FICO 08

Fair Isaac has altered its FICO scoring model, calling it FICO 08, to hopefully better predict consumer defaults. FICO 08 will continue to have a range 350 - 800, and it will still rely heavily on the amount of debt and payment history. However, FICO 08 will no longer use authorized user accounts in calculating the score. More positive weight will be given to users who have multiple types of credit, such as auto loans and mortgages, in addition to credit card history, while the debt-to-credit ratio—the total debt compared to a user's total credit line—will be given greater weighting—a higher debt-to-credit ratio will have a more negative effect that it did in the classical FICO scoring model. Numerous late payments will also have a more negative impact, while an occasional late payment will have less impact than in Classic FICO. FICO 08 scores should start appearing in the 2nd quarter of 2008. Experian and TransUnion will be using the scoring system, but it is uncertain at this time whether Equifax will be using it.

Raising Credit Cards Rates Even without Changes in Credit Score

The article below details the raising of interest rates on credit cards substantially, in many cases, to more than 25% by Bank of America, even for consumers who paid on time and whose credit score has not changed.

This underscores several important points about getting into deep credit card debt.

1. Banks can raise rates at any time. You can avoid paying higher rates by writing the company before the specified time informing them you do not agree to the rate increase. In most cases, you will not be able to use the card until the loan is payed off, but at least the loan will only accrue interest at the old rate.
2. Banks can lower limits on credit cards at any time, which reduces the debt to credit limit ratios used by algorithms that calculate credit scores,  which lowers consumer credit scores, which will generally increase borrowing costs for the affected consumers.

These considerations also underscore why you should have a savings account for financial emergencies rather than depending on credit cards, because you never know when your limits will be reduced.

A Credit Card You Want to Toss

How Credit Card Companies Take Advantage of People Who Can't Pay Off their Debt

Credit cards sock late payers with default rates of 30% or more

It has oft been said that the reason credit card companies raise interest rates for the slightest delinquency is because of the increased risk. It does make sense to charge people with lower credit scores a higher interest rate when the customer is acquired—higher risk does require a greater yield—but once the customer has been acquired, does it make sense to charge the maximum default rates of 30% or higher, even if someone is only a little late on 1 payment?  And if someone is paying late because they have run into financial trouble, jacking up the interest rate to usurious levels would seem to increase the odds of not getting paid at all.

I think the real reason that credit card companies do this is because they can. When people are unable to pay off their credit card debt, even if they are paying their bills regularly, I believe that credit card companies see this as an opportunity to take advantage of such people to reap enormous returns. Otherwise, a better method of reducing risk would be to not allow the customer to make any more charges until the debt has been reduced significantly, or, if the credit card company truly believed that the customer was a real risk, to cancel the account, but allow the customer to continue making payments, using the original interest rate, so that the customer will be able to pay off the account eventually. Cardholders with little debt are rarely charged such rates even if they are late because they could easily pay off the debt and cancel the credit account, which is a risk that most companies don't want to take, considering how much they spend to acquire accounts. This is why people with a heavy debt load get socked with usurious interest rates even if they pay regularly, and customers with little debt don't. So don't go into heavy debt, and let lenders take advantage of you. Besides, lower debt increases your credit score and is simply more prudent.

To help the consumer, the Federal Reserve is proposing a requirement that a 45-day notice of a rate hike be given to the consumer, with the option to cancel the account and pay off the debt at the original interest rate.

A recently introduced Stop Unfair Practices in Credit Cards Act would limit penalty rate hikes to 7% and could only be applied to future credit, not to past balances. The Act would also eliminate the exorbitant fees that card companies charge to pay quickly, and that payments be applied to balances with the highest rates 1^st.

Charging the Rent or Mortgage Payment with a Credit Card

American Express and VISA are now offering creditworthy customers the option to charge their rent or mortgage payment with their credit cards. American Express started allowing  the charging of rent in 2003 and mortgage payments in May, 2007 with a few partners—rental developers and mortgage companies—and has expanded it gradually to 200 cities in 35 states. VISA started offering rental and mortgage payment services in 2007.

While it is a great way to earn reward points, it could also lead to greater consumer debt, and lessen the motivation of users to solve critical financial problems right away. Although the program is currently restricted to the most creditworthy customers, considering the highly competitive credit card business, it may be gradually expanded to the general population.

