Advice for mother considering bankruptcy

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Advice for mother considering bankruptcy

Postby assumer » Wed Mar 20, 2013 11:03 pm

My mother is 54 years old and this is her current situation. I have some missing and approximate information which I will fill in as I can gather from her.

Assets:
$2,000 in a rollover IRA

Liabilities:
Between $15,000 and $20,000 $21,711 in credit card debt.

Edit (2013-03-24):

Bank 1:
Balance: $10,266
Minimum Payment: $511
APR: 6.24%

Bank 2:
Balance: $5,092
Minimum Payment: $281
APR: 14.24%

Bank 3:
Balance: $3,597
Minimum Payment: $185
APR: 15.99%

Bank 4:
Balance: $2,525
Minimum Payment: $188
APR: 15.99%

Bank 5:
Balance: $231
Minimum: $25
APR: 0%

Total:
Balance: $21,711
Minimum: $1,190
Weighted APR: 10.80%


It appears they have upped their required minimums since my mom hasn't been able to pay the minimums. It appears that $400 / month I originally reported was the amount she was paying towards the CC's, not the actual minimums they have required.


Net Income:
~$1,800 $1,745 per month

Approximate Expenses per month (As far as I gather, about $1950 / month):
$650 Rent
$400 Credit Card Minimum Payment
$250 Car Lease
$100 Gas
$100 Car Insurance
$200 Food
$50 Fun
$70 Phone
$70 Cable / Internet
$50 Medical Insurance

She and my sister currently split the rent of $1300. However, my sister is moving out in June. I don't believe my mom wishes to get a roommate of somebody she doesn't know. My grandmother has been kind enough to offer her couch to my mom for a few months to get back on her feet (they live in the same apartment complex). She has been moving about once a year since 2008 (divorce) and I know is getting a bit tired of it. One bedroom apartments near her are about $750 / month minimum, if she can even find something for that price.

My advice was that she needs to increase her income somehow, likely from a part-time job. I am not familiar at all with bankruptcy, except reading Dave Ramsey's book recently I know he advises against it. If it gives her a fresh start, great. But will she have trouble trying to rent a place because of her credit report?

A financial adviser suggested she stop paying the credit cards, save up a lump sum of money, and then try to settle with them.

I am open to any and all suggestions.
Last edited by assumer on Sun Mar 24, 2013 1:25 pm, edited 3 times in total.
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Re: Advice for mother considering bankruptcy

Postby BL » Wed Mar 20, 2013 11:08 pm

There is a cancellation of debt for credit cards of insolvent debtors. Have no idea how it works, I just have seen a couple 1099-CODs lately while doing AARP/TCE tax preparation.
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Re: Advice for mother considering bankruptcy

Postby assumer » Wed Mar 20, 2013 11:12 pm

BL wrote:There is a cancellation of debt for credit cards of insolvent debtors. Have no idea how it works, I just have seen a couple 1099-CODs lately while doing AARP/TCE tax preparation.


I don't know what 1099-COD's are and a quick google search doesn't show much. I will keep looking.

I know 1099-C's are what are issued when the credit card company cancels/forgives debt after you settle with them. You then must report the amount of 1099-C as income in your next-year's tax forms. However, if you are insolvent, you file a form 982, and you don't have to consider the cancelled debt as income for tax purposes the following year. Is that what you're referring to?
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Re: Advice for mother considering bankruptcy

Postby BL » Wed Mar 20, 2013 11:17 pm

Yes..
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Re: Advice for mother considering bankruptcy

Postby assumer » Wed Mar 20, 2013 11:20 pm

Thanks for the suggestion, but 1099-C's will be her concern only after / if she negotiates and then settles for a lesser amount with her credit card companies :D. That would go along the lines of the financial adviser's suggestion of not paying her credit cards to save up money, and then settling with them for whatever amount they'll take without going to court.
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Re: Advice for mother considering bankruptcy

Postby BL » Thu Mar 21, 2013 1:49 am

As you know, her spending is unsustainable. Has she read that Dave Ramsey book you mentioned? That is the kind of change she needs to consider. Taking advantage of Grandma's offer might help her a bit if she cuts off all spending beyond food and transportation to work. As long as she continues to spend beyond her means, she would be back in trouble soon after any bankruptcy. She should not be using any credit cards, as that is continuing to go further into debt. I would try to find out if she is eligible for low-income housing. That is usually a percent of income. Getting an extra part-time job might be a help, since she has that car on lease to pay for as well. I would also try to find out what her future social security will be so you know what she will have for the future. I think you are doing well by being concerned and trying to find options for her.
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Re: Advice for mother considering bankruptcy

Postby compounder » Thu Mar 21, 2013 10:00 am

I have a relative in a similar situation but with much more cc debt. It is very difficult. Lots of denial and anger in our circumstance.

