Ask Liz Weston

Get smart with your money

Liz Weston

Monday’s need-to-know money news

By

Today’s top story: How to foil 5 common bank fees from draining your funds. Also in the news: How to talk – not fight – about money with your spouse, the real cost of owning a pet, and how Equifax ignored warning about security vulnerabilities.

How to Foil 5 Common Bank Fees From Draining Your Funds
Don’t let them take your money.

How to Talk — Not Fight — About Money With Your Spouse
Peaceful talks over a tough subject.

How Much Does Owning a Pet Really Cost?
Affording Fido.

Equifax Was Warned About Vulnerability But Failed To Patch It
A nightmare that could have been prevented.

Q&A: Debt settlement vs. filing for bankruptcy: Pros and cons

By

Dear Liz: I owe a credit card company about $16,900. I have not been able to make payments for almost two years and have no money. They recently sent me a proposal to pay off the entire amount at 30 cents on the dollar by making 24 payments of a little over $200 per month. I’m concerned they can then resell the unpaid amount to a debt collector and that it really isn’t a solution for the entire debt to be extinguished, even if I agree to their proposal. Am I right?

Answer: In the past, poor record-keeping and unethical behavior meant some debt buyers routinely re-sold debts that were supposed to be settled. While that can still happen, it’s less likely, especially if you’re dealing with the original creditor or a company that’s collecting on the creditor’s behalf, rather than a company that purchased an older debt.

You’ve been offered a pretty good deal, says Michael Bovee, president of debt settlement company Consumer Recovery Network. Typically debts are settled for 40 to 50 cents on the dollar.

That doesn’t mean you should take it, necessarily. You have to be able to make the payments to get the debt settled, for one thing. Also, any debt that’s forgiven can be treated as income to you. The creditor will send you (and the IRS) a Form 1099-C showing the forgiven amount and you’ll typically owe income taxes on that amount unless you’re insolvent. If you’re in the 25% tax bracket, that would add roughly $3,000 to the cost of settling this debt.

Many people who can’t pay what they owe are better off skipping debt settlement and filing for Chapter 7 bankruptcy, which erases credit card balances, medical bills, personal loans and many other unsecured debts in three to four months. Chapter 7 typically has a bigger impact on your credit scores than debt settlement, but it legally erases the debts and prevents creditors from filing lawsuits against you. If you try to repay this debt and fail, or if you continue simply ignoring it, you could get sued.

You can get a referral to an experienced attorney from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org. Discuss your situation and your options before you decide how to proceed.

Q&A: Your debt lives even after you die

By

Dear Liz: I live in a senior building and we had a discussion about our debt after we pass away. I said, “If we have any money in our estate, that will pay it off.” One woman who lives here claims that all you have to do is send in a copy of a death certificate and that will get rid of any debt. Hope you can settle this for us.

Answer: Debt doesn’t just disappear when someone dies. Whether and what creditors get paid, though, depends on a lot of factors.

After someone dies, the executor of the estate (or the personal representative, if the deceased had a living trust) is supposed to notify creditors of the death. The first bills to be paid usually are the costs of administering the estate, followed by secured debt such as mortgages, liens and so on, then the funeral and burial expenses, says Los Angeles estate planning attorney Andrew Steenbock. Next in line typically are medical bills from the final illness and the dead person’s last tax bill. Then other creditors are paid from what’s left, if anything. Only after creditors are paid can any remaining assets be distributed according to the will, trust or state law if there are no estate planning documents. If the estate is insolvent — with more debt than assets to pay those debts — then heirs typically get nothing and the creditors are paid a portionate amount of whatever assets are available.

Things can get more complicated if there is a surviving spouse or co-signer, since debt that’s jointly owed would become the survivor’s problem.

Ignoring these rules can have serious repercussions for the executor, who can become personally liable for mistakes made in settling an estate. If your neighbor’s executor ignores state law and distributes assets to heirs before paying off creditors, for example, the creditors could sue the executor. That’s a pretty powerful incentive for learning and obeying those rules.

Friday’s need-to-know money news

By

Today’s top story: Protecting your credit even as Equifax vows free lifelong credit lock. Also in the news: Sorting out an athlete’s tax bill, navigating car buying in a post-hurricane market, and the mobile game that helps you save money.

Protect Your Credit Even as Equifax Vows Free Lifelong Lock
Necessary steps.

Think Playing Quarterback Is Tough? Try Sorting Out an Athlete’s Tax Bill
Yikes.

Navigating Car Buying in a Post-Hurricane Market
Be careful you don’t get soaked.

One Part Personal Finance, One Part Mobile Gaming: Meet Long Game
Have fun while saving money.

Are you a yo-yo debtor? Ways to break that cycle

By

Americans’ debt loads, like our waistlines, tend to expand as we approach middle age and then gradually diminish as we get older.

Some people, though, are yo-yo debtors, fighting an ongoing up-and-down battle with debt. They pay it off, or come close, only to find themselves battling bills once again. But there are ways to break that cycle.

In my latest for the Associated Press, how to break the cycle of yo-yo debt.

Thursday’s need-to-know money news

By

Today’s top story: The best cities for recent college graduates. Also in the news: Why paying bills is a grind for almost half of Americans, how to trim expensive wedding frills without cutting guests’ fun, and everything you wanted to know about your credit report but were afraid to ask.

Best Cities for Recent College Grads
Starting someplace new.

Paying Bills Is a Grind for 43% of Americans, CFPB Finds
Living paycheck-to-paycheck.

Trim Expensive Wedding Frills Without Cutting Guests’ Fun
Concentrating on the important things.

Everything you wanted to know about your credit report — but were afraid to ask
No dumb questions.