Charge the Rent, but Only if You Don’t Need To

Credit Freeze for All

Many cases of identity theft rely on stolen social security numbers, which are then used to open credit accounts, often with high balances. The thieves max out the credit lines without any intention of paying back the loans, which leaves the people with those social security numbers on the hook. The identity theft victims then must go through the travails of convincing credit bureaus and creditors that it was not them who took out the lines of credit, and that they were the victims of identity theft.

A credit freeze, which stops the credit bureaus from issuing credit reports to potential creditors, prevents the thieves from getting any more credit with that person’s identity, since almost all creditors require a credit report before they will issue credit or pay out loans. The disadvantage is that the victim of identity theft also cannot get any more credit until he unfreezes his account.

39 states have various laws that allowed consumers to freeze their credit reports, at least to some extent, but now that the credit bureaus see the growing trend, and also see the potential profits to be made by allowing consumers to freeze and unfreeze their credit reports for a fee, all 3 have decided to allow it regardless of where the consumers live. TransUnion was the 1st, while Equifax and Experian will allow it soon—Experian on November 1, 2007. The current fee is $10 to freeze it and $10 to unfreeze it, for each report, except in those states that require a lower fee, and it is free for any victims of identity theft. Therefore, a consumer who is not a victim of identity theft will have to spend $60 to freeze and unfreeze all 3 credit reports. The freeze request can be made by mail, telephone, or email.

Piggybacking Will No Longer Raise FICO credit Scores

Nowadays, with the help of friends, family, or certain websites, people with poor credit have been raising their credit scores by becoming authorized users of credit cards with an excellent credit history—termed piggybacking.

According to this New York Times article, Ron Totaro, vice president for global scoring solutions at Fair Isaac, has indicated that, starting in September, the FICO scoring algorithm will no longer include authorized user accounts in its formula for calculating FICO scores.

Bankruptcy Listings in Credit Reports and How It Affects Credit Scores

A Chapter 7 bankruptcy can be listed in credit reports for up to 10 years from the date that the case was filed, and a Chapter 13 bankruptcy can be listed for up to 7 years after filing. Note that because a Chapter 13 case usually takes about 5 years from filing to discharge, a Chapter 13 bankruptcy can only be listed in credit reports for about 2 more years after the final discharge.

It might be surprising to learn that bankruptcy doesn't really hurt most people's credit that much. The reason is because bankruptcy generally discharges most unsecured, nonpriority debts, which includes almost all credit card debt, collections, and court judgments, and the consumer will not be allowed to file another bankruptcy case for years. Thus, the consumer becomes a better credit risk. Moreover, people who file for bankruptcy already have bad credit, with missing or late payments, collections, judgments, and other negative items in their credit files. Furthermore, bankruptcy places a definite time limit on accounts. In other words, a delinquent credit card account will be listed in credit reports for up to 7 years after the account is closed! If the account is never closed, then it can remain on the credit report indefinitely. Bankruptcy puts a definite limit on how long discharged accounts can remain in the file.

After bankruptcy, if the consumer is wiser financially and is diligent in making payments, his credit will actually improve greatly over the 2 years following the final discharge, since credit scores depend mostly on financial data accumulated over the past 2 years, with more recent data having more influence on the score.

Anyone receiving a bankruptcy discharge should review all 3 credit reports after the discharge to verify that all discharged debts have been listed as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan," depending on which type of bankruptcy was filed. If any discharged debts are not listed as such, then the credit reporting agencies should be notified, so the debts can be properly listed as discharged. Because bankruptcy petitions are public records, the credit reporting agencies will have to list the debts as being discharged, since there can be no dispute about the facts.

Corporate Credit Cards, Credit Reports, and Credit Scores

Green Thumb - WSJ.com

Corporate credit cards are often issued so that an employee can pay and track expenses, and the bill must be paid in full, so there is no accumulation of interest. With a corporate credit card program, either the company takes responsibility for timely payments, or assigns that responsibility to the employee.

If the company takes responsibility, it will generally pay the bill after the employee files an expense report; otherwise, the employee pays the bill.

