Parents in 84k debt & retiring soon- Change in income ?

[Solarinasmom]

My parents are in a bit of a complicated situation. They are considering filing Chapter 13 and I am helping them sort through all this.

My father works for GM, has been there for 35 years and feels he needs to take the Buy Out ($35,000 + his full benefits) and retire so he doesn't lose any more benefits. After he decided to take the Buy Out (nothing is official yet) we found out that my mother had racked up $84,000 in debt (all unsecured credit cards). He signed off on all the cards and basically stuck his head in the sand all these years. They are just at the point where they cannot afford the minimum payments this month and plan to just stop altogether until they file bk.

They own their house, but it needs at least $20,000 in repair to get to the point where they can get homeowners insurance again- unfortunately they let it lapse 3 years ago. (It'll probably be worth only about $100,000 after the repairs and the Homestead exemption for their state is only $50,000.)

It seems to me that Chapter 13 will be their best option in order to protect the house. But they need to wait until he gets the $35,000 Buy Out in August so they can fix up the house just enough to get it re-insured. If he files right afterwards, will the fact that he had $35,000 and spent it so soon before the bankruptcy be an issue?

If they go by his last 6 months paystubs, to figure out his Chapter 13 payment plan, then they won't reflect the lower monthly retirement income he'll be living off of. Would he have to wait until 6 months after he retires to file in order to be under a plan he can afford? Which means waiting from now until December to file and hoping that the CC companies don't sue in the next 9 months. How long does it take credit card companies to sue?

Responses greatly appreciated.

[SinkingFast]

How long it takes for CC's to sue is a good question with no set answer.

There were people on the Forum when I joined that went a year + without payments and no law suits.

There's a person on here filing under New Law that got sued after missing 5 months of payments.

It's a gamble how long it will take. Some of it depends on the balances on the cards. If you're talking $2000 or less, a Creditor is likely to jump thru all the internal collections hoops, and turn it over to outside collections to get their money. $2K or less almost isn't worth paying legal fees over. The larger the balance, the greater the risk. If your talking $20K to one Creditor, they'll come quicker than the $2K Creditors will.

Is your Dad getting paid a lump sum "Buy Out" amount, or some other such title to the payment?? If that's the case, it may not be considered in his income for the 6 months prior to filing. You'd have to check with an attny to be sure about that. We've sold property within the time period and it wasn't considered income. Just be prepared to show where every penny was spent. The attny and the Court will both wanna know.

All the attnys and the Court will ask if you are anticipating an increase or decrease in income. So if your parents are planning to file Ch 13 and do so before you Dad's fully on retirement income, the attny can take that into account in setting up the plan payment amounts. Your Dad will need to have some firm figures to work with about how much he anticipates he'll draw each month in Retirement benefits and SSI if that's applicable. Since he's planning on retiring, that's something he should be doing now anyway.

[Solarinasmom]

Thanks for the response. Yes, we are definitely going to have to call the attorney at the plant tommorow and start a discussion. I am helping them with all of this because my dad has a language barrier, he is from Sicily and has a thick accent and my mom is extremely confused. It's a huge mess, they have been terrible about keeping paperwork and my moms memory isn't so great.

From what he understands they will issue one lump sum check for 35K on August 1. He will technically be retired and down to pension income as of July 1. From what I am reading I am pretty sure they can't garnish pension/ss... but they still have the house. Their biggest fear is losing the house right now.

Unfortunately they have 11 credit cards total- 8 of which have balances of
5K+ and 4 of those have 10k+. The biggest one is $16,000. So I am sure they won't wait too long to go after them. I am hoping they can at least get to the end of August before any lawsuits come up.

I'm so worried about them getting sued before they get the house fixed. I don't know if they can figure out a way to rotate payments on the cards until then. Or even pay $50 on some of the $300+ min. monthly payments. I have no clue if it would even make a difference, I am assuming it will go to collections in 90 days unless they pay the min. I don't know if I have the energy to try and work out payments with all the ccs and what the legal ramifications would be if they agreed to any payments if they just intended to file bk in the first place.

That's good to hear because I feel like the sooner they file bk, after they address the house repairs, the better. Yes, he was planning on getting the retirement income figures soon, I will definitely make sure he keeps on top of that.

