Bad Debt

THERE CAN be a wide gulf between having wealth and looking wealthy. If you have many of wealth's trappings but are drowning in debt, you might want to check the health of your finances, says Jon Hanson, author of Good Debt, Bad Debt: Knowing the Difference Can Save Your Financial Life (Penguin, $21.95). Not all debt is bad, he argues. It's like cholesterol: There's one kind that improves your health and another kind that makes you sick. Good debt helps you gain assets that produce income.

I would like to respond to "No amount of spin can explain Obama's abundant failures" (letter, Aug. 2). The letter states that the country is not better off than it was four years ago. Now, I know telling people that things are really, really bad and that it's all President Obama's fault is Fox News 101 mantra, but if you examine the facts, things are gradually getting better. If we can step into the "way-back" machine and return to the Fall of 2008, the economy was hemorrhaging jobs, financial institutions were reeling with bad debt, foreclosures were running in the millions.

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.Q: I lent several thousand dollars of my personal money to a corporation of which I was the sole stockholder. The business went belly up in 1994 and I just closed down the corporation. Can I take a short term capital loss for that amount, and where would that be recorded?A: Assuming that this is a nonbusiness bad debt, it would be treated as a short-term capital loss in Schedule D of your 1040, Part I, Line 1. On line 1 column (a)

An article by Payments Source, a sister publication of the American Banker, recently reported that J.P. Morgan Chase has stopped filing lawsuits to collect on credit card and other debts in several states - including Maryland. The publication noted that Chase had fired in-house attorneys involved in collections. A review of electronic court records by the American Banker found that Chase collections efforts disappeared in Maryland, California, Florida, New York, and Washington, and dropped off dramatically in Illinois in recent months.

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.Q: I have a loss of about $1,000 on a mortgage that I bought. Is this considered to be a capital loss, or can I deduct it on the schedule for capital gains and losses?A: If the mortgage note is sold instead of collected, the difference between the amount received and the amount used to compute the loss will be a capital loss (unless the note was received for services rendered or a sale of property made in the ordinary course of trade or business.

Rejecting charges that it has accelerated service shut-offs and denied help to low-income customers, Baltimore Gas and Electric Co. urged state regulators yesterday to dismiss a petition calling for an investigation of the utility's credit and collection policies. BGE's response comes two weeks after the state People's Counsel filed a petition seeking the probe with the Maryland Public Service Commission claiming that the utility has shut off service to more than 22,700 residential customers since April, including about 2,000 low-income customers who qualified for state energy assistance.

DETROIT -- The wedding-day frenzy has ended, and the honeymoon happened weeks ago. Now one of the toughest challenges for young couples begins: managing finances. Here are five tips from local and national financial consultants for living financially ever after: Communicate expectations and habits. Spouses should be open about credit card and student loan debts. Begin to set financial priorities by answering either/or questions such as: Which is more important, owning a home as soon as possible or taking vacations each year?

Q. I borrowed $10,000 from my 401(k) plan at work to buy a house and will repay the loan plus interest over a five-year period. Can I deduct the interest on my income tax?A. There is a lot of confusion regarding what constitutes a tax-free loan as opposed to a taxable distribution from a 401(k) plan. There are strict rules on the amount of money borrowed and the repayment schedule. One key ingredient in determining if it is really a loan is repaying the amount withdrawn in substantially level payments at least quarterly.

I would like to respond to "No amount of spin can explain Obama's abundant failures" (letter, Aug. 2). The letter states that the country is not better off than it was four years ago. Now, I know telling people that things are really, really bad and that it's all President Obama's fault is Fox News 101 mantra, but if you examine the facts, things are gradually getting better. If we can step into the "way-back" machine and return to the Fall of 2008, the economy was hemorrhaging jobs, financial institutions were reeling with bad debt, foreclosures were running in the millions.

