Finance & Loans

Differences Between Loan Defaulting, Insolvency and Bankruptcy

By Phin Upham

When someone is unable or unwilling to repay their loan, the courts may step in to enforce some form of repayment. A loan is a legal contract between two parties. It outlines the responsibilities that the borrower has to repay his loan, including the interest rate that the lender is allowed to charge. Breaching that contract turns the matter into a legal battle.

Defaults

When an individual fails to repay a loan on his home or car, he essentially breaches the terms of the loan contract he set with the lender at the time of purchase. When a borrower is in default, he has the money or the means to repay and is choosing not to. It could be to prioritize other debts, or for any of a number of reasons, but the debt in question would go into default at that point.

Insolvency

If the borrower was unable to pay his debts, he would be said to be insolvent. This means that the borrower may have the assets on hand to repay the debts, but not in the currency the lender is requiring. One example is a home loan, where the home would satisfy most of the payback for the loan. Typically, insolvency is dealt with through negotiation and the lender occasionally takes a haircut to erase the balance from their books.

Bankruptcy

It’s important to understand that an insolvent person can become bankrupt in addition to his insolvency. Bankruptcy laws differ by country, and are far too diverse to discuss in such small detail, but is one of many legal statuses that can be assigned to an individual. It imposes court supervision over loan repayment.

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About the Author: Phin Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Phin Upham website or LinkedIn page.

Importance of a lower debt-to-credit ratio

Lowering your debt-to-credit ratio will help when it comes to opening new credit lines, paying off your debt and your quest to become debt free. Debt- to-credit ratio is derived by calculating how much you owe and your total available credit limits. For example, if your credit limit total $10,000 and you owe $3,000, your debt-to-credit ratio is 30 percent. It is considered better to have lower debt-to-credit ratio in order to get a better deal on new credit. Also, it might help you to get a better FICO credit score too. This is all because creditors think that you use your credit responsibly.

Keep in mind, debt-to-credit ratio is not the only consideration for creditors. They also consider all open lines of credit, current balances, your total debt including your mortgage, and they pay attention to specific lines of credit belongs to you.

There is no magic formula that explains the best debt-to-credit ratio to have. But it is always considered that having a lower usage of available credit help. One way to achieve that is to spread your credit among all credit lines available and to keep the balance owed as low as possible. Responsible use of credit always help.

Phin Upham speaks at Global Conference about The Future of FinTech

By Phin Upham

Phin Upham was joined by a panel of financial experts from various capital groups and banks to discuss the future of financial tech. The current climate isn’t sustainable. Big banks are servicing the equivalent of 40-60% of the population, which ignores a large chunk of people that could potentially join the middle class.

There are several challenges that make adapting to this climate difficult for big banks, and smaller startups may be better suited to tackle these very large problems.

Costs

As businesses scale, the costs of doing business remain the same thanks to the costs of moving and storing money. When agile financial startups take the lead, the costs to move money should reduce as more specified methods catch on. Wells Fargo, a large bank capable of any kind of transaction, won’t be able to compete with a company that just does short-term loans.

Flexibility

Banks can’t compete because they don’t have the flexibility. If big banks adjust interest rates, they lose substantial sums of money on their balance sheets. That hurts their long term stability and puts them in violation of regulations that require certain amounts of cash on hand.

Reach

Another problem that Phin Upham identified is the consumer’s need for money management. Overdraft fees, for instance, are killing the bottom 95% of income earners. That form of interest can virtually go away if consumers had shorter term loans, reasonable interest rates and a plan to pay back their debts. Big Banks can’t provide those services, at least not at the individualized level.

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About the Author: Phin Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Phin Upham website or Facebook page.

Safer ways to use a credit card

Credit card data breaches are reported almost every day and more specifically we have experienced increased activity within the last year. As a result more card issuers, banks and others are looking to improve card safety and we as consumers can also take several steps to protect ourselves.

Europeans have been using chip imbedded credit cards for few years now. Most banks in the United States are looking to issue such cards to their customers by October 2015. These chips are called EMV (Europay, MasterCard, and Visa). It only records transactions as a one-time event rendering it useless to hackers and frauds to steal your information. Unfortunately, Internet purchases with a card still make you vulnerable to hackers since it requires providing additional data.

Using Apple Pay or Google Wallet may be a safer option too. They are part of a class known as digital wallet. They carry a security known as tokenization making it more difficult to steal information due to conversion of information into tokens. Unfortunately there are only about five percent of retailers accept these kinds of payments.

Consumers should consider ways they can improve and protect their credit cards. Irresponsible use of cards leaves room for hackers to get information and therefor, use any card with care.

Ways to discharge your student loan rather than defaulting

Written by: Financial Haze

According to data from the Federal Reserve Bank of New York, the student loan debt now stands at $1.6 trillion. More and more students are getting into student loan debt and that represent more than $77 billion over the last year. One phenomenon that the bank has observed is the delinquency rate and the entire financial sector is concerned over the ever increasing default rate.

Instead of defaulting on student loans which could bring financial disaster for some, there are ways to obtain a debt cancellation, debt forgiveness or a debt discharge. Those who carry a student loan balance and become permanently or totally disabled may be eligible for a discharge. Required evidence may include proof of Social Security eligibility, note from the doctor and other documents. If you attend a school that has been permanently shut down, you may also be eligible to get a discharge of your student loan. In some cases if the school fraudulently approved your student loan, it may also qualify for a discharge. Under very limited situations bankruptcy may allow a discharge of student loan debt contrary to the popular belief. If a loan is obtained in your name fraudulently by someone else you may be eligible for a discharge.

