Hi all,
My MIL has gotten herself into quite a hole, and I don't know what to tell her. She got divorced about 6 years ago and had no debt and about $10,000 from sell of house after divorce was all settled. She bought another house which has had all sorts of problems, including flooding of the basement. She couldn't afford to live on one income and pay this house payment and maintain her previous lifestyle. She also helped out her son (my BIL) while he was in Afghanistan. He got behind on truck payments and she paid several months for him.
So last year, she asked my advice about her situation. She had an old car that wasn't going to last much longer, a house that was in bad shape and no equity. She has a steady job making around $55,000 and a decent 401k balance. She also had an undisclosed amount of CC debt, but I imagine it was pretty high. She had also taken out a previous 401k loan and was a year or so into paying it. I did some research for her and told her in my opinion, she should file bankruptcy, walk away from the house. First though, she should buy a new car and cut down on her overtime.
Well, she didn't want to hear that. She believes strongly in the negative stigma that is associated with bankruptcy. So, she took a $90,000 hardship withdrawal from her 401k instead. She paid off her past due CC accounts, bought a new $26,000 car, and saved some for the tax hit. Taking that hardship loan keeps her from contributing to her 401k per company policy for 6 months or a year. She also waited too long and her credit is pretty bad from the past due accounts.
Fast forward to the present. She now faces a tax bill of around $40,000. I think this is her total federal income tax for 2013 plus her hardship withdrawal. She set up a payment plan but apparently now the IRS wants all the money immediately. I don't know any of those details. She has basically turned into a nervous wreck. She spends most nights sitting around on her couch making phone calls to IRS and crying. She had tried to get credit from anyone possible. She pulled credit report and it has 10 hard inquiries on it. I honestly don't know what to tell her at this point. A bankruptcy won't do her any good if she can't discharge the taxes. I assume she is just going to have her paycheck garnished by the IRS. She has blown her 401k and is pushing 60. Any thoughts? I'm mainly angry that she didn't listen to me last year before she did all of this. My wife is upset, but we aren't in a position to come up with the money for her.
My MIL has gotten herself into quite a hole, and I don't know what to tell her. She got divorced about 6 years ago and had no debt and about $10,000 from sell of house after divorce was all settled. She bought another house which has had all sorts of problems, including flooding of the basement. She couldn't afford to live on one income and pay this house payment and maintain her previous lifestyle. She also helped out her son (my BIL) while he was in Afghanistan. He got behind on truck payments and she paid several months for him.
So last year, she asked my advice about her situation. She had an old car that wasn't going to last much longer, a house that was in bad shape and no equity. She has a steady job making around $55,000 and a decent 401k balance. She also had an undisclosed amount of CC debt, but I imagine it was pretty high. She had also taken out a previous 401k loan and was a year or so into paying it. I did some research for her and told her in my opinion, she should file bankruptcy, walk away from the house. First though, she should buy a new car and cut down on her overtime.
Well, she didn't want to hear that. She believes strongly in the negative stigma that is associated with bankruptcy. So, she took a $90,000 hardship withdrawal from her 401k instead. She paid off her past due CC accounts, bought a new $26,000 car, and saved some for the tax hit. Taking that hardship loan keeps her from contributing to her 401k per company policy for 6 months or a year. She also waited too long and her credit is pretty bad from the past due accounts.
Fast forward to the present. She now faces a tax bill of around $40,000. I think this is her total federal income tax for 2013 plus her hardship withdrawal. She set up a payment plan but apparently now the IRS wants all the money immediately. I don't know any of those details. She has basically turned into a nervous wreck. She spends most nights sitting around on her couch making phone calls to IRS and crying. She had tried to get credit from anyone possible. She pulled credit report and it has 10 hard inquiries on it. I honestly don't know what to tell her at this point. A bankruptcy won't do her any good if she can't discharge the taxes. I assume she is just going to have her paycheck garnished by the IRS. She has blown her 401k and is pushing 60. Any thoughts? I'm mainly angry that she didn't listen to me last year before she did all of this. My wife is upset, but we aren't in a position to come up with the money for her.
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