I've urged our relative to consult with the National Foundation for Credit Counseling. http://www.nfcc.org/index.cfm

Their services are relatively inexpensive (generally $10-50 I believe). Your mother can meet with them by phone, in person or online. They can help develop a plan and even negotiate on her behalf, depending upon how she wishes to proceed.

I hope this helps you both.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 10:08 am

BL wrote:As you know, her spending is unsustainable. Has she read that Dave Ramsey book you mentioned? That is the kind of change she needs to consider. Taking advantage of Grandma's offer might help her a bit if she cuts off all spending beyond food and transportation to work. As long as she continues to spend beyond her means, she would be back in trouble soon after any bankruptcy. She should not be using any credit cards, as that is continuing to go further into debt. I would try to find out if she is eligible for low-income housing. That is usually a percent of income. Getting an extra part-time job might be a help, since she has that car on lease to pay for as well. I would also try to find out what her future social security will be so you know what she will have for the future. I think you are doing well by being concerned and trying to find options for her.


Thanks, BL. I very much agree. So I have given her the name of the book ("Total Money Makeover") and may even give her a copy the next time I see her if she hasn't gotten it herself.

Based on the monthly expenses I listed above, if you were in this situation, which expenses would you recommend she cut? It seems that the "frivolous" expenses might be $70 cable tv and the $50 "fun" money. That would amount to about $1,400 a year saved, but I'm not sure she'd want to give up her measly $10 / week for going out, for an extra $500 / year towards her $20,000 debt. I personally would cut everything, but this is not me, it's her, and ultimately the decision is hers. Any thoughts on going the route of bankruptcy?

She acquired this debt in her name through the divorce, after many years of gradual fiscal irresponsibility (more like financial naïveté and ignorance) while married, but since then she has "woken up" at least a little bit.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 10:09 am

compounder wrote:I have a relative in a similar situation but with much more cc debt. It is very difficult. Lots of denial and anger in our circumstance.

I've urged our relative to consult with the National Foundation for Credit Counseling. http://www.nfcc.org/index.cfm

Their services are relatively inexpensive (generally $10-50 I believe). Your mother can meet with them by phone, in person or online. They can help develop a plan and even negotiate on her behalf, depending upon how she wishes to proceed.

I hope this helps you both.


Thanks that's quite a useful resource. I'll have her look into it.
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Re: Advice for mother considering bankruptcy

Postby bungalow10 » Thu Mar 21, 2013 10:45 am

assumer wrote:Net Income:
~$1,800 per month



Is your mother working? What is the source of her income? How many hours does she work a week? What does she do?
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Re: Advice for mother considering bankruptcy

Postby BL » Thu Mar 21, 2013 11:06 am

I agree with the above National Foundation for Credit Counseling.. AFAIK, this is the only one to go with. Don't go to one that I hear advertised on TV as they may just want to make money.
Double check to make sure this is the Good one! Find out everything you can and go with her if possible or bring her there. She needs all the help she can get to get started on this, so anything you can do to get her (if she agrees) there is good. She will have to handle it from there, with your moral support.
Sometimes hearing things from a qualified stranger is easier than hearing the same thing from a family member. I also suspect she will remember more things she spends on if she keeps a detailed daily account for a month to see where it goes.

The car lease is unfortunate, as it also requires insurance (can she cut that at all?) Using a beater care with only liability insurance might cut this, but how long is the lease in effect? Does she use the car for work?

I would try to find a cheaper apartment, shared, or possibly a rental room with kitchen privileges at a home for now.
I use a TracFone which is quite cheap if not too many minutes used.
Quit using credit card!

It is not easy but things will only get worse if this is not gotten under control.

The cable cut should be straight-forward. Hopefully she will have a few stations available without it.
I have lived without TV for years and can promise you it is possible. Use the public library to get free DVDs and books.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 11:14 am

bungalow10 wrote:
assumer wrote:Net Income:
~$1,800 per month



Is your mother working? What is the source of her income? How many hours does she work a week? What does she do?