When the corporation is responsible, then an employee's credit record and credit score will not be hurt if the payment is late. Even when the employee is responsible—43% of the time according to 1 survey—the credit card companies may give the employee an extended grace period. American Express, the major corporate card issuer, won't report the delinquency for at least 180 days past the due date.

However, late payments can result in loss of rewards or require the payment of a fee to reinstate the rewards, or require payment of late, suspension, or reinstatement fees. It may also hurt the employee's relationship with the company, since it not only indicates that the employee isn't very responsible—a quality needed for most jobs—but the company may get less of a refund from the credit card company because of higher delinquency rates.

Specialty Consumer Reports — ChexSystems

Specialty consumer reporting agency list

Credit reports have information regarding payment history and amount of debt, and is requested by potential lenders before lending money. However, there are many other types of reports that cover gambling, checking accounts, employment, insurance, medical information, rental information, and mortgage financing. This short article has a good list of these reporting agencies, along with toll-free phone numbers. You are entitled to 1 free report per year from each.

ChexSystems Consumer Website

ChexSystems is one of the specialty consumer reporting agencies covering how people manage their bank accounts. ChexSystems relationship with banks is the same that lenders have with credit reporting agencies. Banks get these reports on anyone opening a new bank account, but they also send information about current customers, to add to the database.

The above site allows you to check your report at ChexSystems, if they have a report on you. However, they do not display the information online. You have to call, and provide the information to their automated voice system, and then they mail you your report in about 5 days. The site has a sample report that details what is covered.

The ChexSystems Consumer Report may include any debts owed to a bank, writing checks without sufficient funds, and returned items. Major sections include:

• Reported Information includes any mishandling of accounts, such as bounced checks, unpaid debts, or returned items. This information is kept for 5 years.
• Inquiries Initiated By Consumer Action includes completing any applications to open a bank account, or applying for a credit card or a loan. Also included are any inquiries that you make to receive your own report. This information is available anywhere from 90 days to 3 years.
• Inquiries Not Initiated By Consumer Action are inquiries that have not been initiated by you, but by a member of ChexSystems service with a permissible purpose, such as your current creditors or bankers, creditors looking for pre-approval candidates, and potential investors. Like credit inquiries in credit reports, this activity is only reported to you, not to others.
• Retail Information includes accounts with returned checks or certain collection accounts. However, ChexSystems gets this information from the Shared Check Authorization Network (SCAN), who, in turn, gets this information from retailers and other businesses. (SCAN: Attention Research & Resolution, 7805 Hudson Road, Suite 100, Woodbury, MN 55125, 800-262-7771)
• History of Checks Ordered is a record of check orders placed within the last 3 years.
• Social Security Number Validation validates the number by specifying the year and state that the sequence of digits first became available.
• Drivers License Number Validation compares the number with the requirements of the issuing state.
• Drivers License Number Verification is provided by some states to ChexSystems that shows the name and date of birth of the person to whom the license was issued.

Removing your Name for Prescreened Credit Offers and Other Promotions

If you want to remove your name from prescreened, pre-approved promotional offers for credit or insurance based on your credit report from Experian, Equifax, TransUnion, and Innovis Data Solutions for 5 years, call (888) 5-OPTOUT—(888) 567-8688—or submit your request online at OptOutPrescreen.com, the only website authorized by Equifax, Experian, Innovis, and TransUnion for consumers to opt out of firm offers of credit or insurance. However, if you want to opt out permanently, you will have to fill out the Permanent Opt-Out Election form available at the website, print it, sign it, then mail it at the provided address. If, after opting out, you want to opt in again, you can do so at the website.

FICO Expansion Score

According to Fair Isaac Corporation, ¼ of all adults in the United States—about 50,000,000 people—either lack a credit report or have insufficient information in their credit reports to determine a reliable credit score. These people include immigrants, young adults, the recently divorced or widowed, and ethnic groups that typically do not use credit.

To better gauge the creditworthiness of these individuals, Fair Isaac has sought additional information from sources other than credit reports to compute a more reliable score. Because this score is based on different sources of information and computed differently, it has a new name—the FICO Expansion score.

The FICO Expansion score measures consumer risk based on credit data which is not in credit reports, such as deposit account records, pay day loan cashing, and purchase payment plan performance. The FICO Expansion score attempts to measure the likelihood that the consumer will become severely delinquent (more than 90 days past due) in his payments, for up to 24 months after scoring. Like the Classic FICO score, the Expansion score ranges from 300 – 850, with higher numbers indicating greater creditworthiness.

