Help me set Maw up for another 67 years of financial well-being

July 25, 2006 6:32 AM

Forgiving or otherwise reducing Maw's debts?

As a followup to this question, I've arrived at an effective financial mechanism to help me provide for Maw, however while evaluating her overall financial health I learned that she's acquired alarming (given her previous state of relatively low income) debts.

Specifically, at 67 years of age she's never earned more than $18K, but somehow has managed to convince three lenders to front her some $20K in debt. I believe most of this is unsecured, but I haven't seen all the paperwork yet and as a further indication of Maw's lack of financial knowledge she has no idea herself. My current activities have been focused on migrating higher interest rate debt into lower rate facilities, but the final outcome is unsatisfactory even if I can get all of her debts into a secured vehicle.

Clearly it doesn't make any sense for me to be supporting Maw if over one third of her current source of income (Social Security) is absorbed by debt service. I work in banking and just by looking at her age (not to mention low income) consider this an example of irresponsible lending, so what are the options here for debt relief / forgiveness or outright bankruptcy?

Can I negotiate on her behalf? I suspect she'd have to appoint me her financial guardian (of sorts, not sure what this is really called in practise, I'm just aware of the term from BSchool), otherwise these folks won't talk to me. If I do undertake negotiations on her behalf, I'd want to know what my ultimate fall back is so I can play hardball, so does this strike any of you as a clear cut case for bankruptcy?

I've been living in the UK full time since 1998 and for about one year before that I divided my time between New York and London, so I'm more than a little in the dark on these matters back in the US. Any ideas on the path of least resistance? Are these debt counseling services really worthwhile engaging?

I'm not adverse to personally paying off her debts if we could get them reduced somewhat. If this negatively impacts her credit, all the better from my viewpoint as she can't hold onto money. Any suggestions for helping Maw weather another 67 years in improved financial help welcomed.

posted by Mutant to work & money (5 comments total)

"...it doesn't make any sense for me to be supporting Maw if over one third of her current source of income (Social Security) is absorbed by debt service..."

Holy crap that reads poorly! I'm gonna help her, I just want that damn milstone off her neck!
posted by Mutant at 6:35 AM on July 25, 2006

It's a truism on the Motley Fool (UK) dealing with debt board that until someone has that "lightbulb moment" where they realise that they have to change their lifestyle and live within their means, paying of their debts through other sources (eg remortgaging) is a pointless exercise.

What usually happens is that the individual just continues to spend beyond their means, incurs more debt & in a year (or two or three) they're right back where they started — looking bankruptcy in the face.

IOW: baling your mum out at this point may not be the best course of action for either you or her: it doesn't sound from what you say that she really accepts that she needs to change her attitude to money at this point in time & you may find yourself back in the same position again very shortly. If she thinks that you'll just bail her out like you did the first time, she might be even more likely to get into debt again :(

Her creditors are probably happy to lend to her because they know that they can take her house if she defaults (in the UK at least it's possible to take possession of someone's house even if the debt wasn't initially secured upon it directly. Is this true in the US?)

There are no easy answers unfortunately :(
posted by pharm at 7:20 AM on July 25, 2006

IANAL by any means, but it sounds like you'd need a power of attorney in order to directly deal with her financial matters on her behalf.

Once you have that, you may be able to go to the creditors and renegotiate the interest rates, etc. Most will try to work with you to avoid a bankruptcy.

As far as bankruptcy, the new bankruptcy law makes it a little more complicated to get a Chapter 7, which will discharge all of her debt. There is a special means test now to determine who will be eligible for Chapter 7 (your gifts to her may complicate it); anyone who doesn't qualify has to do a Chapter 13, where a plan is approved by the bankruptcy Trustee to pay off the creditors in a specific amount of time. For more information on the Bankruptcy Abuse Prevention and Consumer Protection Act, see this link.

If bankruptcy is something you want to explore, talk to a bankruptcy attorney. It's hard for pro se debtors to navigate this new process.

Also, be aware that even if she goes through Chapter 7, she'll probably be able to get a credit card again within months of discharge. It's sick, but companies like Capital One will take the risk because people can't file for bankruptcy again until six years after their discharge.
posted by lemoncello at 10:14 AM on July 25, 2006

Also, the Department of Justice page I linked to links to their list of approved credit counseling agencies and debtor education programs.
posted by lemoncello at 10:22 AM on July 25, 2006

Instead of you dealing with the trauma yourself you might want to get a daily money manager more here. Anyway, look here for getting a feel for the differences between power or attorney; living trust, conservator and a guardian. Each state has very specific rules for when another party takes on those roles on the behalf of another person.

Because of your mother's age I would suggest that you talk about her long term care and financial planning. You would have to deal with her possible incapacitance and her wishes for her care. Best to do it ahead. You do not want to get into the situation where you have to go before the Court and petition for the role of Guardian of your mother's estate and being.
posted by jadepearl at 11:07 AM on July 25, 2006