Understanding parts of your credit history

Have you looked at your credit report lately? If so, have you paid attention to the “status” column for each line of credit item reported or shown on your report? All three major credit reporting agencies, Equifax, TransUnion and Experian, are using numbers 1 through 9 to indicate the status of each open or closed credit lines. These numeric assignments are based on lender reporting. What do they mean?

Under the best scenario you should have 1 under the status column for each credit line to indicate that you are paying or paid off each credit line “as agreed.” Any other number should be considered as bad news. Number 2 is used to indicate one to 30 day past due payments on your credit line, number 3 is for 31 to 60 days past due and number 4 is to indicate 61 to 90 days past due. Number 5 indicates an instance where a debt has been referred for collection. Number 7 indicates a debt settled by a bankruptcy or another non-profit organization while number 8 is used to indicate repossession. When an account is charged off, number 9 is used to indicate it. Number 6 is unused at this time.

Can you dispute a collection?

Erroneous collection notices do occur. Some even find false or outdated collections on their credit report. Can you dispute these errors as well as collection notices? If so, how do you do it?

The Fair Debt Collection Practices Act (FDCPA) is a US law to protect the rights of debtors. It contains standards for collecting a debt and verification of debt for individuals. Under the law you have 30 days to file a dispute from the day you receive a collection notice. If a debt is in dispute, agencies are prohibited from reporting a collection to a credit bureau.

This law doesn’t cover business debt obligations. But if the debt is in your name and you run your business and file your tax return under your personal name, you may be covered under the law.

If a delinquency appears on your report after seven years from the original delinquency, it is against the law and not valid. Delinquencies that do not belong to you could show up on your credit report impacting your credit. If the debt is not yours or has passed the legal time period allowed for reporting, you can simply contact the credit bureau for removal. If a collection of a debt doesn’t belong to you shows on your credit report you need to deal with each bureau separately.

The Commodity of Culture

By Phineas Upham

We don’t often think of culture as a commodity, but it influences many of our choices in modern life. The place we live, what we have access to and what those elements influence us to do all play a role in the culture of a particular group. It’s easy to view consumerism as something negative. For some, third-world countries that do not rely on products and services to sustain themselves represent some purer form of life.

Culture could not exist without consumerism. High art, which represents one of the finest modern examples of culture, would not exist without a museum to purchase and display it. The museum in turn would not exist without benefactors to fund it and individuals to frequent it.

There is a misconception that those who turn away from this grassroots form of life are somehow exhibiting low political moralism. No one wants to see folk culture vanish, but people evolve. The truth is that there is value in one’s culture.

Culture influences art, which is a product that can be bought and sold. Culture drives fashion and religion. It helps people learn and process the world around them, and share that experience with others not there to see it.

Culture also cannot be thought of as stationary, otherwise there would not be so many origin stories that explain planet Earth. Culture evolves with human understanding. Thus, as societies conform to modern living their cultures impact and are impacted by those changes.

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About the Author: Phineas Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Phineas Upham website or LinkedIn page.

How Money Lending Shaped the Middle Ages

By Phineas Upham

The Dark and Middle Ages were complicated moments in human history, especially for the practice of usury. On the surface, the Church was staunchly opposed to money lending because of moral overtones from the Bible. For a time, the Church permitted Jewish moneylenders to exist in various courts to facilitate the lending of large sums of money, but when the economy was in a down swing the attitudes shifted dramatically.

If that sounds familiar, it’s because there has always been public frustration with interest rates in the event of a financial crisis. In the Dark Ages, this trouble stemmed from certain groups of people. The Church was ok, for instance, vilifying the Jewish money lenders as they allowed the Medici family to continue its practices virtually unimpeded.

During the early 1200s, the Church tried to formalize its stance on the matter of usury by passing some laws on the subject. They created a loophole we know as interest, which allowed money lenders to collect interest in circumstances the Church was accepting of.

The creditor was not lending money in these situations, he was taking a loss. The interest was something akin to compensation for that loss. Interest comes from the Latin word “intereo,” or “to be lost.” If the loan was seen as a gain or a profit, the Church could consider it illegal. Eventually, the amount of effort that lenders put into loans was also taken into consideration. Some lenders were tracking so many loans they found themselves unable to do anything else. In those cases, lenders were seen as people who shouldered substantial risk without thought of profit.

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Phineas Upham is an investor from NYC and SF. You may contact Phin on his Phineas Upham website or LinkedIn page.

Should you use convenience checks from your credit card company?

Just before holidays you may have noticed that credit card companies have increased their activities to entice you to use their card. One such tactic is convenience checks that promise no interest for a certain period of time or ask you to treat yourself with one of their checks. Be aware of these convenience checks. They are full of hidden fees.

Almost all these convenience checks have an associated transaction fee. It could be 3 to 5 percent of the amount you use. These are onetime fees.

Your no interest privilege may be 10 to 12 months. If you exceed the time to repay the amount, they may start to charge interest on the original amount until you pay off the balance. Keep in mind that they are cash advances and therefore, subject to a higher interest rate. Interest can be from the date your check was cashed.

If you already have a balance on your credit card that you are paying, consider this. The credit card company will first take the minimum payment due on your existing balance first and then apply any amount over the minimum to the new convenience check debt balance. This may cause you to exceed the time limit and puts you into higher interest rate.

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