Bankruptcy

Q&A: Options for high debt, low income

January 7, 2019 By Liz Weston

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

July 9, 2018 By Liz Weston

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.

3 money tasks you shouldn’t tackle on your own

June 19, 2018 By Liz Weston

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

October 12, 2017 By Liz Weston

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.

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

October 2, 2017 By Liz Weston

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.