She works as an administrative assistant, full time (40 hours a week). It's basically a reasonably stable 9-5 job.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 11:18 am

BL wrote:I agree with the above National Foundation for Credit Counseling.. AFAIK, this is the only one to go with. Don't go to one that I hear advertised on TV as they may just want to make money.
Double check to make sure this is the Good one! Find out everything you can and go with her if possible or bring her there. She needs all the help she can get to get started on this, so anything you can do to get her (if she agrees) there is good. She will have to handle it from there, with your moral support.
Sometimes hearing things from a qualified stranger is easier than hearing the same thing from a family member. I also suspect she will remember more things she spends on if she keeps a detailed daily account for a month to see where it goes.

The car lease is unfortunate, as it also requires insurance (can she cut that at all?) Using a beater care with only liability insurance might cut this, but how long is the lease in effect? Does she use the car for work?

I would try to find a cheaper apartment, shared, or possibly a rental room with kitchen privileges at a home for now.
I use a TracFone which is quite cheap if not too many minutes used.
Quit using credit card!

It is not easy but things will only get worse if this is not gotten under control.

The cable cut should be straight-forward. Hopefully she will have a few stations available without it.
I have lived without TV for years and can promise you it is possible. Use the public library to get free DVDs and books.


Yes she uses the car for work, and doesn't live in an area with accessible public transportation. Her insurance rates likely won't be able to be cut lower. It's a 3-year lease (she's 1-year into it). She was hesitant to get a beater because she is worried about maintenance costs, and this car is in very good condition. Also at this point she asked them, and they won't let her trade it in for a cheaper-leased car because she hasn't put enough into it.

She doesn't like the idea of sacrificing her life completely to get out of debt a few months sooner, and doesn't want to give up things such as her cell phone and cable, but I am trying to convince her. Sometimes it's an uphill battle, but I suppose we all have different priorities.
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Re: Advice for mother considering bankruptcy

Postby ddunca1944 » Thu Mar 21, 2013 11:45 am

I thnk the cause of the credit card debt needs to be looked at. Is it because she uses credit cards to subsidize her lifestyle? Or were there one time issues (like high medical bills) that were paid with a cc?

If she is still using her cc's to subsidize living beyond her means, then bankruptcy would not solve the underlying problem.
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Re: Advice for mother considering bankruptcy

Postby damjam » Thu Mar 21, 2013 11:51 am

assumer wrote:She doesn't like the idea of sacrificing her life completely to get out of debt a few months sooner, and doesn't want to give up things such as her cell phone and cable, but I am trying to convince her. Sometimes it's an uphill battle, but I suppose we all have different priorities.


I think you need to impress upon her that stopping the cell phone and cable are to stop her from going further into debt not to pay down the existing amount.

I don't see how sleeping on the grandmother's couch can really work in the long term to pay down this debt. Just simple math tells us that $20,000 being payed at $650 a month will take over 30 months to pay off (of course a pay down rate of $650 would assume your mother would not have to pay anything to your grandmother for sleeping on the couch). I'm not sure your grandmother is looking for such a long term guest. Staying with your grandmother may work in the sense that your mother could save a few month's rent to be able to have deposit money for a new apartment. A new affordable living arrangement would seem to be one of the first items to solve.

At first blush it appears that eliminating the credit card debt would solve the problem. However her budget is tight, so I could easily see that $400 that is being spent on credit card debt being frittered away on other "necessities" in the future. She needs to really understand budgeting.

I agree that you should seek counseling. Be wary of financial advisors that charge a percentage of the debt or other high fee. As others have advised look to the National Foundation for Credit Counseling.

Best of luck.
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Re: Advice for mother considering bankruptcy

Postby leonard » Thu Mar 21, 2013 12:58 pm

Keep in mind the current debt and possible bankruptcy are only the immediate crisis. Any form of disability or health problem in the next 10 years would precipitate a more serious problem - given the current lack of any sort of financial buffer or emergency fund.

IMO the "goal" from this exercise should be to address the debt AND - just as importantly - accumulate some level of financial buffer in case health or injury removes her ability to work. So, any budgeting and elimination of extra expense (phone, cable) should be considered a long term, permanent change - not just a "until the debt is paid off" change.
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Re: Advice for mother considering bankruptcy

Postby bungalow10 » Thu Mar 21, 2013 1:15 pm

assumer wrote:
bungalow10 wrote:
assumer wrote:Net Income:
~$1,800 per month



Is your mother working? What is the source of her income? How many hours does she work a week? What does she do?


