The Golden Years May Have a New Name: The Bankrupt Years

In the past month or so, a number of articles in the news have come out showing that seniors are declaring bankruptcy at an increasing and alarming rate. The debt burden on seniors is going up due to student loans,credit cards, and lack of retirement savings.

Around the holidays, we often see senior family members who we may not have a lot of contact with at other times of the year. Or, we get to go to their houses and can notice that something may be a bit off, including debt and credit problems.

Often, the difficult part for seniors is talking to someone to figure out what to do with debt. They are vulnerable to scams and slick sales pitches because of this fear of others finding out that their finances are not in great shape. There also tends to be a feeling of pride and really wanting to solve the problems themselves because that is how they have always done things.

The problem then becomes getting help for someone who may not be willing to admit to others, especially close family members, that there may be a problem. So, how can you identify potential problems before a senior in your life has to resort to bankruptcy, especially during the holidays when things often get lost in the shuffle?

1. Unopened mail. This is not necessarily a generational or senior issue. Someone who is afraid and avoiding a debt problem will avoid opening the mail. From a senior standpoint, caregivers or family members may notice piles of unopened mail on the counter or in a drawer. That doesn’t necessarily mean snooping around grandma’s house during a holiday celebration, but a stack of mail could be hiding in plain sight.
2. Never ending phone calls. Someone who is in debt will usually receive a lot of phone calls from creditors or even collection agencies. The phone ringing off the hook can be unnerving to the senior, but also a noticeable red flag that something may need to be addressed.
3. Avoiding home repairs. Home repairs can be expensive and can be one of the first things that get neglected when money is tight. Paying attention to the condition of the home when visiting a loved one during the holidays can clue you in to problems before the situation becomes dire.
4. Skipping meals or not going out with friends and family. I once met with a lady who was worried about her mother. Every time she would ask her mother to go out for a bite to eat, the mother would come up with an excuse. We later found out that the mother was embarrassed that she could not afford to eat and did not want her family members knowing how bad it was.
5. Missing mortgage payments. There have been interesting studies done that show that consumers are more likely to pay credit cards than mortgages when money is tight. Why? Because if you are one day late on your credit card payment, they are calling you multiple times a day (see #2 above). Mortgage companies very rarely call because they know if you do not pay, they can foreclose. There have been times where we found out that the mortgage was not being paid when a notice of sale was posted to the door and a family member saw it.

If you notice any of these red flags, it can definitely be a difficult conversation to have with a loved one. However, the sooner the problem is recognized, the easier it is to develop options and strategies.

This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment on our scheduling site.

This is the second in a series of posts regarding the alternatives to bankruptcy. The series will discuss debt consolidation, debt settlement, mortgage modification, and debt management programs.

What are the Pitfalls of Debt Consolidation?

There are several pitfalls to watch out for when considering debt consolidation. The interest rate on the new loan, the length of the new loan, hidden fees associated with the new loan, and potentially turning unsecured debt into secured debt.

One of the biggest key indicators to look at is the interest rate on the new loan. If your credit card is charging you 20% interest and your consolidation loan is 10% interest, it might help with lowering your payments and reducing the amount of overall interest you pay. You also want to keep the interest rate in mind with federal student loans. In the past, rates have fluctuated depending on when the loans were taken out and the federal consolidation loan is based on an average of those rates. If you have a high balance at a low rate, you need to look and see what your new interest rate is going to be before you consolidate.

However, the next thing to look at is the length of the loan. If you have a lower interest rate, but are spreading the payments out over 20 years (or longer), you may end up paying a lot more in interest, even with a lower interest rate. So, looking at the interest rate and the length of the loan together are important steps to understand the total amount you will owe.

Also, watch out for hidden fees in your new loan and make sure you consider the overall cost. For example, if you use a home equity line of credit, there may be an appraisal required or an origination fee. Just be aware of the fees and look for anything that could cost you more money.

Finally, turning unsecured debt into secured debt can be a big problem for some people that use their homes to obtain the consolidation loan. When you have unsecured debt (credit cards, personal loans, etc.), the creditor just has your word that you’ll pay and there is no collateral involved. Once your house is used to secure your consolidation loan, the creditor could potentially foreclose on your house in order to recover the loan payments if you default on the loan.

This is just a basic overview of the pitfalls of debt consolidation and is not legal advice specific to your situation. If you are considering bankruptcy or alternatives to bankruptcy, you should speak with an attorney in your area for legal advice.

This is the first in a series of posts regarding the alternatives to bankruptcy. The series will discuss debt consolidation, debt settlement, mortgage modification, and debt management programs.

What is Debt Consolidation?

Debt Consolidation involves taking out one larger loan to cover two or more smaller debts. This can be done through a personal loan, balance transfer, or a home equity loan. The original loans are paid off immediately and then you owe a single payment towards the new loan. Debt Consolidation often helps with convenience in making one payment, reducing interest rates owed, and possibly lowering the monthly payment through an extended term on the new loan. However, there are several things to watch out for with debt consolidation, including who should consider it and how to avoid pitfalls. Avoiding pitfalls will be addressed in the second post on this subject.

Who Should Consider Debt Consolidation?

Debt Consolidation may be a good option for you if you are able to make your monthly payments on time each month, but would like to eliminate multiple payments and pay down your debt faster. Debt Consolidation does not necessarily lower the amount of debt you have – you’re not negotiating with the credit card companies or creditors to pay less – you’re just paying them off right now instead of over the next few years, so the ability to continue paying on the new loan is important.

If you have any equity in your home, sometimes a line of credit secured by your home may result in a much lower interest rate and payments. However, there are several pitfalls involved with choosing this option, including hidden fees and changing your unsecured debt to secured debt. These pitfalls will be outlined in the second post on this subject.

Student loans are often a good debt consolidation candidate, especially if your student loans are through the Federal Direct Loan program. Instead of having several smaller loans, you can combine your federal student loans in to one monthly payment. There are a few things to be aware of when consolidating student loans, especially the interest rate and the flexibility involved with repayment on student loans. Both will be discussed in Part 1B.

This is just a basic overview of debt consolidation and is not legal advice specific to your situation. If you are considering bankruptcy or alternatives to bankruptcy, you should speak with an attorney in your area for legal advice.