Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
I am an investigator for a nonprofit
organization that investigates financial crimes against the elderly. I've been
working with a 76-year-old woman who was financially abused by her son.
Her son asked her to co-sign on two credit cards and for a
Toyota truck, which she did. She believed he would honor his word and pay the
bills. (She had no idea he had over 130 civil actions against him in San Mateo
County alone, his home was recently foreclosed on, and he has liens and
judgments levied against him in the millions!) He charged up the credit cards
plus one more he opened without her knowledge, and then he declared bankruptcy,
leaving her with the debts.
My client was left with a $15,000 debt from the two
co-signed credit cards, an $11,000 bill from Toyota, and a $5,000 balance on
the fraudulent card. So far, we have had the $5,000 credit card balance that
was opened without her knowledge dismissed due to fraud, and we have negotiated
the Toyota bill down by half and transferred it to another card.
That leaves us with just over $20,000 in credit card debt to
deal with ($15,000 on two cards, plus half the Toyota balance now on another
card).
A bankruptcy attorney looked at her case and said if she
filed for Chapter 13, her court-ordered payments would be at least $500 per
month, plus she would have to pay attorney fees and have the bankruptcy on her
record. He also could not guarantee that she would not be forced to sell her
home, which she has a good amount of equity in.
This woman is living on supplemental Social Security income and
unemployment, which barely covers her living expenses. Her unemployment will
run out in about eight months. She walks with a cane and has some health issues,
but she's looking for work so she can remain in her home and pay these bills.
Is there anything you recommend? I truly
appreciate any help that you can provide. -- Ann
Dear Ann,
I am so impressed that a 76-year-old woman who walks with a
cane is looking for work so she can pay her bills. I don't know where her son
got his irresponsible ways, but it certainly wasn't from her!
You've done a good job so far of getting the $5,000 on the
fraudulent card dismissed and negotiating the Toyota payment down. As you
discovered, filing for bankruptcy isn't always cost-effective, especially with
a relatively small debt of $20,000. The costs and effort involved is too great
in proportion to the benefits, and according to the attorney who looked at the
facts, she would probably have to pay back the debts anyway.
She may have a good case for negotiating down the $15,000
debt on the co-signed cards. Negotiating debt does affect a person's credit
score, and there's no guarantee of success. With her low income, however, it's
worth a try. You can read about this process in the CreditCards.com article, "Credit card debt negotiation in 3 (not so) easy steps."
What your client needs now is income. Here are my top three
recommendations for where to get it:
1. Her son. He got
her into this mess. He can help get her out. The fact that he just filed for
bankruptcy is good news for your
client -- most or all of his many other debts are gone. He can afford to focus
his energies now on helping Mom.
Maybe he's not a bad person. He's not the first
businessperson to become overextended in this recession. When people can't pay
their bills, they start shuffling money from one place to another, never
believing they won't be able to make good like they have in the past. Does he
know how desperate her situation is? Letting him know and giving him a chance
to pay back his mother would be the best thing for him and his own self respect
at this point.
2. A reverse mortgage.
She has equity in her home, but with her low income and high debt levels, she's
not going to have much luck getting a home equity line of credit. A reverse
mortgage might be the solution. And instead of adding another bill to her
budget, she can have a steady stream of income to make her life more
comfortable and secure.
The biggest downside of a reverse mortgage is that it can be
expensive to set up. It generally costs a little more than getting a home loan
of the same size. It's a far better option, however, than losing her home
because she can't pay her bills.
3. Earned income.
She's already working on this, and good for her! I would encourage her to look
into self-employment as well. Depending on her skills and interests, she could
teach community classes, offer after-school child care or tutoring, check in on
house-bound elderly people, or do copy editing, to name just a few ideas.
This woman is fortunate that you are helping her. I hope her financial situation, not to mention her relationship with her son, will be on
the road to recovery soon.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: July 15, 2011
Three most recent To Her Credit stories:
Should one spouse take on full debt load? – A married couple with joint card debt wants to transfer the balance to a lower rate card. Should the better credit score spouse take on the burden alone? ...
Can you use dad's credit card when he's ill? – An adult child is taking care of her dying father and wonders about the legality of using his plastic to pay for bills and medical expenses ...
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