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, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Steward Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets. Ask Sally a question, or read her previous answers in the To Her Credit archive
Dear To Her Credit,
For years, my husband and I have been struggling to meet our
monthly bills. We were using our credit cards to pay our taxes as well as any
emergency. We finally sold our home last year and paid off two mortgages and
purchased a small condo in an adult community in New Jersey. (We're both 60.)
We still have serious credit card debt of about $56,000. We
have no mortgage, but the taxes and common charges on our condo are over $1,000
per month. My husband has been looking for a better-paying job since we moved,
but no one is hiring people over age 60, it seems. I earn my income
babysitting. My husband's current job closes from December through March, so at
least he'll collect unemployment benefits.
We used to borrow from one credit card to pay another, but
they've lowered our limits so we're in over our heads. What can we do? After
paying our monthly expenses there's nothing left to pay Chase and Discover! Can
we claim bankruptcy? -- Gail
Dear Gail,
You've got one good thing going for you financially right
now -- your paid-for condo. Don't jeopardize it by filing for Chapter 7 bankruptcy.
You've probably heard you can keep your house in bankruptcy.
However, homestead exemption amounts vary by state. New Jersey has no homestead
exemption, but it allows you to use the federal exemption amounts. Those are
none too generous at $34,900 ($17,450 for each of you). Say your condo is worth
$150,000. Your equity after the homestead exemption would be $115,100. The
bankruptcy trustee will look at that equity as a potential source of funds to
pay your creditors.
Another reason not to file for bankruptcy is that you don't
owe enough money. You card debt of $56,000 is serious, but it shouldn't be
financially fatal. Because of the tremendous cost in time, energy, emotional
trauma, guilt, and legal and trustee's fees, bankruptcy should only be entered
into when there is no other alternative; for example, if people suffer a
catastrophic illness or business failure and owe more than they can ever pay
off.
In your case, with two people still able to work, no
children at home and a paid-off condo, you are in a good position to find ways
to pay off your debt. It won't be easy, and it may mean drastic changes to your
lifestyle. It will be worth it. And it's the right thing to do.
As long as you are in average or better health, I recommend
you find a full-time job and expect to work for the next five to 10 years.
Babysitting is a great way to make extra income, but if you can't make ends
meet, you need something with better pay. Look for a job that provides benefits,
if possible, including retirement plan contributions.
If you are getting hit with late fees and over-limit fees,
you may want to see a credit counselor. Be sure to use a reputable agency
affiliated with the National Foundation for Credit Counseling
or the Association of Independent Consumer Credit
Counseling Agencies. One thing a counselor may suggest is filing for Chapter 13 bankruptcy. Chapter 13 is not what most people think of as bankruptcy. You
still have to pay your debts -- or most of them. However, Chapter 13 puts a
stop to more fees piling on, stops collection proceedings such as wage garnishment
and puts you on a plan to pay most or all your debts back in three to five years.
Filing for Chapter 13 is not free, and it does take away some
of your control of your own finances. Like any bankruptcy, it affects your credit rating, especially if your debts are paid off completely.
Don't give up. Going back to full-time work can be a chance
to meet new people and to discover new talents and capabilities you may not
have known you had. Good luck on your new adventure!
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