guest post
So… you are nearing or in retirement and you have a debt problem, or you have a friend who
does and you are concerned and wondering what can be done for them. You’ve worked so
hard for so long – you deserve to be free of financial stress! Let’s talk about the three most
common financial scenarios boomers face and options for resolving them.
1. I have a first and second mortgage on my home and can’t
afford to pay them both on my retirement income. I think my
house is worth less than the first mortgage – is it true
bankruptcy can help?
It is true – with a caveat.
The scenario you describe is called “lien stripping” or “strip-off.” I know, it sounds more exciting
than it is – unless you have large second or third mortgage balances! The rule of thumb is, a
Chapter 13 debtor can strip off a second and third lien if the market value of the property is less
than the amount owed on the first mortgage. A lien that is stripped off is then discharged as
unsecured debt.
As you might imagine, this is hotly contested by 2nd and 3rd mortgage lenders, who will likely
fight the appraisal with one of their own showing that the property is worth more than the
amount of the first mortgage. Here’s where the expertise of your bankruptcy attorney comes in –
he or she will make sure that the appraisal is credible and will pass muster with the court.
Here is an example: Hazel has owned her house for over 30 years, but refinanced some years
ago when she divorced her then-husband. At that time the home was appraised at $330,000.
A few years ago she took out a HELOC (Home Equity Line of Credit) in the amount of $30,000
for a kitchen renovation.
Hazel has the renovation done, but in the years since has had increasing medical expenses and
other home repairs that needed to be done, and she can’t afford to pay both first mortgage and
the HELOC and everything else. She has resorted to using a credit card to buy gas and
groceries and had to let the home repairs go unpaid.
Hazel currently has a first mortgage with a balance of $262,000 and the HELOC balance is
$29,500 because she had been paying mostly just the minimum on that balance each month
since the renovation. Worried about the unpaid house repairs and her medical and credit card
debt, she visits a bankruptcy attorney who tells her to get an appraisal of her home. It comesback appraised at $260,000, which seems to be supported by the comparable properties that
recently sold in her neighborhood.
Hazel files a Chapter 13 bankruptcy case and proposes to strip off the HELOC and have it
discharged as unsecured. She will also get her credit card balance and medical bills discharged
as unsecured debt and arranged to have the home repair debt repaid over five years through
her Chapter 13 plan.
Hazel completes her Chapter 13 plan and gets a discharge of all of that debt including the credit
card, medical debt, and the HELOC. Now Hazel can move on with her life, owing only about
$238,000 on a first mortgage with no other debt hanging over her head.
2. I co-signed for my son’s/daughter’s student loans and
unfortunately, s/he is unemployed and not paying the loan
payments. What can I do?
Unfortunately, student loan debt is the most pernicious form of debt one can have in our
country. You can’t readily settle it, have it forgiven, or get it discharged in bankruptcy. For older
parents collecting Social Security, if your children do not pay the student loan debt themselves,
up to 15% of your monthly SS payment can be garnished to pay it.
If you find yourself in this situation, the first thing you can do is contact the lender – there are
income-sensitive repayment plans that might apply to your situation. Also, have a heart-to-heart
talk with your child – there may be a way you two can work out repaying the loan together.
3. I just divorced and my ex left me with a mountain of credit card
debt, what can I do about it?
If the debt was incurred by you in support of the marital residence and lifestyle, you should talk
with your divorce attorney – the responsibility for repaying that should be shared with your ex
and become part of the property settlement agreement. The same goes if you and your ex had
joint credit cards, or your ex was an authorized user on your card.
If this issue cannot be resolved in family court, you can rely on bankruptcy to help you out from
under that burden. If you income-qualify to file a Chapter 7 bankruptcy petition (and most
seniors do), within 4-6 months you can have that debt discharged. If you have more income
than allowable in Chapter 7, you can file a Chapter 13 petition and repay a small portion of the
debt over three or five years, having the unpaid portion discharged when you complete your
plan.
Contact an experienced bankruptcy attorney near you to schedule your free consultation – you
will be glad you did.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of
Philadelphia. She frequently works for busy Philadelphia bankruptcy attorney David M. Offen, Esq.
