Q&A: Paying an incorrect bill to avoid a credit hit

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.

Q&A: Money owed on a lease after death

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.

Q&A: Social Security spousal benefits

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.

Q&A: Fraud or forgetfulness?

Dear Liz: I think I’ve been scammed, but my credit union has decided I’m simply forgetful. I noticed a debit to my checking account that I did not recognize from a merchant I cannot identify. The merchant name appears on my statement as simply “Portland Portland OR.” My credit union can tell me only that it is a used-merchandise store or secondhand store. I questioned the charge by email and replaced my card. Then I got a letter from the credit union upholding the charge, saying that my card and PIN were present at the time of the transaction. I never did learn the merchant’s name. Can this merchant really not be identified? The $10.48 in dispute is unimportant compared with the complete opacity of the supposed purchase. No name, no address, only a day and time. Is this mystery the best the banking system can do?

Answer: Your credit union could identify the merchant by contacting the card network that processed the transaction, but has apparently decided it’s not worth the effort, said Odysseas Papadimitriou, chief executive of Evolution Finance, which operates the CardHub.com card comparison site. You can demand the credit union identify the merchant for you, but there’s reason to believe this transaction is legitimate, he said.

It’s not just because a personal identification number was used, however, since PINs certainly can be stolen. Hackers have compromised keypads at Michael’s stores and Barnes & Noble, among other retail chains, while Target said encrypted PIN data were stolen in its massive database breach.
But the use of a PIN combined with the small amount of the transaction indicates the culprit here likely is forgetfulness rather than an identity thief, Papadimitriou said. ID thieves are unlikely to make one small transaction and then wait, he said.

“They try to extract the max they can before they get shut down,” Papadimitriou said.
Still, your experience should make you think twice about using a debit card for a retail transaction. With debit card fraud, you may have to fight with your financial institution to get the money back, since the transaction comes directly out of your checking account. With credit cards, you don’t have to pay a disputed transaction until the card company investigates.

Q&A: Social Security spousal benefits and divorce

Dear Liz: My fiancé was married to a wealthy woman for over 10 years. Will he lose his opportunity to use her earnings record as the basis for his Social Security retirement benefits if we get married?

Answer: The short answer is yes. Spousal benefits for divorced people are available only to those who remain unmarried. Many people confuse spousal benefits with survivors benefits. Survivors benefits for widows, widowers and divorced spouses of the deceased can continue after the recipient remarries, but only if the remarriage occurs after age 60.
You shouldn’t assume that your fiancé’s spousal benefits necessarily will be larger than his own benefit. His ex could have been wealthy without being a high earner. Even if she did, 100% of his own benefit could be worth more than 50% of hers. To find out for sure, he needs to contact the Social Security Administration.

Q&A: Loose change and the ‘Big One’

Dear Liz: In your column about saving loose change, another reason to keep a couple of coffee cans full of coins is for when we have the “Big One.” ATMs and banks and stores that rely on computers will be down, but loose change and small bills will be spendable.

Answer: Every disaster preparedness kit — which every home should have — should include some cash for emergency spending. But the cash should be in the form of bills, not change, which will add unnecessary weight to your kit if you have to evacuate. A few hundred dollars in bills are easily carried — not so the 20 or 30 pounds of change that make up an equivalent amount of spendable money.

Q&A: Student loans and forgiveness

Dear Liz: I have a rather ugly student loan predicament. You mentioned “the possibility of forgiveness” in a recent column. I feel very strongly that I am deserving (if I dare use that word) of partial or full forgiveness of my undergraduate loans, although the loans from my graduate studies sting quite a bit too. I am not sure whom to contact to tell my story. Do I ask my lender, or do I contact the federal government education department? I get beyond frustrated talking to my lender, as they have employees who can only read from a script and can never help with particular issues.

Answer: You don’t win federal student loan forgiveness with an effective sob story. You get it by volunteering, working in a high-need area or following the relatively new rules for erasing remaining balances after many years of on-time payments. You also can get your federal (but not necessarily private) loans discharged if you’re totally and permanently disabled, you die or your school closes before you get your degree.

FinAid.org maintains a list of some of the forgiveness and stipend options available. People who teach full time in low-income districts, for example, can have up to $17,500 of their Stafford or PLUS loans forgiven under the National Defense Education Act. Forgiveness options exist for health workers and attorneys who serve high-need areas. Students in the Army National Guard may be eligible for its repayment program, which offers up to $10,000 for repaying student loans. AmeriCorps, the Peace Corps and Vista also have stipend programs for student debt repayment.

In addition, the federal Public Service Loan Forgiveness program promises any remaining federal student loan balances can be erased after 10 years of payments. Eligible public service jobs include employment with federal, state or local governments or not-for-profit organizations designated as tax-exempt by the IRS. You can find more information about this program at the U.S. Department of Education’s Federal Student Aid site.

