Friday’s need-to-know money news

Today’s top story: Fear of bankruptcy holds too many people back. Also in the news: Saving for a down payment is only the start for homeowners, pressing pause on private student loans, and it’s time to revise your pandemic budget.

Fear of Bankruptcy Holds Too Many People Back
Many people could benefit from bankruptcy relief but don’t file because of fear, myths or misplaced optimism.

For Homeowners, Saving a Down Payment Is Only the Start
The down payment is just one cost to save for.

Should You Press Pause on Private Student Loans?
Forbearance isn’t the only way to get a more manageable private student loan payment.

It’s Time to Revise Your Pandemic Budget
Budgeting is more important than ever.

Fear of bankruptcy holds too many people back

The mystery isn’t why so many people file for bankruptcy each year. It’s why more people don’t.

Each year, only a fraction of the Americans who could benefit financially from bankruptcy actually seek relief. Economists say some don’t file because collectors aren’t aggressively pursuing them, while others may strategically delay filing because bankruptcy could benefit them more down the road.

Many bankruptcy attorneys have a much simpler explanation: Fear, a lack of information and misplaced optimism keep people from getting a fresh start. In my latest for the Associated press, why bankruptcy may be the best option for those struggling with debt.

Thursday’s need-to-know money news

Today’s top story: Start thinking bankruptcy now to maximize your options later. Also in the news: Why this is the perfect time to teach teens about credit, how to protect your stimulus relief check from debt collectors, and how to return a deceased relative’s stimulus check.

Start Thinking Bankruptcy Now, to Maximize Your Options Later
Timing is everything during the pandemic.

This is the perfect time to teach teens about credit
5 ways to prepare Gen Z for the real world of debt and finances.

How to protect your stimulus relief check from debt collectors
Turn that check into cash quickly.

How to Return a Deceased Relative’s Stimulus Check
Unfortunately, you can’t keep it.

Start thinking bankruptcy now, not later

If you’ve lost your job or struggle to pay your debt, you may need to file for bankruptcy. If that’s the case, you should ignore some common financial advice and start thinking defensively.

The coronavirus pandemic that upended the economy is also expected to send unprecedented numbers of people and businesses to bankruptcy court. Millions are out of work, and economic disruptions could continue until a vaccine is widely available, something that may be more than a year away.

“I am gearing up for having a tsunami of new cases,” says Jenny Doling, a bankruptcy attorney in Palm Desert, California, who serves on the American Bankruptcy Institute’s Chapter 13 Advisory Committee. “I think there will be a whole lot more people filing than what anyone’s ever seen before.”

In my latest for the Associated Press, what you need to know now if bankruptcy is in your future.

Unlock the debtor’s prison of student loans

Earlier this year, a judge denounced the myth that student loans can’t be erased in bankruptcy court as she excused a Navy veteran from having to pay $221,000 in education debt. Bankruptcy judge Cecelia G. Morris’ decision garnered plenty of headlines, along with speculation that the ruling might make such discharges easier.

The battle isn’t over, though. A few days later, Morris’ ruling was appealed by the Education Credit Management Corporation, a nonprofit company that guarantees and services federal student loans for the U.S. Department of Education.

In my latest for the Associated Press, what the American Bankruptcy Institute’s Commission on Consumer Bankruptcy recommends to begin freeing borrowers from their loans.

Q&A: Options for high debt, low income

Dear Liz: I’m 87 and drowning in debt, owing more than $21,000 with an income of $23,000 from Social Security and two small pensions. I don’t like the idea of debt consolidation but is that better than bankruptcy? My only asset is a 2003 car.

Answer: Debt consolidation merely replaces one type of debt (say, credit cards) with another, typically a personal loan. You are unlikely to qualify for such a loan and even if you did, your situation wouldn’t improve much if at all because your debt is so large relative to your income.

You may be confusing debt consolidation with debt settlement, which is where you or someone you hire tries to settle debts for less than what you owe. Debt settlement can take years and may not result in much savings, since the forgiven debt is considered taxable income and hiring a debt settlement company can cost thousands of dollars. In addition, people in the debt settlement process risk being sued by their creditors. Bankruptcy is typically a better option for most people because it costs less, is completed more quickly and ends the threat of lawsuits.

You may not need to file for bankruptcy, however, if you’re “judgment proof,” which means that even if you stop paying your creditors and they successfully sue you, the creditors wouldn’t be able to collect on those judgments. That’s typically the case when someone’s income comes from protected sources, such as Social Security and certain pensions, and they don’t have any assets a creditor can seize.

Please discuss your situation with a bankruptcy attorney who can review your options. You can get a referral from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org.

Q&A: One spouse’s debts might haunt the other after death

Dear Liz: I have a terminal illness and have less than a year to live. My wife and I are in our 80s and don’t own anything: no cars, no homes. My wife has an IRA worth $140,000 that pays us $2,000 a month, and she has a small pension of $1,400 a month. We receive $3,900 from Social Security, for a total monthly income of $7,200.

We have $72,000 in credit card debt that is strangling us. I told my wife that after I’m gone she should simply ignore that debt and advise creditors that I have passed away. Or should we attempt to file bankruptcy now?

Answer: Your return address shows you live in California, which is a community property state. Debts incurred during marriage are generally considered joint debts, so expecting creditors to go away after your death is not realistic.

Your wife’s retirement also could be at risk because California has limited creditor protection for IRAs. Federal law protects IRAs worth up to $1,283,025 in bankruptcy court, but outside bankruptcy, creditor protection depends on state law. In California, only amounts “necessary for support” are protected.

You really need to consult with a bankruptcy attorney to discuss your options. You can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org.

Tuesday’s need-to-know money news

Today’s top story: 3 questions to help grow your retirement savings. Also in the news: 7 annoying international travel fees you can shrink or skip, why waiting to file bankruptcy can hurt you, and 7 ways to retire without Social Security.

3 Questions to Help Grow Your Retirement Savings
Evaluating your current position.

7 Annoying International Travel Fees You Can Shrink or Skip
Leaving your more money for souvenirs.

Why Waiting to File Bankruptcy Can Hurt You
Making a bad situation worse.

7 Ways to Retire Without Social Security
Creating your own retirement income.

3 money tasks you shouldn’t tackle on your own

No one cares as much about your money as you do, but never asking for help can be dangerous — and expensive.

In a previous column, I detailed the hazards of trying to do your own estate plan and how problems often aren’t apparent until it’s too late to fix them. The following financial tasks also are more complex than they may seem, and the consequences for ignorance can be severe. In my latest for the Associated Press, why hiring an expert help may ultimately save you a bundle.

Why NFL players go broke, and what you can learn

Terrell Owens originally was famous for his many National Football League records and over-the-top touchdown celebrations. But he’s also famous for running through most of the $80 million he made during his 15-year career, thanks in part to bad investments and business deals.

“Having a lot of money it’s good but at the same time you have to be smart with it,” Owens says. “You have to really find the right people to help you manage that money going down the road.”

Sports Illustrated once estimated that 78 percent of NFL players end up broke or under financial stress after they retire. In an interview with NerdWallet, Owens and his friend Eric Dickerson, the Hall of Fame running back most famous for his time with the Los Angeles Rams, talked about their experiences and what young athletes should know about building a solid financial future.