[Jenny]

I think they're going to have a hard time keeping the house. If their only income is social security and pensions and any or all of that is not touchable in a Chapter 13, what would they use to repay all that debt? With $100,000 in equity in a house and only half exempt, they're facing a very difficult situation. Hopefully a lawyer will come up with a good plan, but I'd be cautiously optimistic.

[SinkingFast]

We made it 4 months, but I don't feel like pressing our luck any further than this. We've retained an attny, we've turned in all our docs to him, and we're waiting on them to process the data and prepare the petition.

If the gross amount of that Retirement Settlement is $35K, your parents will likely get 40% less in cash. Huge lump sums get taxed big time. Then they'll probably get a large income tax refund the next year as well. Likely thousands more than they're used to seeing. So be prepared for that.

And if your parents file BK, the Trustee could take a chunk of that income tax refund that will be coming in '07. Some Trustee's go after income tax refunds, some don't. If your parents file the end of August, first of September, the Trustee can take 8/10ths' of the refund. It's prorated according to when you file in the year.

The SSI should be exempt. I don't know about the pension.

The attny you're gonna Consult with at the Plant,.......... Is he/she a garden variety Union type representative attny?? If so, you might not get many answers to your questions. BK Law is a specialized area. I'd suggest you call some BK attnys in your area and schedule Consult appts. Consults are free and you'll get a variety of opinions about how to handle your parent's situation.

[Solarinasmom]

Well, I'm still trying to wrap my brain around all of this... But I meant the pension/ss are not able to be garnished from a lawsuit but I am pretty sure they can use the pension/ss in order to pay on a Chapter 13 repayment plan. (at least that's my understanding so far from what I've researched)

So basically I am hoping they at least don't get wages garnished from lawsuits until they file Chapter 13 and set up a workable paymet plan. I went to the government website and found the living expense charts and figured in their state they'd be allowed at least $1300 a month in living expenses and they'd have somewhere around an extra $800-900 a month on top of that to could go towards paying the chapt. 13.

I believe that their income has to be enough to "pay back" at least the non-exempt equity on the house. Which means around $50,000. I think it's enough if they are on a 5 year plan. It might be cutting it close. We definitely have to get official figures and go over all this with an attorney.

I know, I have already told them that worse case scenario is they lose the house and to mentally prepare for that.

My dad says they have bankruptcy lawyers at the UAW, apparently bk is a common problem. I just don't know how specialized their training is, but we are gonna call today. Usually they set up a phone interview first, they may be so busy that we can't get any detailed answers right off. I know my parents won't want to seek outside legal help, they'll want to go with the UAW lawyers because it is free. I can look into it though.

Oh, I didn't even think of that, the taxes will be an issue... I wonder if the income drop in July will offset the lump sum a little. They'll probably be some tax issues in 2007 though.

Yes, I think the sooner the better on filing, before I found out about the whole house insurance mess I was telling them to file ASAP.

[SinkingFast]

I understand why they'd wanna use the Union attny. Not a problem there. But it still wouldn't hurt you to schedule appts with outside attnys for Consults.

Truely, the Consults are free. Each attny has a different perspective on what approach they would take. You'll learn different things from each one. And you'll also start hearing common themes as you go along.

The homestead exemption for their state, is that $50K/filer, or $50K max filing jointly. If it's $50K/filer and they file joinly, then they'd have $100K in homestead exemptions.

About the income thing, they'll use his last 6 months of paystubs. But, they also ask if you are expecting an increase or decrease in income. That generally means in the 10%-12% change in income range. Obviously your parents would fit the change in income status.

Make sure to save all the docs he get's sent about the retirement. Letters stating when he will effectively terminate his employment. Statements from the Union about how much his anticipated pension amounts and SSI payments will be. So his paystubs along with the docs about his retirement and SSI benefits will be evidence of the anticipated decrease in income, and the Court will take that into consideration when figuring the plan payments.

The Union did all this for my Father-in-law before he retired and I'd bet UAW will do the same for your Dad. They contacted SS to determine FIL's and MIL's benefits, and gave FIL varying pension payments figured on when he was looking at retiring. With that information, FIL and MIL could decide when FIL should retire. They had the Union do the figuring not long after he turned 61 because he had a ton of years with the company. Based on the info they got, FIL decided to retire at age 62.5. If he went before that, he'd get pinged on SSI. If he worked longer than that, he wouldn't see any real gains/difference per month in payments. Beyond 62.5, he woulda had to draw retirement in excess of 35 years before it woulda been better to work longer.

