Debt help for ostriches
September 14, 2017 2:59 PM   Subscribe

Partner has lots of post-divorce debt and is a financial ostrich. Partner has recently gotten access to some liquid assets. We are trying to determine how to best proceed.

I am posting this on behalf of my partner who has lots of debts due to being the sole earner in the first marriage. Partner did not handle the divorce well or the responsibilities that were left to deal with. Partner is now in a better position to handle it but does not know where to go, what to ask or what to do.

Partner has legal government debts with the IRS and DHS. Partner has limited income but some unexpected liquid assets coming in. Partner has no retirement savings. Partner is in late 30s. Ex spouse got half the marital retirement funds. Partner does not know the status of the rest but they probably got sucked up in garnishments resulting from financial ostrich behavior.

Partner gets overwhelmed trying to tackle the credit card, student loan and legal/gov debts. Partner does not know where to turn or what to ask and has a really hard time making progress on any of this.

Best solution? One stop shopping for debt counseling that is not predatory and a loan to pay off all the debts, public and private, which partner can then pay back the single lender on an auto-pay arrangement. Partner has terrible credit and delinquent accounts. Partner is open to filing bankruptcy if it is the best solution but with so much non-credit card debt it may not be.

Partner plans to consult with a lawyer but AskMefi is such a wealth of knowledge we were hoping for additional suggestions about how to manage this. Also, curious if you know whether/how partner can invest some of the unexpected liquid assets for retirement when there is so much debt. Partner needs to pay it and is working on finding ways to do so but in the meantime having zero retirement is scary.
posted by anonymous to Work & Money (5 answers total)
With significant tax debt, your partner may well find his bank accounts levied by the IRS, meaning that he won't get to keep those assets coming in, or not most of them. Do you know if they've been levied? If they are, much of this question is moot.

However, retirement funds, meaning funds actually in tax-advantaged retirement accounts, can't be garnished by creditors and are only levied by the IRS in "flagrant" cases, so those are probably actually somewhere still in existence. Your partner needs to figure out where that money is.

I don't believe there is such a thing as nonpredatory debt counseling, at least not of the kind where you give any money to or borrow any money from the company, but there are some on Mefi who think differently, so I assume they'll be along to recommend someone.

You almost certainly don't want to consolidate any federal student loans into any such loan, however. If you do so, you lose all protections, such as entitlement to deferments and forbearance under certain circumstances and to income-driven repayment plans. Speaking of which, partner should apply for same at the Department of Education website, although if you yourself have significant income and you are married, partner may not qualify. Applying only costs you the time, so partner might as well.

If it were me, I'd devote the majority of the money to settling the debt, but I would keep a certain amount for an emergency fund in an online savings account. Hard to say what the amount should be without knowing what your household expenses are like and the extent to which you two are financially intertwined.

Otherwise, the situation is too complicated to address without knowing a lot of details. Partner needs to talk to that lawyer quickly. (And, not judging here, but partner needs to address whatever it was that got him into this situation, or partner is going to be back in it in five to ten years, this time possibly with you along for the ride...)
posted by praemunire at 3:48 PM on September 14, 2017 [1 favorite]

The FTC has a page with some information on choosing a credit counselor and other options for debt resolution.

When I was really stuck in the ostrich stage and badly mismanaging my finances, I broached the subject with my therapist. That was a safe space where I could admit that I was getting collections calls or open mail I was afraid of reading and be certain of support.
posted by bunderful at 3:59 PM on September 14, 2017

recommended on metafilter by someone who was referred by their credit union. can help negotiate lower interest rates, help with budgeting. not a debt settlement program.
posted by metahawk at 5:12 PM on September 14, 2017 [1 favorite]

I am a bankruptcy attorney (not yours or your partner's obviously).

Of course the credit union recommends "credit counseling". They don't want to get wiped out in bankruptcy, which is the place to start when your debt is out of control. It is usually the best bet (not always) and when you also have tax debt is often the first prong of a two-prong solution. The second prong being settlement or a payment plan with the IRS/state taxing authority. Sometimes you need a BK attorney AND a tax settlement attorney.

It is very unlikely the IRS touched any retirement accounts, that is beyond unusual. However, since retirement accounts are protected from creditors you usually never touch those to manage debt. They are for the future and should stay put, especially because the taxes and penalties for early withdrawal are so steep.

Debt settlement, not the kind peddled by credit counseling places, is also an option with the liquid assets. You can usually wipe out unsecured debt for 50% of what is owed if you have lump sums to offer. There are tax consequences. Again, a good BK attorney can help you evaluate all this, often in a free consultation.

Student loans can also be managed after BK on their own track, if they are federal and not private. You can rehabilitate and get on income based repayment or another payment plan. Some BK lawyers have good student loan knowledge, some don't. Some attorneys have carved out their own niche there, too. Still, if they are federal loans they should be somewhat easy to manage by determining if they need to be rehabilitated and then after rehab rolled into the best payment plan. You can sometimes refinance them through the feds as long as there is one extra loan not already in the package, which restarts all the forbearance and deferment options as if they are all new loans.

Ostrich behavior has to end now, though, and you cannot shepherd this through for Partner. Partner must take responsibility. There is nothing worse in my practice than ostriches who aren't ready to pull their head out of the dirt and get busy.
posted by crazy sniffable at 6:08 PM on September 14, 2017 [5 favorites]

I think the ostrich behavior with finances is driven by anxiety. Addressing the anxiety medically may enable your partner to do what needs to be done here.
posted by Doc_Sock at 5:02 AM on September 15, 2017 [2 favorites]

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