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Q&A Category

Dear Liz: My partner of 30 years recently died. Am I eligible for Social Security survivor benefits? I don’t want anything I don’t deserve, but if I’m entitled to something, every penny would be appreciated. I am 54 and make minimum wage.

Answer: Your eligibility for Social Security benefits as a spouse depends on three factors: whether your state recognizes same-sex marriages, whether it did so on the date your partner died and whether you were legally married. (You wrote “partner” rather than “spouse,” which suggests you may not have been.)

The Supreme Court paved the way for Social Security to offer same-sex benefits when it ruled parts of the federal Defense of Marriage Act unconstitutional last summer. Social Security has taken the position that it must follow state law in recognizing same-sex marriages and that what matters is where the couple live, not where they married. Even in states where same-sex marriage is currently legal, Social Security denies survivor benefits if it wasn’t legal when the spouse died.

If you are eligible, you can start receiving benefits as early as age 60. (Survivor benefits are available at any age if the widow or widower takes care of a child receiving Social Security benefits who is younger than 16 or disabled.)

Starting early reduces your survivor benefit significantly compared with what you would get if you wait until your full retirement age of 67. As a survivor, though, you’re allowed to switch to your own benefit later, if that benefit is larger. (That’s different from spousal benefits, where spouses are precluded from switching to their own benefits if they start getting Social Security checks before their own full retirement age.) If your survivor benefit is likely to be larger than any benefit you’ve earned on your own, though, it typically makes sense to delay starting Social Security as long as possible to maximize what you’ll get.

Categories : Q&A, Retirement
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Dear Liz: You recently wrote about student loan forgiveness. After 15 years as a public defender, my wife was diagnosed with multiple sclerosis and could no longer pursue her career as a lawyer. She applied for forgiveness of the federal student loans she used to attend law school. About three years later, the loans were forgiven. The caveat is that she was required to pay income taxes based on the balance that was erased. The taxes amounted to $63,000. Getting the loan forgiven was easy compared with coughing up the money for the IRS. I thought this should be mentioned.

Answer: The IRS generally considers forgiven or canceled debt as income to the borrower. There are several exceptions, however.

Borrowers don’t have to pay income taxes on student loans forgiven through programs that require them to work for a specific number of years in a certain profession. So public service loan forgiveness, law school repayment assistance, teacher loan forgiveness and the National Health Service Corps’ loan repayment program won’t trigger taxes. Forgiven debt also may be excluded from income if the borrower was insolvent at the time.

Student loan discharges for death, disability, closed schools, false certification and unpaid refunds typically are considered taxable income, however. Forgiveness of remaining balances under income-based repayment programs after 20 or 25 years of payment is also considered taxable.

The taxes owed will be a percentage of the amount forgiven, based on your tax bracket. If you’re in the 25% federal bracket, for example, you’d pay $25,000 for $100,000 of forgiven debt, plus any state and local income taxes. It’s less than the tab you owed, of course, but as you note it can still be a tough bill to pay.

Categories : Q&A, Student Loans, Taxes
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Q&A: The stigma of bankruptcy

Nov 24, 2014 | | Comments (0)

Dear Liz: Someone recently asked you about whether they were responsible for their mother’s credit card debt, and at the end of your answer you suggested she talk to a bankruptcy attorney. How can you promote that kind of irresponsibility?

Answer: Some people are quite firm in their belief that bankruptcy should never be an option — even for elderly widows on fixed incomes with no hope of ever paying off their debts. But if enough things go wrong in their lives, these anti-bankruptcy folks might find themselves grateful that there’s a legal way out of the debtors’ prison that their lives would become.

Categories : Bankruptcy, Q&A
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Dear Liz: My nephew was persuaded by a recruiter to attend a for-profit technical college. Then, once he entered, his “advisors” persuaded him to take many, many classes — at full price — always handing him student loan paperwork to get more loans. Then they persuaded him to change his major, necessitating a whole new round of classes and loans to pay for them.

The problem is my nephew has Klinefelter syndrome, a genetic disorder. He was not diagnosed until he was an adult and therefore was left with a mental age of about 12. This is what made him so gullible. He did graduate but in the six years since has not been able to find work because it is obvious to employers that he is mentally challenged. Now his training is becoming obsolete, making jobs even harder to get. This means there is no way he will ever be able to pay back the thousands of dollars in loans. Klinefelter is listed in the disabilities registers, but because he can function, any kind of aid is really hard to get. Do you have any advice on what to do about the looming debt?

