Budget Errors – What “Weekly” and “Bi-Weekly” Really Mean

“I do not make $2,600/mo.  I’m only paid $1,200 every two weeks!”
“I spend $100/week in fuel, so $400/mo.”
“I’m getting paid three times this month, therefore, the trustee is getting too much money!”
“I didn’t miss any payments.  I made two each month.”
I hear erroneous comments like this (or get similar questions) from clients all the time.  I’ve been flooded with them recently, so while this isn’t necessarily a bankruptcy-specific topic, I think it’s worth taking a minute today to discuss it.  It would certainly go a long way to helping people better manage their finances if they understand what “weekly” and “bi-weekly” really mean.
Somehow, this pervasive idea got stuck in people’s minds that there are only four weeks in a month.  It’s true – every month has at least 4 weeks.  February – the shortest month of the year – has 28 days (except in leap years, obviously), which is exactly 4 7-day weeks.
But every other month has 30 or 31 days (3-4 days beyond 4 weeks).  What this means is that if you are paid weekly, every three months, you get 5 paychecks instead of 4.  If you are paid bi-weekly, every six months, you get 3 paychecks instead of 2.
So, when your attorney prepares budget schedules that show you making $2,600/mo when you’re paid $1,200 every two weeks, it’s because he is properly taking into account that third paycheck you get every six months.  Instead of 1200 * 2, the equation is 1200 * 26 (two week periods in calendar year) / 12 (months per year), which yields $2,600.
If you are filling up the gas tank every week, and spending $100 each time you do, you actually spend about $435 per month, not $400.
Payroll orders for Chapter 13 plan payments are pro-rated.  So, if your plan payment is $500/mo, but it’s coming out of your bi-weekly paycheck, the deduction won’t be $250, but instead, it will be $230.77.  For five months, you will be paying in less than $500/mo, but the third paycheck in the sixth month catches you back up.
And if you are making payments every two weeks, then you have to make a payment every two weeks.  If you only want to make two payments a month, then you have to increase what you’re paying to the monthly amount divided by two.
Common time definitions:

  • Weekly = once per week.  There are an average of 4-1/3 weeks per month.
  • Bi-Weekly = once every two weeks.  There are an average of 2-1/6 of these per month.
  • Semi-Monthly = twice a month.
  • Monthly = once a month.
  • Bi-monthly = once every two months.
  • Quarterly = once every three months.
  • Semi-Annual = twice per year or once every six months.
  • Annual = once a year.
  • Bi-Annual = once every two years.

BAPCPA Anniversary Reminder #3

This is just a reminder to those of you who filed bankruptcy before BAPCPA went into effect and intend to file again when their 8 years is up, please call us to schedule an appointment today, instead of waiting until October.
As you may remember from my previous post, a lot of people felt compelled to file bankruptcy during the 2005 hysteria, erroneously believing that they would be unable to file for bankruptcy once BAPCPA went into effect.  In many cases, the October 17 deadline induced people to file prematurely – before it would have been in their best interest to file.
Without the imminent nature of another round of changes to the bankruptcy law, people are able to approach bankruptcy more level-headed, better educated, and able to make more informed decisions.  Nevertheless, there will be some who are waiting for October 17, 2013, when they will once again be eligible for another Chapter 7 discharge, and intend to do so quickly because of an imminent threat of wage garnishment or other invasive debt collection actions.
If you believe that you may be facing such an imminent threat, don’t wait until the last minute to meet with an attorney.  The bankruptcy laws have indeed changed, and while it is certainly possible to file, the requirements that one must fulfill before they can be eligible are substantial.  In other words, bankruptcy is more complex nowadays than it was 8 years ago, and it takes a little longer to get a case ready to file than it did 8 years ago.  By speaking to us now, you can use the time between now and your eligibility date to prepare yourself for your next bankruptcy case, and hopefully be able to approach bankruptcy this time around in such a way that you won’t have to undergo something like this again in the future.
Remember that the 8 year time between discharges only applies if you filed a Chapter 7 in 2005 and intend to re-file under Chapter 7 now.  People who filed under Chapter 13 previously, or intend to file under Chapter 13 now have shorter windows and are already eligible for discharge.
At Holbus Law Office, we know we’ve done our job if you only need our services once.