She works as an administrative assistant, full time (40 hours a week). It's basically a reasonably stable 9-5 job.


That's great that it's a 9-5. Can she pick up a weekend or evening job? Retail? Call center? Pet sitting?
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Re: Advice for mother considering bankruptcy

Postby Index Fan » Thu Mar 21, 2013 1:27 pm

The NFCC is a good move, no bankruptcy talk unless they can't help.

She can't afford a $70 a month phone. Get a Tracfone, she can get a yearly contract for 10% of her current cost.

She should be able to lower her cable bill by keeping internet service and watching TV livestreamed through Hulu and network etc. sites for free.

She is going to need a roommate or a second job, or both. A second job makes sense to reduce current debt.

Once a plan for getting rid of her debt is under way, an emergency fund and a retirement investment plan will be needed.
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Re: Advice for mother considering bankruptcy

Postby The Wizard » Thu Mar 21, 2013 1:31 pm

I don't see much hope in this situation.
There's no way the $20K in CC debt is ever going to be paid off with the income/budget shown.
And the $250/month to LEASE a newish car, I presume? That's outrageous as well. She should downgrade to a Toyota at LEAST 5 years old.

I would cut up her credit cards and do without.
I'd quit paying anything on the credit card balances and tell them to go pound sand.
Her credit rating is now (rightfully) zero, so she's on a cash basis for the rest of her life.
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Re: Advice for mother considering bankruptcy

Postby kitteh » Thu Mar 21, 2013 1:36 pm

The credit card debt is the problem here. It sounds like otherwise your Mom has gotten to the point where she is doing things right, and she is a hard worker.

I suspect the interest rates on those credit cards are terrible. That $400 a month might be going almost entirely to interest. I have friends who got into a bad situation, a lost job, serious health issue, and boom credit card interest rates in the 20%.

Normally I would say cut "fun," but $50 a month vs. usurious credit card interest is not a lot, and I think (this is contrary to bogelheads philosophy probably) your Mom having a small bit of fun after what she has been through is important psychologically.

I would find a way to attack the credit card debt, hopefully there is one. If bankruptcy is it, she might try to find an apartment before she declares bankruptcy. I hate to see someone paying off credit card debt for years when it is mostly going to disgraceful interest rate payments.

If she can stay with your grandmother long enough to build up some savings, all the better. I would be loathe to put those savings towards 20% interest payments vs. towards a savings cushion. Your grandmother might be in her seventies and be glad to have another person around.

As others have said, watch out for "we will fix your credit card problems" scams, they seem to be widespread.

Update: now that I read The Wizard's advice to tell the credit card companies to pound sand, that sounds good to me. I disagree that your Mom's credit rating will be zero forever. Even if she declares bankruptcy, I think that mars a credit rating for seven years.
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Re: Advice for mother considering bankruptcy

Postby may pop » Thu Mar 21, 2013 1:46 pm

She needs to make the decision her self as to what will be done. The Ramsey book is decent but taking the classes at a local church is MUCH more exciting. It may give her the kick in the pants to get started. All the people in the class getting excited is a good boost. This may be a way to help her feel all is not lost.

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Re: Advice for mother considering bankruptcy

Postby BL » Thu Mar 21, 2013 2:16 pm

I did a Google search on: quit paying credit card bills

Some of the articles sound more legitimate than others.

Most seem to say to just quit, but be prepared to be hounded by collectors and to not pay even a little bit as that restarts the clock. The timing to get rid of the land line phone also makes sense. Since it appears she is insolvent, there is not much they can go after. Bankruptcy would probably be more expensive. I have no experience in this at all, but there seems no way that she can pay off debts, which probably contain high interest accumulations as well.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 2:18 pm

Thanks for all the advice everybody. A lot for me (and her) to think about. Keep 'em coming!
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 2:57 pm

ddunca1944 wrote:I thnk the cause of the credit card debt needs to be looked at. Is it because she uses credit cards to subsidize her lifestyle? Or were there one time issues (like high medical bills) that were paid with a cc?

If she is still using her cc's to subsidize living beyond her means, then bankruptcy would not solve the underlying problem.