Even if you work in the private sector, you can qualify for forgiveness after 20 to 25 years of on-time payments, depending on when you incurred the debt. Again, see the education department’s site for details.

If you’re finding your payments onerous, you may qualify for the “Pay as You Earn” or other federal income-based repayment plans. If you have private student loans, though, you have far fewer options and consumer protections. You may want to visit the Student Loan Borrower Assistance site run by the National Consumer Law Center to learn more about strategies for coping with this debt.

Q&A: The benefits of loose change

Dear Liz: I just had to giggle at the husband who wanted to save his coin change for an emergency. Yes, this seems so silly now, but back in the day prior to debit cards my mom started saving all her loose change in a coffee can when my husband and I got engaged. Ten months later, she had saved enough for my wedding dress! When we had our first child, we started saving all our loose change, and 10 years later, we had saved enough for a trip to Disneyland. Obviously, we are saving less and less change since we so seldom use cash anymore, but we still keep a coffee cup to collect the loose change and still manage to turn in about $100 a year to the bank.

Answer: The key is to regularly deposit the coins, rather than letting them pile up. But a few readers cautioned that it might be worth carefully sorting through older stashes of coins:

Dear Liz: You gave a good answer to the question about cans of coins. You also should advise the party that if the cans have older coins — pre-1965 — the value of those dimes, quarters and half-dollar coins is tied directly to the price of silver. At $20 per ounce, 90% silver coins are worth about fourteen times their face value. A dime would be worth about $1.40, a quarter about $3.50, and a half-dollar about $6. At the same silver price of $20, 40% silver half-dollars are worth about $2.50 each. If you use a commercial sorting service you will lose the value of these coins. If you sort them while watching TV as I do, you will recover it. Lastly, if you do roll the coins, return them to the bank immediately. If your house is burglarized, as mine was, the rolls of coins on your desk will be gone in an instant.

Answer: Ouch. Sorry for your loss. You aren’t the only one to find gold (or rather silver) in your coins:

Dear Liz: I inherited much loose change. I started going through it and found a nice can of Buffalo nickels (each worth more than a nickel) and 22 pounds of silver quarters (made before the sandwich coins) worth $7,744 less handling and processing fees. It still came to a tidy sum. Let your letter writer know that it may pay to sort through that mountain of loose change.

Q&A: Debt obligations and voluntary surrender

Dear Liz: My husband returned a car to the dealer when he lost his job. Now the company says he owes it more than $7,000 (the difference between what he owed to the dealer and the price for which the car was sold). He refuses to pay any amount, but recently he received a letter from a law office demanding payment or they will take him to court. Is he obliged to pay this money? What options does he have to get rid of this debt?

Answer: A debt doesn’t disappear simply because someone decides not to pay it.
Your husband signed loan paperwork to buy the car, and this paperwork obligated him to repay a certain amount. Voluntarily surrendering the car didn’t change his obligation. Also, the surrender probably is being reported to the credit bureaus as a repossession, which is a big negative mark on his credit reports. Some people mistakenly believe that a voluntary surrender avoids credit damage. Typically, it does not.

Your husband could make matters worse if he continues his stubbornness. The law firm can take the collection to court, where it’s likely to win. That will add a judgment to your husband’s credit files and cause further damage to his scores. His wages could be garnished to pay the debt.

Your husband may be able to settle this debt for less than he owes, especially if he can offer a substantial lump sum, but negotiations with a collector can be tricky. He may want to consult an attorney for help or at least arm himself with more knowledge about what to do from sites such as DebtCollectionAnswers.com.

If this is just one of a number of unpaid bills, though, you both may benefit from talking to a bankruptcy attorney about your options.
In the future, keep this experience in mind when you go to buy another car. Making at least a 20% down payment and limiting the loan term to four years or less will help ensure that you’re never “upside down” like this again.

Q&A: Roth IRA

Dear Liz: I have a 401(k) that has a required annual distribution because I am over 71 1/2 years old. Can I use this distribution as qualified income to invest in a Roth IRA? I have no W-2 earnings, although I do have other income sources that are reported on 1099 forms.

Answer: To contribute to a Roth or other individual retirement account, you must have taxable compensation, which the IRS defines as wages, salaries, commissions, tips, bonuses or net income from self-employment. The IRS also includes taxable alimony and separate maintenance payments as compensation for IRA purposes.

So if the money reported on one of those 1099 forms is from self-employment income, then you can contribute to a Roth IRA. If the form is reporting interest and dividends or other income that doesn’t meet the IRS definition of taxable compensation, then you’re out of luck.
If you don’t have income that meets the IRS definition of taxable compensation, but your spouse does, you may still qualify for IRA contributions, provided you file a joint return that meets the required income thresholds.