New Budget Counseling Service

Bankruptcy is not always avoidable.  Unexpected auto repairs and massive medical bills can cripple even the most frugal… the most disciplined… and the best prepared individuals.
However, to the extent that bankruptcy is avoidable, we at Holbus Law Office have prided ourselves on giving our clients valuable information regarding budgets and personal financial management, in the hopes that they would never need our services more than once.
But what about the people who are trying to avoid bankruptcy altogether?  People who are struggling financially, but are not yet to the point where bankruptcy is necessary.  People who, with a little guidance, can get back on track without resorting to bankruptcy.
Today, we take our motto a step further.  I am pleased to announce that beginning tomorrow, August 15, we will begin offering personalized budget counseling services.  For a small and very reasonable fee, you get one 60 minute session plus three free 30 minute “check-up” sessions (1 month, 6 months, and 12 months after the initial meeting).
Let my years of experience – helping Chapter 13 debtors manage a budget that allows them to complete their plan successfully and helping Chapter 7 debtors prepare reasonable budgets that help them to afford reaffirmations on home and auto loans – help you hopefully avoid bankruptcy entirely.
We will review your personal budget, give advice and tips about spending habits, tips for effectively using savings accounts, review common marketing gimmicks, help you understand the real impact of interest rates and loan terms, and more.

Calculating a Life Estate – Revised

The original Life Estate post proved to be quite popular.  But it also turned out to be a little flawed (and many of the links now outdated).  So, for your consideration, the revised “How to Calculate a Life Estate”.  Changes are marked with an underline and bold text.

For those of you who might be wondering, a life estate basically means that the owner of the life estate becomes a tenant of their own property.  Over time, ownership of the property transfers incrementally to the beneficiaries of the life estate in the form of percentage future interest, culminating with full transfer of the property to the beneficiaries upon the owner’s death.

How to calculate a beneficiary’s future interest in a life estate:

  1. Determine the current age of the life estate owner.
  2. Determine when the life estate was created (look to the date the deed which creates the life estate was first recorded).
  3. Using the date (month/year) determined in Step 2, determine the applicable interest at the time the life estate was created under 26 U.S.C. § 7520.  The table of interest rates can be found at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-7520-Interest-Rates if the interest was created this year.  Presently, the IRS has these tables going back to 1997 – to access previous years’ interest rates, go to http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-7520-Interest-Rates-for-Prior-Years.
  4. Access IRS Publication 1457 and open up Table S, which you can get at http://www.irs.gov/pub/irs-tege/sec_1_table_s_2009.xls.  Scroll down until you find the interest rate you determined in Step 3.  Then locate the age you determined in Step 1.  Slide over to the column for Life Estate, and find your percentage.  If more than one living person maintains a life estate, you must use the “last to die” R(2) tables, rather than Table S.  Presently, the IRS has the R(2) tables split into five files based on the interest rate determined in Step 3.  0.2% – 4%; 4.2% – 8%; 8.2% – 12%; 12.2% – 16%; and 16.2% – 20%.
  5. Multiply the fair market value of the property by the percentage determined in Step 4.  Then, account for any partial interests or any other encumbrances (such as mortgages, judgment liens, or tax liens) to determine the value of the beneficiary’s future interest.
It’s also worth noting that there is an “annoyance factor” for a trustee to sell a life estate, so the value is less than what the actuarial tables may show.  The following is from a colleague of mine, Len Leverson:

I am going to regale you all anyhow with the tale of Jeanne Calment, which I find necessary to do every year or so […] to remind people that the fair market value of a life estate (or for that matter a remainder interest) is not what’s in those tables, but what a willing buyer would pay a willing seller.  And, because betting on someone else’s life is risky, a life estate has a fair market value that is likely significantly less than an actuarial expectancy multiplied by the value of the fee simple estate.
Jeanne Calment is the oldest person whose life span has been historically verified.  She lived to 122½ in Arles, France.  At the ripe old age of 90, she sold her apartment to a 47-year-old lawyer, Andre-Francois Raffray, whose office was in the same building; he wished to expand it.  Mme. Calment reserved a life estate.  The deal was that Raffray would pay her 2500 francs a month until she died.
Raffray died at age 77 of cancer.  Mme. Calment outlived him.  (His family continued the payments on the apartment until she died.)  Raffray and his heirs ended up paying Mme. Calment more than twice what the apartment was worth.