Situations have changed. While I was growing up, my parents had very much the "keep-up-with-the-joneses" which was great because I got to live a very much middle class lifestyle. However, they collectively accumulated that debt. In addition, they had HUGE student loan debt to pay for my, and my sister's, undergraduate education (state school, and I had some scholarships, but still close to $100k in debt, in addition to the $20k in undergraduate debt I have in my name and am paying off) and my father also got a master's degree as an adult, part of which was put onto a credit card. All of that compounded into this chunk of the collective credit card debt which was acquired by my mother during the divorce in 2008. However, over the past 5 years, her debt has significantly decreased, not increased. She has become much more aware of spending, and has learned quite a bit, while sacrificing quite a bit.

So it was debt from pre-2008 which she has been paying for ever since.

While it is extremely hard to break old habits (she doesn't seem to want to admit the level of sacrifice required) she is no longer the same person she was in terms of fiscal responsibility (but in my opinion she still has a bit to go).

If she gets herself out of this mess somewhat cleanly I am not worried about this happening again. It's safe to say she "learned her lesson."
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Re: Advice for mother considering bankruptcy

Postby kitteh » Thu Mar 21, 2013 3:01 pm

BL wrote:I did a Google search on: quit paying credit card bills

Some of the articles sound more legitimate than others.

Most seem to say to just quit, but be prepared to be hounded by collectors and to not pay even a little bit as that restarts the clock. The timing to get rid of the land line phone also makes sense. Since it appears she is insolvent, there is not much they can go after. Bankruptcy would probably be more expensive. I have no experience in this at all, but there seems no way that she can pay off debts, which probably contain high interest accumulations as well.


There are limits on how debt collectors can contact your Mom. There is useful info about that at this FTC link:

http://www.consumer.ftc.gov/articles/01 ... collection

If you can afford it, and I understand you probably can't, since your parents accumulated a lot of education debt for you and your sibs, you all could chip in for your Mom now.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 3:09 pm

kitteh wrote:There are limits on how debt collectors can contact your Mom. There is useful info about that at this FTC link:

http://www.consumer.ftc.gov/articles/01 ... collection

If you can afford it, and I understand you probably can't, since your parents accumulated a lot of education debt for you and your sibs, you all could chip in for your Mom now.


1. Yes, if she wants to stop them from calling she simply has to write a cease-and-desist letter. Then she'll have to contact them to settle (if that's the best option). Thanks for the link.

2. No I cannot afford it, at least until I get an actual job. I have my own debt which I am working at (many thousands in student loans - see some of my previous oldest posts) and I am a poor graduate student right now with less of a stipend than my mom's salary. I understand it would be good to pay back my parents for what they've done for me, but that's not an option right now, and during the divorce my sister and I took on a bunch of student loan debt in our name which was actually a surprise for us in 2008.
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Re: Advice for mother considering bankruptcy

Postby StillTired » Thu Mar 21, 2013 6:46 pm

Before I'd have her consider bankruptcy, I would look at her credit card debt seriously. Is this increasing debt--- is she adding more purchases every month? Or is this left over debt from divorce or medical issue? If she is still adding to the debt (to fund lifestyle) bankruptcy will do no good--- she'll be back in the same place in a number of years. If it is an overwhelming debt from a bad life circmstance that she won't face again, that is another matter.

Without the $400 credit card payment, she would be fine with her current budget--- even increasing her rent to $750 (one bedroom versus $650 for shared two bedroom) would still leave her with $250 a month to build up an emergency fund with.
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Re: Advice for mother considering bankruptcy

Postby celia » Thu Mar 21, 2013 7:00 pm

I don't understand something. When you say her net income is -$1,800 per month, that means she is spending $1,800 more a month than she has coming in (ie, spending her entire wages PLUS 1,800 every month). What is she spending her wages on? All I see (unless I missed something) is $1,800 of expenses listed, which is being spent on top of whatever her wages are spent on. Is she putting all her wages into a retirement plan?
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Re: Advice for mother considering bankruptcy

Postby celia » Thu Mar 21, 2013 7:11 pm

I estimate that half of her $400 monthly credit card debt is going toward interest and only $200 is paying down the principal. At that rate, progress will be very, very slow. If she can make larger payments, that will make it go down faster.