Fair Isaac Credit Services is a subsidiary of Fair Isaac Corporation that organizes this information into consumer files; produces the reports and risk scores for business clients; and resolves consumer disputes. The new scores will be available through myFICO.com. Call 1-866-838-3427 for answers to any questions.

Credit-Freeze Laws

Putting the Freeze on Your Credit Report - WSJ.com

Many states are enacting laws, to prevent identity theft, that allow consumers to freeze access to their credit reports without their explicit authorization, which extends to almost any anyone wanting access to someone else's credit report, including credit card and cellphone companies, although consumers may have to pay a fee ranging from $5 to $20 to each credit reporting agency that issues a credit report, and another charge to unfreeze it, which can take up to 3 business days.

Half of the states have passed or are considering passing credit-freeze laws. Kansas, New York, Oklahoma, Utah, and Wisconsin have recently enacted credit-freeze laws. California was the first, but some portions of its law have been struck down by an appeals court, which affects only California, but challenges are likely elsewhere, as more states pass it, and enough time passes to mount challenges. 5 states allow only identity-theft victims to freeze access to their reports, and some states allow victims to freeze their accounts without paying a fee.

The big disadvantage for the consumer is that credit and other services that depend on credit checks may be more difficult and time-consuming to get.

Naturally, the finance and retail businesses oppose credit-freeze laws because of the burden on them. They argue that a consumer can place free, 90-day fraud alerts on their credit file, which requires the business requesting a credit report to verify the identity of the consumer. However, consumer advocates argue that fraud alerts are rarely effective.

Company Credit Cards can Hurt Authorized users' Credit Scores if Paid Late

Company Cards Can Hurt Credit - WSJ.com

Many people, as authorized users, have company credit cards to pay for business expenses. Sometimes the people pay the monthly bills themselves, and sometimes, especially for smaller businesses, the company pays the bill. However, an authorized user's credit score can suffer if the card payment is late, even if the company pays the bill.

New Bankruptcy Forms

New Bankruptcy Forms, effective for Cases Filed after October 1, 2006

The following amendments to the Bankruptcy Official Forms are effective for cases filed after October 1, 2006:

Official Form l, Voluntary Petition Form | Committee Note

Exhibit D to Official Form 1, Individual Debtor's Statement of Compliance with Credit Counseling Requirement (new) Form | Committee Note

Interim Bankruptcy Rule 1007 (Lists, Schedules, Statements, and Other Documents; Time Limits)

Official Form 5, Involuntary Petition Form | Committee Note

Official Form 6, Schedules of Assets and Liabilities Summary of Schedules | Committee Note

Official Form 6D, Schedule D Form

Official Form 6E, Schedule E Form

Official Form 6F, Schedule F Form

Official Form 6I, Schedule I Form

Official Form 6J, Schedule J Form

Official Form 6, Declaration Form

Official Form 9, Meeting Creditors Notice Form | Committee Note

Official Form 9G, Chapter 12, Individual or Joint Case Form

Official Form 9H, Chapter 12, Corporate Case Form

Official Form 9I, Chapter 13 Case Form

Official Form 22A, Statement of Current Monthly Income and Means Test Calculation (Chapter 7) Form | Committee Note

Official Form 22C, Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Chapter 13) Form | Committee Note

Official Form 23, Debtor's Certification and Completion of Instructional Course Concerning Financial Management Form | Committee Note

Director's Procedural Bankruptcy Forms for October 2006

Amended Director's Procedural Form 104, Adversary Proceeding Cover Sheet, and Form 210, Transfer of Claim Other Than for Security, will be effective as the bankruptcy courts implement CM/ECF Release 3.1. Most bankruptcy courts are expected to have implemented Release 3.1 by October 17, 2006. New Director's Procedural Form 202, Statement of Military Service, and amendments to Director's Procedural Forms 240, Reaffirmation Agreement; Form 271, Final Decree; and Form 281, Appearance of Child Support Creditor or Representative, were effective on August 1, 2006. The forms are available at http://www.uscourts.gov/bkforms/index.html

