What every boomer needs to know: Part V
Editor’s Note: This is the fifth of a continuing series.In the first four parts of this series, we have considered Social Security, “delayed retirement credits,” “representative payees,” Supplemental Security Income (SSI), reverse mortgages, senior health care issues and health benefits, and various aspects of “forward planning” (including wills, living wills, powers of attorney, estate planning, estate taxes, financial planning and inheritance). The first three parts of the series may be found online at http://www.vaildaily.com under the “archives” section, drop down, “columnists,” keyword “Robbins.”In Part V of the series, our focus will be on issues surrounding debt and how to deal with it, including a broad discussion of bankruptcy. When debt rears its ugly head, particularly if you are living on a fixed retirement income, the challenges may be manifest and varied. So, too, may be the causes. Unexpected medical expenses, plunges in the stock market or other investments, major home repairs and others, can push you to the brink. How you deal with these challenges will depend in large part on your particular circumstances and your resources, both personal and financial.If you are having trouble paying your bills, first contact your creditors and ask for more time to make payments. Very often, creditors will work with you to set up a payment plan with which you can live. Credit and debt counseling services may also be consulted, but be wary and do the leg work to insure the agency is both credible and competent. It is not unheard of for unreputable agencies to try to work a scam.Be cautious when considering a debt consolidation loan to help you with your debts. Interest rates are high (and there may be other terms that are not to your advantage) and, in the long run, such a loan, while tempting, could compound your problems rather than resolving them. Remember that your statements on a loan application must be truthful and complete.If you fail to pay your debts, myriad miseries – both large and small – could follow. If certain property has been promised as collateral (or “secured” against a debt), the creditor may repossess the item. A classic example is the case of a car loan where the car is collateralized to secure repayment of the debt. If the payments are not made, the car will, ultimately, we “re-po”ed by the lender. In the case of “unsecured” debt (for example, credit card charges), the creditor may go to court to obtain a judgment and, when so armed, may attempt to enforce the judgment by attaching your wages, seizing your bank accounts, repossessing certain property and even “liening” your home (a lien is an encumbrance or liability attached to certain property). In some states, a claim of exemption may be available to protect your home from creditors.If you think that bankruptcy may be an option, think long and hard before proceeding. First, if you have few assets and little or no income, bankruptcy is likely a poor option. In such circumstances, creditors may simply consider you “judgment proof” and may simply not take action against you. If you have assets, you should be aware that bankruptcy – despite its seemingly increasing popularity – will seriously damage your credit for the following 10 years and will not necessarily completely extinguish your debt.There are two kinds of personal bankruptcy, known as Chapter 7 and Chapter 13 (the “chapter” reference is, respectively, to Chapters 7 and 13 of the Bankruptcy Code). Speaking broadly, if you have a steady and reliable income, a Chapter 13 bankruptcy will allow you to stop most debt collection in exchange for your obligation to pay your available funds to credits over a three- to five-year repayment plan. With such a plan, you may be able to keep certain property – such as your vehicle and home – even if the property was secured to repay a debt. If you fulfill your obligations under the plan, most remaining debt will be canceled at the end of the repayment period.A Chapter 7 bankruptcy contemplates a different scheme. In a Chapter 7 bankruptcy, you ask the bankruptcy court to cancel most of your debts because you lack the resource and ability to pay them off. As a Chapter 7 bankruptcy constitutes a complete liquidation, you must meet certain criteria related to your income and ability to pay to qualify. Generally, with a Chapter 7 bankruptcy, you will not be able to keep property which was used as collateral for a loan.Bankruptcy is a serious step and before proceeding, you would be wise to consult with an experienced bankruptcy attorney.If debt or bill collectors are hounding you, you need not suffer in silence. Neither must you allow yourself to be bullied by them. In most states, debt collectors may not contact you at work or contact someone else regarding your debt. Neither may certain types of debt collectors (for example those attempting to collect on car loan, unpaid medical expenses or credit card debt) call before 8 a.m. or after 9 p.m. Similarly, most states proscribe debt collectors from misleading you and they must identify themselves and, at the outset of their call, divulge the purpose of their call.If you are receiving Social Security income, it is generally exempt from collection by creditors. Social Security income can, however, be garnished in most, if not all, jurisdictions to satisfy court-ordered child support, alimony (called “maintenance” in Colorado) or unpaid federal taxes.If your fall behind on your mortgage payments, you may risk losing your home. However, in many cases you may be able to work out a plan with the lender to have your payments reduced, spread out over a greater length of time or even temporarily abated. You may also be able to refinance at a lower rate. Whatever you do, do not ignore default notices from your lender. Be proactive in attempting to deal with the problem. If you do nothing, your home could be foreclosed and sold from under you, leaving you with little or nothing. If faced with the possibility of foreclosure, you may wish to check with the local Housing and Urban Development office which may be able to refer you to a counselor to explore and understand all options which may be available to you. In any event, while the meek may inherit the Earth, in this instance, it is the lender who will likely be rewarded by meekness on your part. Seize the bull by the horns and do something before it’s too late and you live to regret your inaction.In the next column, we will visit working past retirement age, elder abuse and dip our toes into scams affecting seniors.Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. Robbins lectures for continuing legal education for attorneys. He may be heard at 7 p.m. Wednesdays on KZYR radio (97.7 FM) as host of “Community Focus.” Reach Robbins at 926-4461 or firstname.lastname@example.orgVail, Colorado
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