We all remember
the horrifying images of physical destruction that emerged
in the wake of Katrina a year ago. How could we not?
Pictures of shattered homes and displaced millions flooded
the airwaves back then, and they surely will again now
that the anniversary of the monster storm is upon us.
But it's also worth
remembering the economic destruction wrought by Katrina.
Thousands of companies were affected, including casino
operators such as MGM MIRAGE (NYSE: MGM), Isle of Capri
(Nasdaq: ISLE), Pinnacle (NYSE: PNK), and Argosy Gaming.
And what of those
displaced millions? How much debt do they now owe? How
many remain unemployed? Bankruptcy is a very real possibility
for far too many. At least, that's the conclusion of
ironically named Robert Lawless, a lawyer and University
of Illinois law professor. He performed a study which
found that states directly affected by a major hurricane
such as Katrina endure as much as 50% more bankruptcy
filings than their unaffected peers.
Sandbags
and supplies
That's a frightening stat, especially now that Hurricane
Ernesto has torn through Haiti and is threatening the
Gulf Coast. But Ernesto could be just the beginning
of a busy hurricane season. In April, the Department
of Atmospheric Science at Colorado State University
estimated that 17 named storms would throttle America's
Gulf and Atlantic coastlines this season.
Fortunately, that
pales with 2005; Katrina was one of 27 named storms
(of which 15 became hurricanes) that spawned in the
Atlantic. The bad news is that a typical year boasts
only 10, so there's plenty of reason for folks along
the eastern seaboard and the Gulf Coast to remain wary
...
When you can't be a Boy Scout
And fiscally, to be prepared. If Katrina's younger sister
comes calling, she's likely to bring with her an equal
amount of human devastation. For those who survive,
the elimination of basic infrastructure will destroy
jobs and cut off income, leaving strapped consumers
struggling for assistance.
Obviously, the best
preparation for such an event is a well-funded emergency
account that's accessible from anywhere. A high-yield
savings account from an online bank or a credit union
may be your best option.
But that's only if
you have the disposable income to squirrel away a meaningful
cash hoard. Few of us do, and that includes those who
suffered most at the winds of Katrina. Indeed, the ugly
truth is that too many Americans are economically vulnerable
and would need to subsist on credit and government handouts
in the wake of a disaster.
Fortunately, good
options exist. Here are three:
Get a loan. Those
with decent credit may be able to get a low-interest
loan from their credit card issuer. Citigroup has
provided many such deals in the past and still does
today. The drawback is that your creditor may require
that you upgrade your card and accept an annual fee.
Still, that could be a small price to pay in a pinch.
Ask your card company
for help. Some card companies will extend special
services to disaster victims. "Someone who is a victim
of a catastrophe and [who] needs additional credit
on an existing account to get by ... can ask to be
placed on 'temporary hardship status'," says Andrew
Housser, co-founder and CEO of financial portal Bills.com.
Hardship status, says Housser, may entitle cardholders
to lower interest rates and a moratorium on over-limit
and late fees. Some credit issuers may even take the
extraordinary step of allowing cardholders to skip
a payment.
Try the Feds.
Despite troubling reports following Katrina, the Federal
Emergency Management Agency (FEMA) can be a good source
for financial assistance. FEMA offers two types of
loans: for rebuilding property and for personal living
needs. Both are good deals, but you won't receive
cash quickly: FEMA requires that you first tap into
insurance and other potential funding sources before
asking FEMA for assistance. Oddly, that list includes
the Small Business Administration, which has its own
disaster relief program. Do yourself a favor and apply
with both agencies if you've been a victim.
Also, be prepared
to answer lots and lots of questions as you seek aid.
Neither your credit issuer nor the Feds are likely
to be in a hurry to deliver handouts. Only by having
relevant documents and account numbers on hand may
you speed the process, advises Housser.
Time to
call it quits
Finally, let's
talk about your last resort: bankruptcy. It's a rotten
option for many. Why? It's a hassle and it ruins your
credit. For example, last year Congress made it harder
to earn a bailout by applying a "means test" to your
income. The test contains several nuances, but a good
rule of thumb is that you'll be ineligible for Chapter
7 bankruptcy -- which usually wipes out unsecured
debt -- if your gross income is above the median annual
income for the state in which you live. Chapter 13
bankruptcy remains an option for many of those who
don't qualify for Chapter 7. But even then, says Housser,
mandated repayment terms under Chapter 13 are usually
less favorable than other debt-reducing strategies.
Meanwhile, a bankruptcy filing will leave an ugly
black mark on your credit report for 10 years. What's
more, consumers must apply for credit counseling within
six months of filing for bankruptcy. Credit counseling
is designed to help consumers figure out strategies
for reducing debt without asking for a bailout. It's
a good idea, in theory. Sadly, the industry has been
tarred by a three-year IRS audit that found significant
abuses. That may be why Housser says debt resolution
is the best option for those who can't obtain a Chapter
7 ruling. What is it? Debt resolution entails hiring
a firm to negotiate better repayment terms on your
behalf. Sometimes, Housser says, the results can be
dramatic, with principal balances cut by as much as
50%. In return, you pay the firm a percentage of the
savings obtained. The downside? Strong-arm tactics
won't go over well with creditors who are likely to
downgrade your credit rating (though not nearly as
much as they would under a bankruptcy filing).
Follow
the money
It's been a year
since Katrina roared through the Gulf Coast, leaving
death and devastation in her wake. My fear is that
her ugly younger sister will visit soon and destroy
yet more lives. If you live in an at-risk region,
please promise me that you'll call you credit card
issuer to ask about short-term loans, download assistance
forms from FEMA and the SBA, and keep documents and
account numbers in a safe place. Only then will you
be as fiscally prepared as you can be when Mother
Nature gets in a bad mood. And in the meantime, stay
safe, Fool.
Have other money
tips? Tell me. I'm writing new articles on personal
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For more Katrina
coverage:
Katrina's Winners
and Losers
Don't Forget Mississippi
Back in Business,
Better Than Before
Great Stocks Under
Rocks
Live, From New
Orleans
Fool contributor
Tim Beyers saw FEMA at work during the Northridge
earthquake of 1994. That memory makes him happy to
no longer live in California. Tim didn't own shares
in any of the companies mentioned in this story at
the time of publication. Get a peek at everything
he's invested in by checking his Fool profile. The
Motley Fool's disclosure policy is like a calm ocean
breeze.
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