In the last column I promised this time to set out some January proposals by Senator — and presidential candidate — Elizabeth Warren. I should note that she is a former bankruptcy law professor at Harvard Law School, making her uniquely positioned, as a legislator, to speak to the consumer provisions of the Bankruptcy Code. In announcing the “Fixing Our Bankruptcy System to Give People a Second Chance” plan, the American Bankruptcy Institute Journal set out this quote by the Senator: “I’m announcing my plan to repeal the harmful provisions in the 2005 bill (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005), and overhaul consumer bankruptcy rules in this country to give Americans a better chance of getting back on their feet."
I will not weigh in on them at this time, but here are some of her reform proposals, as set out in the ABI Journal:
$ Eliminating the requirement for pre-filing credit counseling.
$ Reducing the costs of filing for bankruptcy by waiving filing fees for anyone below the federal poverty level and phasing in fees for those above that level. In addition, debtors could pay reasonable attorney’s fees during or after the bankruptcy, not just up front.
$ Making student loan debt dischargeable in bankruptcy.
$ Creating a uniform federal homestead exemption. Currently it is governed by the applicable state law.
$ Creating a streamlined, standardized mortgage modification option. If a pre-petition foreclosure was commenced, the mortgage debt could be reduced to the market value of the property, with interest rates reduced to achieve a sustainable debt-to-income ratio.
$ Instead of having to pay the full amount of the original auto loan, debtors could pay the fair market value of the vehicle and retain it.
$ Stopping companies from collecting on debts (known as zombie debts) that are no longer valid.
For other proposals, you can go to elizabethwarren.com/plans/bankruptcy-reform.
On a different subject, I continue to hear and see advertisements and reports indicating that it is still a good time to refinance your home mortgage, given the historically low interest rates.
We have discussed this in the past, but it might be a good time to briefly revisit the issue, and the pros and cons of refinancing.
My first thought is always, if a homeowner is looking for a cash-out refinance, what is it that they intend to do with any short-term cash they may achieve? Is it part of an overall sound financial plan? Is it to educate one of their children at the right reasonably priced college, where there is a high probability that the course of study they are pursuing will result in a well-paying career? Is it to pay off some higher interest debt, like credit card debt, with a firm commitment and plan not to incur that type of debt in the future? Is it to make some home improvements that will, to at least some degree, enhance the market value of the property?
Most of what you read says that you generally will need a 2% decrease in your interest rate to make refinancing viable, because of the refinancing costs, which can run between 2% to 5%. These costs could include an appraisal, a credit check, origination fees, closing costs, and mortgage insurance in some cases if you have less than 20% equity in the home. You may be able to avoid some of these costs, depending upon who you refinance with. Nevertheless, once you know those amounts, the new interest rate and your new monthly payment, you can see if refinancing makes sense.
From smartasset.com, here are a few other things to consider. They may mean that a refinance is not a good option. Are you planning to stay in the house long enough to recoup any savings? Is your credit such that you may not qualify for that good refinancing interest rate that makes sense? You can’t afford the required closing costs. You have been paying on your mortgage for long enough that your payments are being applied primarily to principal. In that case, continuing those payments, and adding some additional dollars to your monthly payment (dollars that you would be paying for closing costs) to reduce the term of the loan, may make the most sense.
Like any other financial transaction, refinancing your mortgage has to fit in to your long-term sound financial plan. Also, remember that debt is about the interest rate and the term, not the monthly payment, so always do all of the math — how much is this really costing me over time?
On a final, somewhat less serious subject, now that Mayor Bloomberg has become more prominent in the Democratic presidential race, I was reminded of his proposed ban on sugary soft drinks of over 16 ounces in New York City when he was the mayor. That reminded me of the movement by some cities, like San Francisco and Portland, and some states in the US, to ban plastic straws.
Of course we all know that President Trump jumped right on this movement. His 2020 presidential campaign is selling recyclable plastic straws online, explaining it as “Make Straws Great Again.”
Then I realized from the recent “Dixie Tupperware Party” show that Tupperware has the perfect solution for all sides of the discussion: The Eco Straw Set. Four reusable, adjustable, and recyclable plastic straws with a recyclable carrying case and even a cleaning brush. If you are worried about the environment, but you also want to make sure that in the future you will have a plastic straw when you are out at a restaurant, this set is for you.
John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program. Find his previous weekly columns at http://www.mpnnow.com/search?text=Ninfo or at http://www.monroecopost.com/search?text=Ninfo.