Answer: The questionable tactics of some for-profit colleges have prompted regulatory investigations and lawsuits. That doesn’t mean the debt that affected students accumulated will be easy to erase.

Many for-profit colleges rely heavily on federal student loans for their funding. If your nephew’s loans are federal, he might be able to qualify for a total and permanent disability discharge of his federal loans, said Mark Kantrowitz, publisher of EdVisors, a college resource site.

“He will need a doctor to certify that his disability prevents him from obtaining gainful employment,” Kantrowitz said. “He will also need to earn less than the poverty line annually for the three-year post-discharge monitoring period.”
Kantrowitz has more information about such discharges on his site.
Another option is to consult an attorney, Kantrowitz said. “If he lacked the mental capacity to enter into a contract, he might be able to repudiate the loans,” Kantrowitz said.

Your nephew also may be able to discharge the loans in bankruptcy, Kantrowitz said. Typically student loans can’t be erased this way, but there are exceptions, including one woman in Maryland who was able to erase $340,000 in law school and other education debt after a judge said her Asperger’s syndrome made it impossible for her to hold a job.

“The odds of success are low, but many of the successful discharges involved disabilities, especially when the loan program did not provide for a disability discharge,” Kantrowitz said.

A final possibility, if your nephew has federal student loans, is to sign up for an income-based repayment program. If his adjusted gross income is less than 150% of the poverty line, his required payment would be zero and he would be eligible for the discharge of his debt after 25 years.

Categories : Q&A, Student Loans
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Dear Liz: You’ve answered a number of questions regarding credit card debt when a person dies. But I haven’t quite seen the answer I need. If a spouse dies, and the remaining spouse is not on the credit card account, is it still the responsibility of the survivor to pay the card? Does the answer vary by state? Or is it a federal law?

Answer: As you read in previous columns, the dead person’s assets are typically used to pay his or her debts. If there aren’t enough available assets to pay the creditors, those creditors may be able to go after the spouse in certain states and certain circumstances.

In community property states such as California, debts incurred during a marriage are typically considered to be owed by both parties. Other community property states include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In the rest of the states, a spouse’s debts are his or her own, unless the debt was incurred for family necessities or the spouse co-signed or otherwise accepted liability.

Collection agencies have been known to contact spouses, children and other family members and tell them they have a legal or moral obligation to pay the dead person’s debts, regardless of state law. If you are married to someone with significant debt, contact an attorney to help you understand and perhaps mitigate your risk.

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Dear Liz: My mother, who is widowed, has credit card debt. When she dies, are my sister and I responsible for that debt? There is no estate, but she does have a small amount of life insurance that mainly would go toward her funeral expenses and fixing things in her home to get it ready for sale.

Answer: If your mother owns property, then she has an estate. If she has any equity in the property when she dies, some of that equity might have to be used to pay her debts.

You and your sister, however, are not responsible for your mother’s debts. The life insurance also does not have to be used to pay debts if your mother names a beneficiary (or beneficiaries) for the policy and at least one of the people named outlives her. In that case, the insurance proceeds would go directly to the beneficiaries, bypassing the probate process.

If she doesn’t name a beneficiary, the insurance proceeds may be included in her estate and used to pay her final bills, including credit card debt.

If your mother can’t pay what she owes, she should consider talking with a bankruptcy attorney about her options.

Categories : Credit & Debt, Q&A
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Q&A: Debit card fraud follow-up

Nov 10, 2014 | | Comments (0)

Dear Liz: Regarding your recent answer regarding a mysterious debit charge, I beg to differ with your quoted source, Odysseas Papadimitriou of Evolution Finance, who said it was unlikely to be fraud. It took me all of 30 seconds to search online for “credit card fraud small amount” and found multiple reliable sites dedicated to just the kind of small-amount fraud your reader was asking about. I’m amazed that anyone claiming the slightest amount of expertise in credit card scams wouldn’t be aware of this. Ironically, nothing would help the scammers more than purported experts advising the public at large to ignore this type of fraud and assume instead it’s the result of their own oversight. Why such clearly wrong-headed advice is appearing in your column is beyond me.

Answer: Small-amount fraud is a problem — for credit cards. The original question and Papadimitriou’s answer related to a debit card transaction. While small-amount fraud is certainly possible with debit cards, Papadimitriou said the far more common pattern was for thieves to attempt to steal as much as possible before the card was shut down. That, and other details of the transaction, led him to conclude the credit union was probably correct that the transaction wasn’t fraudulent.