Will it ever end? For more than a year, the financial system has struggled to function, stricken as it is with economic Ebola. Cash is the only cure, and banks have raised almost $400 billion. That's not nearly enough, however, so the federal government has committed to various bailouts that will cost hundreds of billions over time. The most expensive yet - a new super-agency to buy bad debt - may eventually cost north of $1 trillion. As bad as the situation is, we're in deeper trouble than most realize.

Brian D. Morris, who resigned as Baltimore City school board chairman this week to accept a six-figure job overseeing school operations, has been the subject of dozens of lawsuits and bad-debt claims the past 15 years, including foreclosures, garnisheed wages, unpaid taxes and other cases involving his personal finances and business ventures, according to city court records. The city school board hired Morris, 38, as a deputy CEO on Tuesday, giving him a $175,000 annual salary and oversight of all the school system's central operations, including finance.

Will it ever end? For more than a year, the financial system has struggled to function, stricken as it is with economic Ebola. Cash is the only cure, and banks have raised almost $400 billion. That's not nearly enough, however, so the federal government has committed to various bailouts that will cost hundreds of billions over time. The most expensive yet - a new super-agency to buy bad debt - may eventually cost north of $1 trillion. As bad as the situation is, we're in deeper trouble than most realize.

WASHINGTON - The Bush administration, moving to prevent an economic cataclysm, urged Congress yesterday to grant it far-reaching emergency powers to buy hundreds of billions of dollars of distressed mortgages despite many unknowns about how the plan would work. Treasury Secretary Henry M. Paulson Jr. made it clear that the upfront cost of the rescue proposal could easily be $500 billion, and outside experts predicted that the bill could reach $1 trillion. The outlines of the plan, described in conference calls to lawmakers yesterday, include buying only from U.S. financial institutions - but not hedge funds - and hiring outside advisers who would work for the Treasury, rather than creating a separate agency.

WASHINGTON - Leaders of both parties of Congress agreed last night to work with the Bush administration on an expedited plan to help end the crisis on Wall Street and get bad assets off the balance sheets of the nation's troubled financial institutions. Coming on the heels of the unprecedented government rescue of giant insurer American International Group and the seizure of mortgage-finance giants Fannie Mae and Freddie Mac, the planned bipartisan legislation could produce the most significant changes in financial regulation since the Depression.

DETROIT -- The wedding-day frenzy has ended, and the honeymoon happened weeks ago. Now one of the toughest challenges for young couples begins: managing finances. Here are five tips from local and national financial consultants for living financially ever after: Communicate expectations and habits. Spouses should be open about credit card and student loan debts. Begin to set financial priorities by answering either/or questions such as: Which is more important, owning a home as soon as possible or taking vacations each year?

THERE CAN be a wide gulf between having wealth and looking wealthy. If you have many of wealth's trappings but are drowning in debt, you might want to check the health of your finances, says Jon Hanson, author of Good Debt, Bad Debt: Knowing the Difference Can Save Your Financial Life (Penguin, $21.95). Not all debt is bad, he argues. It's like cholesterol: There's one kind that improves your health and another kind that makes you sick. Good debt helps you gain assets that produce income.

WASHINGTON - U.S. banks are saddled with more bad debts than at any other time in a decade, as cable and telecommunications companies struggle to repay loans, a federal report released yesterday shows. Of $1.9 trillion in bank loans and commitments, about 13 percent were classified in June as in default or unlikely to be repaid, according to a study by the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. That's up from 9 percent a year earlier and marks the biggest proportion since 1992, when about 15 percent of commitments were listed as risky.

Rejecting charges that it has accelerated service shut-offs and denied help to low-income customers, Baltimore Gas and Electric Co. urged state regulators yesterday to dismiss a petition calling for an investigation of the utility's credit and collection policies. BGE's response comes two weeks after the state People's Counsel filed a petition seeking the probe with the Maryland Public Service Commission claiming that the utility has shut off service to more than 22,700 residential customers since April, including about 2,000 low-income customers who qualified for state energy assistance.