Form 104, Adversary Proceeding Cover Sheet (10/06) Form | Instructions

Form 202, Statement of Military Service (new) Form

Form 210, Transfer of Claim Other Than Security (10/06) Form | Instructions

Form 240, Reaffirmation Agreement Form

Form 271, Final Decree Form

Form 281, Appearance of Child Support Creditor or Representative Form

Improving Your Credit Score

Piggybacking on a Credit History - WSJ.com

There is an unusual way to improve someone's credit score by making that person an authorized user of a card where the legal owner of the account has a long and good payment history with that card. The reason why this works is because Fair Isaac—the company whose algorithm for determining credit scores, called the FICO score—treats the entire payment history as if it was the authorized user's own credit card. Thus, this is a good way to quickly raise the score of children who are starting to use credit, or for family members or friends emerging from bankruptcy.

The disadvantage for the legal card owner is that the authorized user might run up excessive charges on the credit card, especially since the user has no legal obligation to pay the bill. However, it has been suggested that this can be prevented by making the person an authorized user, but not giving him a card or the card number so that he can make charges, although what is to prevent an authorized user from learning the account number by getting a copy of his credit report? Nonetheless, it will still improve the authorized user's credit score.

There are some websites, such as Seasonedtrades.com and Creditlaunchers.com, that charge $1,000, or more, for this benefit. These websites also offer other credit services as well, although I don't know if they would be in the best interest of those seeking to rebuild their credit. Indeed, advertising the raising of credit scores may simply be a way to attract credit seekers to their other services. To pay so much money to raise one's score is a good indication that the person is not financially wise, and thus, is bound to have a lower credit score eventually, anyway.

There is also a disadvantage for the authorized user. If the legal card owner would stop making timely payments on the card—for instance, maybe he suddenly became hospitalized—this would negatively affect the credit rating of the authorized user.

The credit rating of the authorized user has no effect on the legal owner's credit record or rating, since it is the owner who is liable for the card. Note, too, that, although this can improve someone's score, especially someone with little credit, it will not overcome a generally negative credit history.

Credit Card Rate surfing

Here's a good article about using low-rate offers from credit card companies to invest or spend. Most of the principles are obvious, but beware if there is no cap on the balance-transfer fee. Although most balance transfers in the past had a cap (example: 3% of balance or $50, whichever is less), more card issuers are eliminating the cap. Thus, transferring a balance of $10,000 at 3% with no cap will cost $300 just to transfer, compared to $50 with a balance transfer that has a $50 cap.

History of Bankruptcy

MSN Money - Timeline

This is a very interesting, illustrated timeline of bankruptcy, starting in biblical times.

Credit Scores — Credit Score Estimator

Credit Scores - This is my new, illustrated article on credit scores, and how to raise them.

The FICO® Score Estimator - Get a free estimate of your FICO credit score here by answering a few questions that will take less than 5 minutes. Your estimated score will have a low and a high estimated score with about a 50 point range.

Credit Cards

Credit card ratings - 20,000+

Description: Credit card ratings and online credit card applications.

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This website has complete information on just about anything about credit cards. Sections on the home page include: Secure Online Credit Card Applications; Featured News Stories about credit; Featured Cash-Back Credit Cards; Bad or No Credit Cards; Low-Rate Cards; Airline Reward Credit Cards; Low Introduction Rate Cards; Small Business Credit Cards; Student Credit Cards; Credit Education Articles; Message Board & Blog; and Consumer Reviews. It also has 2 searchable databases with over 1,100 credit card descriptions.

The name of the parent organization is Citizens for Fair Credit Card Terms, Inc. (CFCCT). Provides information primarily for U.S. consumers, but also includes information for Canada and the U.K.

 Although there is a lot of information about credit cards at this site, it also profits from credit card advertisements and promotions, which may lower their objectivity. The educational articles are nicely formatted, but they are no more than introductions to the subject of the article.

Below are some other pages from this site:

CardRatings.com Cardholder Credit Card Reviews

This section allows consumers (like you) to review a credit card that they have used in the past or are currently using. Has over 19,000 consumer reviews of approximately 928 credit cards.

Credit Card Form Letters & Dispute Letters

This page has a few form letters that you can send to credit card companies to dispute charges, among other things.

