cards to take it easy on you. Credit card companies are reducing the amount of credit they offer even to those with perfect credit. Why? Because credit card companies are, themselves, insolvent. In fact, credit card companies have an incentive to make more people default on their credit cards through raising minimum payments, tacking on fees, and reducing credit limits. Why? Because banks got "no-strings-attached" bailouts from the government when mortgages began to collapse. Its likely they will get some sort of relief if the consumer credit market collapses as well. They can struggle hard to accomodate you, or they can tighten up credit and push for a bailout. Which do you think they are likely to do?
• Do not use credit cards to pay your mortgage. Credit cards are unsecured debt. It is all but impossible that you will lose your house because you can't pay credit cards.
• Do not draw against your home credit line to pay your credit cards. Credit cards are unsecured debt. Unsecured means unsecured.

Get professional help renegotiating your debt and structuring repayment. Professional services representing millions of customers are in the best position to know how the bailout for Average Americans signed into law by President Obama can help you. Credit Counseling, Loan Modification and Loan Renegotiation can help you protect your home and your family from the worst this "recession" has to offer.

Prevent Foreclosure - 5 Steps You Can Take Now

If you think you may be in danger of losing your home, it is never too soon to act. Every day that passes leaves you with fewer options. The best time to act is when you are still able to make your mortgage every month, when you still have a job, when you can still pay most of your bills every month. Researching the steps you can take to prevent foreclosure costs nothing, and it ensures you know everything you need to know in order to protect your home.

• Start contacting credit counselors. If you are jeopardising your ability to pay your mortgage by paying your credit cards, you are in serious trouble and you need to take action immediately. Unless you foresee winning the lottery or doubling your income in some other way, you need debt relief. Credit card counselors vary widely, so talk to a bunch before you make any committments.
• Start talking to loan modification companies. Though you will often hear people say that you should contact your bank directly to discuss loan modification, the truth is that banks behave better when negotiations are conducted by experience attorneys who can evaluate the legality and appropriateness of the loan documents you signed, and who know all the government agencies that can be called when a bank fails to live up to its obligations. Note that loan modification does not depend up on your credit rating. What matters is your ability to pay an adjusted mortgage.
• Start talking to bankruptcy professionals. Sometimes the right solution is to simply declare bankruptcy because most judges will allow a family to keep their home rather than pay unsecured debts like credit cards or hospital bills.
• Gather up all your bills, or contact all your creditors, and get the balance and minimum due amounts for all your debts. This kind of accounting seems painful sometimes, but you need to data so you can determine exactly which debts you can pay and which you can't.
• Take care of yourself and your family. The truth is that you can't afford to get ill, and you can't afford to let a financial storm overtaking the entire nation tear you apart. The numbers on your bills are just numbers, and the business professionals who offered you credit were taking a calculated risk. So concentrate on dealing as rationally, quickly and effectively as possible with your creditors rather than blaming yourself, or your family, for the troubles that have overtaken you.

Following these five steps, today, will put you in a much better position tomorrow. It is never too late to ask for help, but the sooner you ask the more help you are likely to get.

Can You Really Prevent Bankruptcy & Stop Foreclosure?

In December of 2008, Credit Suisse forecast that 8.1 million mortgages will be in foreclosure over the next four years, representing 16% of all mortgages. Put simply, the vast majority of house prices were sent in a time when the employment and credit climate was entirely different from what it is now. With unemployment projected to be as high as 11% by the end of the year, and with credit so tight that most people can't get a loan to ride out the rough spots . . . it should come as no suprise that many of us are faced with trying to prevent bankruptcy or stop foreclosure.

By acting quickly, you put yourself and your family in the best position possible to ride out this ugly economic storm. You need to assess your financial situation and your legal options

• Are you finding it impossible to pay your bills every month?
• Are you using your credit cards to pay your mortgage/rent or other household expenses?
• Are you facing medical bills you have no hope of paying.
• Are you unable to pay for health insurance, car insurance, home insurance because your other bills are so high?

Then its probably time to start considering your your options. There are several strategies that can help resolve these matters withou burdening you and your family for decades with an unpayable debt.

• Loan Modification can allow you to renegotiate the terms of your mortgage with your bank. Although many people recommend that you call your bank to ask for a loan modification, the truth is you are better off using a nationwide service to conduct this negotiation. The truth is that banks are not often quick to help you with loan modification or completly honest in giving you the best overview of your options. Some Loan Modifications actually result in people paying more than the did to start. Speak to a select of Loan Modification companies and learn how each can help you.
• Loan Renegotiation may be a good option for some home owners. It turns out that your bank has "truth in lending" obligations that are supposed to be in effect when they write loans. So they must inform you if you have an adjustable rate mortgage, and they must tell you of any fees or charges they plan to apply in advance. They must ensure that the appraisal on your house is rational and that you have adequate income, when all is said and done, to pay the loan. Many mortgage brokers wrote loans that were unsustainable from the start, and both buyers and banks sometimes have to renegotiate a loan that brokers made dishonestly.
• Bankruptcy is a good option for many because it really will prevent foreclosure. Credit Cards are unsecured debt. The interest rate charged by credit card companies is very high specifically because credit card companies are accounting for the risk of underwriting unsecured debt. Bankruptcy usually allows you to keep your home and your car. In most cases Bankruptcy requires Credit Counseling . . .
• Credit Counseling allows an intermediary to help you talk to creditors about your debts. These folks can help you reduce the amount you owe, lower your interest rates, and extend the time you have to pay.

The key thing is to spend some time contacting specialists in these fields before you are in foreclosure. You have more options if you act when you can still pay some or all of your bills than if you delay.