Would a chart showing how long it would take to pay off the debt if she pays $400/mo vs $600/mo vs $800/mo, say, have any effect on her? (This is all assuming that no new charges are added to the card.) The amounts over $400 do not have to be consistent. Even monthly payments of $400, $800, $555, $410, $500, $400 over the next 6 months would be better than paying only $400/mo. If she is getting a tax refund, it could be used. However, I am also concerned with her apparent lack of an emergency fund.
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Re: Advice for mother considering bankruptcy

Postby sscritic » Thu Mar 21, 2013 7:22 pm

assumer wrote:In addition, they had HUGE student loan debt to pay for my, and my sister's, undergraduate education (state school, and I had some scholarships, but still close to $100k in debt

Here's an idea. Since her income covers her spending excluding the credit card debt, say thanks mom and pay off her $20,000 in debt for her. She paid yours, now you pay hers.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 7:22 pm

celia wrote:I don't understand something. When you say her net income is -$1,800 per month, that means she is spending $1,800 more a month than she has coming in (ie, spending her entire wages PLUS 1,800 every month). What is she spending her wages on? All I see (unless I missed something) is $1,800 of expenses listed, which is being spent on top of whatever her wages are spent on. Is she putting all her wages into a retirement plan?


Sorry, I should have clarified. Net income meant after taxes and insurance was taken out. Not net of expenses. I meant not the "gross" amount on her paystub.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 7:24 pm

sscritic wrote:
assumer wrote:In addition, they had HUGE student loan debt to pay for my, and my sister's, undergraduate education (state school, and I had some scholarships, but still close to $100k in debt

Here's an idea. Since her income covers her spending excluding the credit card debt, say thanks mom and pay off her $20,000 in debt for her. She paid yours, now you pay hers.


I'm not against doing that to help her out, but as I stated previously, I don't have a job right now, and have my own debt. It's something I can consider when I have a job, but I don't see how I can do that now.
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Re: Advice for mother considering bankruptcy

Postby sscritic » Thu Mar 21, 2013 7:25 pm

assumer wrote:I'm not against doing that to help her out, but as I stated previously, I don't have a job right now, and have my own debt. It's something I can consider when I have a job, but I don't see how I can do that now.

Sorry, I missed that part.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 7:28 pm

sscritic wrote:
assumer wrote:I'm not against doing that to help her out, but as I stated previously, I don't have a job right now, and have my own debt. It's something I can consider when I have a job, but I don't see how I can do that now.

Sorry, I missed that part.


No problem. As a grad student, that option isn't open to me right now, unfortunately.
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Re: Advice for mother considering bankruptcy

Postby Rosco » Thu Mar 21, 2013 7:41 pm

Drop out of grad school and get a job to retire the debt... or take a weekend job. Much better idea than bankruptcy.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 7:51 pm

Rosco wrote:Drop out of grad school and get a job to retire the debt


Sorry if this is being crass, but is this a real suggestion? A graduate degree in my field (Ph.D. in engineering) will be setting myself up for a very solid salary for life. Are you suggesting I drop out of grad school and get a job so that I can help pay my mother's credit card debt down? Even my own student debt is clearly an investment in my own education made by my family, and I made a conscious choice to go to college, and then grad school, given the known costs, and the loans I took out for myself. Why would I squander that investment? :confused
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Re: Advice for mother considering bankruptcy

Postby celia » Thu Mar 21, 2013 7:55 pm

assumer wrote:
celia wrote:I don't understand something. When you say her net income is -$1,800 per month, that means she is spending $1,800 more a month than she has coming in (ie, spending her entire wages PLUS 1,800 every month). What is she spending her wages on? All I see (unless I missed something) is $1,800 of expenses listed, which is being spent on top of whatever her wages are spent on. Is she putting all her wages into a retirement plan?


Sorry, I should have clarified. Net income meant after taxes and insurance was taken out. Not net of expenses. I meant not the "gross" amount on her paystub.


So, it appears you meant to say her net income is +$1,800/mo. Thanks for clarifying.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 7:58 pm

celia wrote:
assumer wrote:
celia wrote:I don't understand something. When you say her net income is -$1,800 per month, that means she is spending $1,800 more a month than she has coming in (ie, spending her entire wages PLUS 1,800 every month). What is she spending her wages on? All I see (unless I missed something) is $1,800 of expenses listed, which is being spent on top of whatever her wages are spent on. Is she putting all her wages into a retirement plan?


Sorry, I should have clarified. Net income meant after taxes and insurance was taken out. Not net of expenses. I meant not the "gross" amount on her paystub.


So, it appears you meant to say her net income is +$1,800/mo. Thanks for clarifying.