[alh]

What state are your parents in?

[badgambler]

I know this is not a ideal plan but if your father and mother are both about to retire. Why not take the 35k fix the house and get insurance.. This is the most important thing.. They have money issues now.. God forbid a fire or something else happens along those lines to the home and then they will be truly up the creek..

If I were at risk of lossing my home at retirement age.. I would just let them sue me get judgements and file leins on my home.. They can not garnish pensions or SSI.. If your parents plan on staying in that home the rest of their lives.. I would not risk the home at any cost.. They are a bit to late in the game to be starting over.. In fact the more I think of it.. The chapter 13 is a tough one as well.. I mean at this point in life being on fixed income it is very difficult to keep your head above water.. They are getting to a age where medical bills and medication will be getting higher and higher for them... On a chapter 13 they will have basically no disposable monthly income to help with those future expensives down the road.. Seems like it is just setting them up to fail..

Sorry.. very difficult posotion your folks find themselves in.. My thoughts and prayers will be with you all.. Keep us posted

[badgambler]

After thinking about this... I would probably advise my parents to talk to a couple attorneys.. But I would not allow them to get tied to a 5 year payment plan at any age above 60. I only see a chapter 13 plan as a disaster waiting to happen.. One unfortunate event and they are in trouble..

I guess I would tell them at this point.. Let the credit cards sue them.. Get the judgements and file leins on the home.. I would not allow them to live on cat food during their golden years trying to work a chapter 13 plan.. I would have them change their phone numbers and just leave the credit cards alone and let them do what they have to.. They will eventually get their money from the sale of the home.. But at that point your parents would have lived out their years in it.. and the not missed out on enjoying their final years..

My comments are only for this situation.. due to the age of the people involved..

[SinkingFast]

Great thoughts, BG!!

You are right. With older folk, what do they have to loose with a few judgements and liens against them??!! Those can all be settled out of the estate after they pass. Just be sure the estate is set up so if one goes first, the other doesn't get stuck having everything sold out from under them.

I know my Mom struggles to stay even living with us. And she's not paying utilities or phone bill or anything like that. Let alone property taxes and homeowner's insurance. You are right about the fixed income issues.

One thing I would also suggest you see about, in addition to the repairs on the house in the homeowner's insurance, is to be sure their car is sound. Once they start having judgements and liens filed against them and their property, they probably won't be able to purchase another car.

Another thought,............. Have you thought about a Reverse Equity mortgage?? One that would pay your folks money each month based on their equity in the home?? Maybe that would get them the extra income they need to meet the monthly debt obligations to buy some time for them, and eat away at their equity in the house.

[badgambler]

Another thought,............. Have you thought about a Reverse Equity mortgage?? One that would pay your folks money each month based on their equity in the home?? Maybe that would get them the extra income they need to meet the monthly debt obligations to buy some time for them, and eat away at their equity in the house.

Funny you mention this.. My in-laws are awaiting the magic birthday of 62 to get thier reverse equity mortgage started.. Evidentally you must be at least 62 years of age to qualify..

[SinkingFast]

Another thing you should check into, Solar, is property taxes.

When my brother was supposed to be handling things on Mom's house, he was responsible for the taxes and insurance. When she had to move back for the Airport Buy-Out program, so the house was owner occupied, Mom discovered she had no Homeowner's insurance.

Immediately, when she got the personal property tax bill for that year, she owed for the previous year as well. She paid those taxes and she called the Assessor's Office to see if there were any other outstanding taxes that had not been paid. Mom was told No by the Assessor's Office. About 6 months or so later, Mom got a letter from an attny's office about 3 years of past due taxes from several years before. A collections company had bought the tax debt from the County and now they were collecting. That cost Mom 3X what it woulda if the taxes had been paid on time.

If your parents let the Homeowner's Insurance go, there may be other essential bills they haven't paid. Be sure to check on that as well.

[Solarinasmom]

Hi, again. Talked to the UAW attorney yesterday. She did mention that they can't use the UAW legal service if he takes the Buy out and retires. We are already looking into other attornies anyway. She said he really needs to think about staying, it could be one option. I just feel bad because he has worked for 35 years and is afraid he'll lose his job if he stays.