Dear Liz: In reading the story of the person with the errant charges on a debit card, I had a similar issue. I found a charge in a town where I had not traveled, at a business I was unfamiliar with. My bank wanted me to contact the business and explain my issue. I said NO! It turns out someone had “keyed” in my debit card number for a $19 charge in error. My response to my bank was that they made the error on giving away my money and that if they wanted to continue being my bank, they would resolve this issue and replace my money. It took about two weeks, but the merchant complied with the bank’s request and gave back the money.

Answer: In the original question, the transaction occurred in the questioner’s home town and the credit union said a PIN was used. It’s highly unlikely that both a debit card number and its PIN would be randomly entered in error.

But your experience highlights the problems inherent in using a debit card. Fraudulent transactions come directly out of your checking account, and you sometimes have to fight with your financial institution to get the money back.

With credit cards, you don’t have to pay the questionable charges until the credit card company investigates.

It’s vitally important to review all transactions on both debit and credit card accounts, and to question any unfamiliar charges. In this case, the merchant wasn’t clearly identified and the customer certainly has the right to push the credit union for more detail. But when all indicators point to forgetfulness rather than fraud, the reader may have to accept that the charge was legitimate after all.

Categories : Credit Cards, Q&A
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Dear Liz: I was a volunteer for a research study at a local university. It required a blood draw done at the university’s hospital. A month later, I received a bill for the blood draw, which I questioned. I was told it was a mistake and that I was in no way responsible for costs associated with the research study. Because the hospital was installing a new billing system, I was told it would take a while to resolve and not to worry about any bills that would come to my house.

Now, three months later, the hospital has turned the bill over to a collections agency, with the amount due double the original cost. They have given me 30 days to pay up, or they will report the delinquency to the credit reporting agencies.

The university seems unable to fix the problem, especially now that the debt has gone to collections. Should I pay the bill to save my excellent credit rating? Or should I continue to fight the university and now the collections agency?

Answer: To avoid damage to your credit scores, sometimes the best course is to pay a disputed bill and then sue the creditor in small claims court. Since you have some time to fight back, however, you should do so.

The good news is that medical bills are usually placed with collection agencies on assignment. That means the hospital can take back the account if it’s sufficiently motivated to do so. Your task now is to make the hospital motivated — if not desperate — to help you out.

Write a letter outlining the facts as you’ve done here and send it to the head of the research study, the president of the university, the head of the university hospital, your local newspaper columnist and, if you’d like, your congressional representative. It’s outrageous that doing a good deed has put your credit at risk because of a hospital billing department’s incompetence. You need to stop dealing with front-line billing people, who obviously don’t have the power to help you, and bring your problem to the attention of people who can.

Categories : Credit Scoring, Q&A
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Dear Liz: I read your answer to the person who returned a car and wanted to be free of that debt. Our situation is somewhat different. My son’s father had a massive stroke and died two weeks after signing a lease for a Camry on which he made a $2,000 down payment. My grown son, who is left to deal with everything, took the car back to the dealership, and they assured him nothing further would be needed. The dealership then sold the car for $18,000 at an auction and said $8,000 is still owed on this car since my son’s father signed a legal contract.

Answer: The money is still owed. Whether the dealership will ever collect is another matter.

This debt is now part of the dead man’s estate, along with any other loans or credit accounts he owed at the time of his death. If the estate has sufficient available assets, the executor is required to pay those bills. If there aren’t sufficient assets, creditors may have to accept less than they’re owed or nothing at all.

If your son is the executor, he should hire an attorney experienced in settling estates to help him deal with these details. Nolo’s book “The Executor’s Guide” also will help him understand his duties and obligations.

Categories : Banking, Q&A
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Dear Liz: Can you please explain Social Security spousal benefits? Is there a certain length of time a husband and wife need to have been married that will qualify the spouse to get the spousal benefit after divorce? For example, if a couple has been married for 20 years and then divorces, will the spouse still be entitled to collect the spousal benefit, or is the spousal benefit only for those who stay married?

Answer: Spousal benefits are available to divorced spouses as long as the marriage lasted at least 10 years. But you have to be unmarried to get benefits based on an ex’s work record. If you remarry, those benefits end.

The amount you get as a spouse or divorced spouse can equal up to half of what the primary earner gets. As with other Social Security benefits, however, your checks typically will be reduced if you start benefits before your own full retirement age. Starting spousal benefits early also precludes you from later switching to your own retirement benefit, even if that benefit would be larger.

Categories : Banking, Q&A, Retirement
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