Oh, perhaps you mistook the tilde in the original post for a negative sign? I meant the tilde ("~") as an approximation. Anyway, I think we're on the same page now.
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Re: Advice for mother considering bankruptcy

Postby momar » Thu Mar 21, 2013 8:08 pm

assumer wrote:
Rosco wrote:Drop out of grad school and get a job to retire the debt


Sorry if this is being crass, but is this a real suggestion? A graduate degree in my field (Ph.D. in engineering) will be setting myself up for a very solid salary for life. Are you suggesting I drop out of grad school and get a job so that I can help pay my mother's credit card debt down? Even my own student debt is clearly an investment in my own education made by my family, and I made a conscious choice to go to college, and then grad school, given the known costs, and the loans I took out for myself. Why would I squander that investment? :confused

Get a summer internship. I used to make more in 4 months over the summer than I did for an entire year on my stipend.
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Re: Advice for mother considering bankruptcy

Postby kitteh » Thu Mar 21, 2013 9:00 pm

Rosco wrote:Drop out of grad school and get a job to retire the debt... or take a weekend job. Much better idea than bankruptcy.


That's a terrible idea. Grad school is an investment in his future. His Mom's bankruptcy, if she goes that route, is transitory. My parents would have had a cow if I'd dropped out of school after all they'd sacrificed for that.
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Re: Advice for mother considering bankruptcy

Postby kitteh » Thu Mar 21, 2013 9:02 pm

momar wrote:
assumer wrote:
Rosco wrote:Drop out of grad school and get a job to retire the debt


Sorry if this is being crass, but is this a real suggestion? A graduate degree in my field (Ph.D. in engineering) will be setting myself up for a very solid salary for life. Are you suggesting I drop out of grad school and get a job so that I can help pay my mother's credit card debt down? Even my own student debt is clearly an investment in my own education made by my family, and I made a conscious choice to go to college, and then grad school, given the known costs, and the loans I took out for myself. Why would I squander that investment? :confused

Get a summer internship. I used to make more in 4 months over the summer than I did for an entire year on my stipend.


Since he's in a PhD engineering program, he probably is already working in the summer.
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Re: Advice for mother considering bankruptcy

Postby tacster » Thu Mar 21, 2013 9:24 pm

assumer wrote:
ddunca1944 wrote:I thnk the cause of the credit card debt needs to be looked at. Is it because she uses credit cards to subsidize her lifestyle? Or were there one time issues (like high medical bills) that were paid with a cc?

If she is still using her cc's to subsidize living beyond her means, then bankruptcy would not solve the underlying problem.


Situations have changed. While I was growing up, my parents had very much the "keep-up-with-the-joneses" which was great because I got to live a very much middle class lifestyle. However, they collectively accumulated that debt. In addition, they had HUGE student loan debt to pay for my, and my sister's, undergraduate education (state school, and I had some scholarships, but still close to $100k in debt, in addition to the $20k in undergraduate debt I have in my name and am paying off) and my father also got a master's degree as an adult, part of which was put onto a credit card. All of that compounded into this chunk of the collective credit card debt which was acquired by my mother during the divorce in 2008. However, over the past 5 years, her debt has significantly decreased, not increased. She has become much more aware of spending, and has learned quite a bit, while sacrificing quite a bit.

So it was debt from pre-2008 which she has been paying for ever since.

While it is extremely hard to break old habits (she doesn't seem to want to admit the level of sacrifice required) she is no longer the same person she was in terms of fiscal responsibility (but in my opinion she still has a bit to go).

If she gets herself out of this mess somewhat cleanly I am not worried about this happening again. It's safe to say she "learned her lesson."


Judging by this post it sounds like your mother's debt situation has been steadily improving since 2008, true? If so, why consider bankruptcy now, versus continuing to pay down the debt until it's gone? You don't say exactly how much debt she started with so it's hard for us to judge how she's really doing.
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Re: Advice for mother considering bankruptcy

Postby assumer » Thu Mar 21, 2013 9:34 pm

tacster wrote:Judging by this post it sounds like your mother's debt situation has been steadily improving since 2008, true? If so, why consider bankruptcy now, versus continuing to pay down the debt until it's gone? You don't say exactly how much debt she started with so it's hard for us to judge how she's really doing.