FICO Credit Scores

myFICO - FICO Credit Scores, Online Credit Reports and Identity Theft Protection

Credit scores are an important screen that mortgage lenders and other lenders use to screen loan applicants. This site explains the score, what factors determine it, and their relative weight. The home page shows a table for a typical mortgage, and how the interest rate and payments vary with the score. You can also buy your score here.

VantageScore — New Credit Score System

USATODAY.com - Major credit agencies adopt uniform credit score system

A new credit scoring system, called VantageScore, has been developed by the 3 major credit reporting agencies Equifax, Experian and TransUnion to provide a more consistent scoring system for creditors. Credit scores allow lenders to set standards and to quickly gauge the creditworthiness of potential borrowers by consolidating numerous factors into a single number.

Before, each credit reporting agency used their own system that gave differing scores not only because of different personal data about the individual, but because of differing methods used to compute the score, although the FICO score was widely used. There will still be some differences because each credit agency has slightly different data in their files on people, but the methods used to compute the score will now be the same for all 3 agencies.

The new credit score will have the following scale:

   A - 901-990
   B - 801-900
   C - 701-800
   D - 601-700
   F - 501-600
Note that under the new system, a credit score of 750 is considered mediocre, but was considered an excellent score under the old system.

Although the new scores are immediately available to creditors, they won't be available to consumers until later this year.

FTC's Website on Credit

The FTC's web site on Credit

This is the Federal Trade Commission's site on credit. Includes links and facts about the new bankruptcy law, and the new site where you can get a free credit report online from all 3 major credit reporting agencies: Experian, TransUnion, and Equifax. Also includes a summary of your rights under the Fair Credit Reporting Act in PDF format.

Bankruptcy Risk Score — Paying Your Taxes with a Credit Card

MSN Money - This secret score can hurt your credit

USATODAY.com - Credit card firms dangle bait to those who owe taxes

New Statistics for the New Bankruptcy Law

CardTrak - "Tracking Bank Credit & Payment Cards for the American Consumer"

The number of people filing for bankruptcy before the more stringent new law took effect on October 17, 2005 rose dramatically, but then fell off just as dramatically. Although 2,043,535 bankruptcies were filed for 2005, only a little over 38,000 have been filed from October 17 - December 31, 2005. Almost 60% of the post-October 17th filings were Chapter 13 filings compared to about 30% under the old law.

The Best Credit Cards

ConsumerReports.org - 10 most consumer-friendly credit cards 11/05

Here's the 10 most consumer friendly credit cards according to Consumer Reports.

Credit Counseling - Health Care Bills - Market Gyrations and Mutual Funds - Gas and Energy Stocks

Creditors' Role in Counseling Draws Critics - New York Times

This article discusses the possible conflicts of interest between the credit counseling agencies that will be counseling people contemplating or in the process of bankruptcy and the creditors, who are providing much of the financing for these agencies. The new bankruptcy law requires debtors to get counseling both before and after they file, and the concern is that the counselors may be working more in the interest of the creditors than the debtors.

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Treated for Illness, Then Lost in Labyrinth of Bills - New York Times

Inexplicable hospital and doctor bills? Don't know what the codes mean? Seems to me in this computer age, there should be no problem in providing a good description with the code so that a patient knows what he or she is paying for. Otherwise, it would be very difficult to discover mistakes, and a mistake in a hospital bill could be a very costly one. One thing that might help considerably for any hospital patient or a relative, is to keep a diary of every service received and from whom it was received, so that when the bills arrive, you'll at least know if you're actually paying for a service actually received.

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Money - Become Rich - Avoid Losing It

How to Make a Million Dollars, by Marshall Brain

Want to become rich? This is one of the best articles I have ever read on the subject—simple and concise.

WebKEW: Making Money on the Web!

An excellent blog by Marshall Brain dedicated to making money on the Web.

"The idea behind WebKEW is to collect together ideas, techniques, case studies, stories, etc. that will help you learn how to create successful web sites."

MSN Money - 8 lottery winners who lost their millions

A very illuminating article about sudden wealth, and how to lose it.

MSN Money - Debt disasters of the rich and famous

The debt woes of the rich and famous.

26steps to 15k a Day

An good primer on creating a money-making website in 1 year.

Bankruptcy Tax Guide, Publication 908