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Dear Debt Adviser,
My mother is 90 and has around $20,000 in credit card debt. She receives Social Security and has a small pension. She
only has about $10,000 equity in her home. What can the creditors do to her? Would it be best to file bankruptcy?
-- Gwen
Dear Gwen,
When it comes to inducing a payment, creditors
have more "remedies" than your local CVS. Items
in their arsenal include raising interest rates,
adding fees, making collection calls and negative
credit report entries, canceling lines of credit,
taking court action, garnishing wages and filing
property liens.
Additional remedies may also be available, depending on the nature of your debt and the state in
which you live.
I can tell you want to help. My mother, Grace, will be 87 this year, so I know that your options
will be severely limited by how your mom sees the world.
My main caution is to be sure that you end up doing what your mother wants, not what you would
necessarily want. Bills and the world in general look very different from her perspective than they may appear
to a relative youngster like you.
Here are a few options for Mom to consider.
At 90, a case can be made for minimal
action. She can pay the minimums (or you can)
for the next eight to 10 years. I can't say that
being debt-free at 100 is a goal I hear of often.
If she passes on before paying down the debt, it will become a liability of her estate. The lenders
may just write it off, or they may ask for proof that there is no money in the estate. Either way, the debt problem
goes away.
She can pay the debt down more aggressively. With her balance of $20,000 and assuming an average
interest rate of 12 percent, she could pay approximately $450 per month for the next five years. Then, instead of
celebrating her freedom from indenture at 100, she might do it at 95!
Another payment option, if she has
cash value in a life insurance policy, is a policy
loan. Generally, you can get up to 96 percent
of the cash value of the policy. The proceeds
could pay off the debt. Any beneficiary would
not get the full value of the policy, but if your
mother's worries about paying her debts are gone,
it would be worth it.
She may decide on inaction. Not making any more payments will cause the debt to charge off. This is a
strategy that doesn't work nearly as well with anyone younger or who is still working. Plus, I always think that a
debt fairly incurred should be paid.
But, if she differs with me, I suggest that she write to her creditors, explain her situation and
tell them she doesn't want to be contacted about this debt.
Such a letter will cut out all the
collection calls and threats but will probably
move the matter to an attorney. She is what people
in the trade characterize as "bulletproof." This
is a misnomer, as there are still remedies that
can be pursued. They just aren't very effective
in the case of a 90-year-old.
She may be summoned to court, but any judgment issued will be hard to enforce. Her pension can't be
garnished and a lien on her home may not matter to her, either. Her credit will take a hit, but at 90, this may not
be a big issue.
Filing bankruptcy is an option, but only if your mother is not currently adding to her credit
balances. If she is using credit to extend her income, filing for bankruptcy will effectively reduce her income.
Also, bankruptcy can be humiliating for a senior.
I suggest she visit with a reputable attorney if she wants more information on this course of action.
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