If he stays obviously he makes enough to fund the chpt. 13 plan and he'll be done with the debt after 5 yrs. It's just a matter of hoping his job is secure for at least the next 5 yrs, or they are back in the same pickle with the pension.

She recommended, if he retires, that he wait until december to file. Try to hold off the creditors somehow, she was kind of vague on this. She is pretty sure they will go after the house even if they retire and can't garnish wages. She also said depending on the appraisal value of the house there's a chance they might not qualify for the chpt. 13. There's just a lot of variables until the get the house fixed.

She did verify that they need homeowners insurance just to file bk. I agree, they need it anyway, what if there's a fire etc. So they are calling to get estimates on the basic repairs to get the homeowners insurance.

Yes, they were planning on using the 35k to do the repairs and get homeowners insurance. AND I did find out they have a 401k worth 28k, but after taxes and penalties it might only come out to less than 20k, BUT it also might be enough for him to fix the house and get the homeowners insurance before they file bk. This is an option if he decides to stay and not take the buy out.

I do know they have been paying property taxes and all her taxes on time. Own their car, it's 10 years old but running ok and been repaired fairly recently. They are in Delaware.

They've basically been living in squalor for the past 5 years at least. They had no hot water for two years, they have no washer and dryer. Got the roof fixed last year because there are holes in the bedrooms where you can see through the crawl space up to the beams in the roof, from water damage. The garage roof is falling in. It was my grandmothers house and when we moved there in 1983 it was up to date on repairs. They have done almost nothing to it for 23 years because my mom was charging and paying min. payments. This is a long term problem, I kept telling my father to find out what was going on but he was afraid how my mother would react. He now realizes it's not just the 84k they are out, but 23 years of savings that could have been put away. They never had a mortgage, they could have saved at least 500k from what he figures! It's awful. (Oh, and they have cats- 8 of them. This is another issue I am trying to address, goodness knows how they will feed all of them or care for them as they get older. It's definitely added to the decline of the house)

I just don't want to advise them to skip it all because the house is the only thing they feel they have left. The attorney seemed to think the larger cc companies like Discover would come after them fairly quickly because their balances are so high. My dad is 61 and my mom is 60. I was thinking reverse mortgage too, but the age issue...

My dad thinks another 5 years living on $1300 or less a month is no big deal becase they have been living on that among for a long time. It's sad.
I know, the healthcare issue worries me too, what if they get sick! GM already cut retiree health benefits.

I find out something new everyday. Everytime I think I have a handle on their options somehing new pops up. I begged my mom yesterday to let me know if their was anything else she was covering up or thought of that could be an issue. She told me they have taken out a small loan against her meager $5,000 life insurance. It's just beyond my worst nightmares.

Well, I am going to be staying with friends near them for 3 weeks after Easter. I am hoping to help them go through the paperwork and deal with some of the house cleaning/cat issue. I have a 3 yr old and a 7 month old and my husband is active duty Navy (on sea duty) he'll be gone 9 out of the next 12 months. It's just bad timing all around. If I didn't live 6 hrs away and have my own family I could have devoted more time to helping them out of this... sigh.

Again, I do appreciate the thoughts on their situation, it helps so much to talk it out and has given me some ideas to go from and what to ask in all this.
(I just post-previewed and saw how LONG it is! Didn't mean to ramble, Thanks for reading.)

[badgambler]

The only thing the credit card companies can do if they go after your folks as far as the house is concerned is put a lein on it. They can not force the sale of the property. They will get their money when the home is sold one day.. That is it..

This way the home is protected and your parents never need worry about having to find somewhere else to live.. If they are involved in a chapter 13 how are they going to handle property taxs insurance and so forth.. it is clear like the rest of us they are not the best at budgeting.. Now you run late on too many property tax bills and they can and will force a sale of a property..

There is not need for them to cash out pensions and so forth to pay off the debt. It just does not make sense for them to suffer.. I know it may be difficult hearing someone say it.. But at 60 and 61 your parents are not guaranteed to be around another 5 years.. I know that is difficult to read and I pray they are.. trust me.. I just would hate to see them go without so much the last part of their lives..