July Newsletter, 2008

"Debt Management Programs" - Better Than Bankruptcy?

By Brett Weiss , Maryland Bankruptcy Attorney

Most of us get bombarded via e-mail, radio and TV by ads promising, "Avoid bankruptcy! Wipe out more than half of your credit card bills!" Sounds too good to be true. But do they really work? Well, sort of. But not quite in the way you might expect.

These programs typically work by telling you simply to stop paying your credit card debt and send monthly payments to them, building up a lump sum of cash to use for settlement. When the debt is charged off, the expectation is that the creditor will agree to settle the account for a lump sum at a discount. And in many cases, they do. But that's not the whole story. There are many, many problems with these "Debt Management" programs:

1. The fees these programs charge are a significant percentage of the debt (and typically much, much higher than the fees for filing for bankruptcy), and you pay a lot (including "maintenance fees," "set up fees" and "management fees" just for the privilege of paying these folks to work for you) before the company actually does anything for you. If you can't complete the program or if the results aren't what you expected, you don't get these fees back.

2. Because you stop paying your debts and your account is charged off, your credit is trashed, and the resulting hit to your FICO score can be worse than filing for bankruptcy.

3. You will receive calls and letters from collection agents for months, while these stop immediately when you file for bankruptcy (and if they don't, you can sue the creditor for violating the automatic stay).

4. You may be sued by the creditor, while you can't be sued once you file for bankruptcy.

5. You will get a 1099 and have to pay income taxes on the difference between what you owe and what you pay, while you won't get a 1099 when you file for bankruptcy and discharge all your credit card debt.

6. There are no guarantees that the creditor will reduce the amount by anything approaching "less than half," while a Chapter 7 bankruptcy will, absent unusual circumstances, result in your paying $0 on your credit card debt.

7. They can do nothing to help you with mortgage or car arrearages or tax debt, while Chapter 13 can give you 5 years to pay back these sums, normally without interest.

8. These programs don't do anything that you can't do yourself.

Get informed! If you're considering using a "Debt Management Program," be sure to ask these questions, and get your answers in writing. Speak with a bankruptcy attorney as well, and ask the same questions. Only then should you decide what is best for you and your circumstances.

August Sales Tax Holiday Approaching

SHOP TAX-FREE AUGUST 1-3

NASHVILLE, Tenn. - Tennessee's third annual August Sales Tax Holiday, which gives back-to-school shoppers the opportunity to purchase certain clothing, school and art supplies, and computers free of Tennessee sales tax, will begin on Friday, August 1.

"Getting ready to go back to school is a busy, important time for families to prepare their children for success," said Governor Phil Bredesen. "This Sales Tax Holiday is an opportunity for families to enjoy savings on those items that kids need to be ready for a successful school year."

The long weekend of savings begins at 12:01 a.m. on Friday, August 1 and ends on Sunday, August 3, at 11:59 p.m. The state's dedicated Sales Tax Holiday Web site, www.tntaxholiday.com, has been updated with new materials, including information about exempt items, frequently asked questions and more.

During the designated three-day weekend, consumers may purchase select clothing with a price of $100 or less per item, school and art supplies with a price of $100 or less per item, and computers with a price of $1,500 or less without paying Tennessee's state and local sales tax on the items. The tax holiday also includes purchases of qualified items sold via mail, telephone, e-mail or Internet if the customer orders and pays for the item and the retailer accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period.

"During the 2008 August Sales Tax Holiday, Tennesseans can purchase qualified items free of sales tax as they prepare for the upcoming school year," said Revenue Commissioner Reagan Farr. "This annual Sales Tax Holiday, which Governor Bredesen established in 2005, has provided an excellent tax savings opportunity for all Tennessee shoppers and we are pleased to help further his tax-saving initiative."

Examples of exempt items include:

Clothing: Shirts, dresses, pants, coats, gloves and mittens, hats and caps, hosiery, neckties, belts, sneakers, shoes, uniforms whether athletic or non-athletic and scarves
School Supplies: Binders, book bags, calculators, tape, chalk, crayons, erasers, folders, glue, pens, pencils, lunch boxes, notebooks, paper, rulers and scissors
Art Supplies: Clay and glazes; acrylic, tempera and oil paints; paintbrushes for artwork; sketch and drawing pads; and watercolors
Computers: Central processing unit (CPU), along with various other components including monitor, keyboard, mouse, cables to connect components and preloaded software (Note: While the CPU may be purchased separately, other items must be part of a bundled computer package in order to be eligible.)