Indeed as far as I can tell it's been steadily improving, but slowly. My guess is that it started at around $25k - $30k but I don't actually know what it was back then, so I honestly don't know it's rate, and I'm nto even sure she kept track of it.
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Re: Advice for mother considering bankruptcy

Postby momar » Thu Mar 21, 2013 10:04 pm

kitteh wrote:
momar wrote:
assumer wrote:
Rosco wrote:Drop out of grad school and get a job to retire the debt


Sorry if this is being crass, but is this a real suggestion? A graduate degree in my field (Ph.D. in engineering) will be setting myself up for a very solid salary for life. Are you suggesting I drop out of grad school and get a job so that I can help pay my mother's credit card debt down? Even my own student debt is clearly an investment in my own education made by my family, and I made a conscious choice to go to college, and then grad school, given the known costs, and the loans I took out for myself. Why would I squander that investment? :confused

Get a summer internship. I used to make more in 4 months over the summer than I did for an entire year on my stipend.


Since he's in a PhD engineering program, he probably is already working in the summer.

I have a PhD in engineering. I worked as an intern during several summers. We also hire many PhD interns every summer.
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Re: Advice for mother considering bankruptcy

Postby Rosco » Fri Mar 22, 2013 9:58 am

Just doesn't seem very bogleheadish to advise anyone to opt for bankruptcy. This won't be a pleasant experience for her but it appears some of her debt was incurred helping you. What's one year of your life? And she'll learn more about sacrifice and choices and their consequences. But then I've never thought it was ok to screw the lender just because they dared lend on conditions agreed to in advance. Not trying to be hurtful or disrespectful, just another perspective. Either way this will hurt.
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Re: Advice for mother considering bankruptcy

Postby barnaclebob » Fri Mar 22, 2013 11:34 am

I like the suggestions of just stop paying the credit cards and deal with the harassment from the bill collectors. More research is needed but it doesn't appear she has any assets that are worth going after. If she can save enough by not paying the bills they may settle...

I would not help your mother pay this debt off but rather help her out in dealing with the aftermath of not paying. I personally don't see any moral obligations to pay off debt to corporations, its purely a business decision.
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Re: Advice for mother considering bankruptcy

Postby Hilda » Fri Mar 22, 2013 11:46 am

barnaclebob wrote: I personally don't see any moral obligations to pay off debt to corporations, its purely a business decision.


Is the above a general Boglehead concept? If so, I don't understand.

If I borrow money -- no matter the source, whether from a friend, a bank, a credit card, my mother -- aren't I contractually *and* morally obligated to repay that money?

I absolutely agree that the fees and APRs charged by credit card companies are exorbitant and criminal, but there are enough low-fee cards offers around to enable one to avoid that.

It just seems to me that if an obligation to pay back what we owe isn't contractual as well as moral, then...chaos.
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Re: Advice for mother considering bankruptcy

Postby MN Finance » Fri Mar 22, 2013 11:57 am

I have no moral objection to filing for bankruptcy protection. If dozens of fortune 500 cos can restructure, cancel debts, and keep operating, why can't a single mom. CC companies also have no problem charging double digit interest rates to high risk debtors because they know it's good money for them and it all factors in default rates. When I was in college I had $30k in CC debt. Now, as a 20 yr old I was old enough to understand responsibility, but in hindsight it's pretty ridiculous that a CC co would loan that much money to a college kid with no income and no cosigner. They increased my credit limit $5k at 2am calling from a payphone in vegas. In my case, they made out because I paid it all back, but I have no problem if their gambles fail.

The only caution is that it will be very unpleasant for your mom. She needs to emotionally be able to handle letters, phone calls, neighbors or co-workers finding out, etc. I advised my MIL to do this a while back, who's in much worse shape, but we agreed she couldn't handle the emotional toll.
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Re: Advice for mother considering bankruptcy

Postby Epsilon Delta » Fri Mar 22, 2013 12:29 pm

Hilda wrote:It just seems to me that if an obligation to pay back what we owe isn't contractual as well as moral, then...chaos.

Welcome to chaos. The majority of contracts involve corporations, which are required to be sociopaths.
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Re: Advice for mother considering bankruptcy

Postby Index Fan » Fri Mar 22, 2013 1:50 pm

Hilda wrote:It just seems to me that if an obligation to pay back what we owe isn't contractual as well as moral, then...chaos.


Agreed, but we live in a world where such things are seen as antiquated and old-fashioned and besides, they inhibit us from doing what we want to do. John Adams had a quote about this in another context.
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