Question: I am 63 years old, single, have no dependents and am upside down in my house which is a money pit. I have a car loan of $2,500, a mortgage of $168,000 and credit card debt of $50,000. My monthly retirement income is $4,100.
I am thinking of filing for bankruptcy and went to see a bankruptcy lawyer who advised this strategy. I wasn’t raised to spend too much, but I had problems and yes, I sometimes lived beyond my means. If I declare bankruptcy, I know it will affect my credit rating, but does it really matter at my age? I have always paid my bills on time and had good credit in the past. So when I was told to stop the payments I felt my pride kick in. I spoke to several people and most told me not to go bankrupt. – SIR
A: You’re cautious enough, says Willa Williams, Certified Financial Advisor with Trinity Financial Coaching.
“While filing for bankruptcy may be beneficial for some, it’s not the financial solution for everyone,” she says. “Whether or not to file a case is very personal and individual and should not be done without proper due diligence.”
Recommendations received during a bankruptcy investigation are sometimes driven by the person giving the advice, Williams says.
“Those who don’t understand the process may tell you to avoid it, bankruptcy professionals may suggest this is the way to go, and those who have gone through the process may say ‘never again’ or ‘yes, that’. worked for me,’” she says.
Before you make any decisions, she says to think about these questions and then talk about your thoughts with a accredited financial advisor:
- Is bankruptcy to get you back on track financially?
- Is it because you never see yourself repaying the debt?
- Are you trying to cut your losses before they get even bigger?
- Are you considering bankruptcy because a job loss or medical problems prevented you from working?
- Have you fallen ill and can no longer pay your medical bills?
“Identify the thing or things that make you consider filing and see how they can be resolved otherwise,” says Williams, adding that a financial advisor can explain potential solutions that don’t involve bankruptcy.
If you decide to file for bankruptcy, factor in attorney fees, which Williams says can run into several thousand dollars. “If you’re filing, you should hire a bankruptcy attorney to help you navigate the process,” she says. “It is not recommended to try to do this on your own.”
Williams also notes that not all debts will be erased by bankruptcy. For example, she says, secured debt is treated differently than unsecured debt. And there are certain types of debt that are not dischargeable, no matter what type of bankruptcy you file.
“How a house and a car are handled in the process can be different from how credit card debt or personal loans are handled,” she says.
A typical bankruptcy filing will stay on your credit report for seven to 10 years, she says. In turn, “your access to credit, jobs, and housing — renting and owning — can be affected,” she says.
Williams doesn’t think your age is a major factor in deciding whether or not to file, but it could be important if the home is sold or lost and you need to find other living arrangements. “Management companies may not look kindly on someone going bankrupt on their credit report as a tenant,” she says.
Bottom Line: Williams recommends that you meet with a licensed financial advisor to discuss this.
Q: I turned 66 in March and applied for spousal benefits. I expect to collect about $2,000 a month at age 66 and about $2,700 a month at age 70. Is it correct? —AK
A: Those numbers are about right, says Jim Blankenship, a Certified Financial Planner at Blankenship Financial Planning and author of A Social Security Owner’s ManualI. Not including cost-of-living adjustments (COLAs) — which could further increase the money you receive — your benefit would increase by 32% from age 66 to 70, from about $2,000 to $2,640. TheSocial Security Administration website contains details of the percentage increase in benefits when you delay your retirement.
Q: Will Roth IRAs and traditional IRAs be considered assets in determining financial eligibility for Medicaid? —SB
A: Unfortunately, it depends on the state, says Harry Margolis, the founder of the legal information site ElderLawAnswersas well as the founder of Margolis & Bloom, a law firm specializing in elder law issues.
According to the Administration on Agingassets that generally count for eligibility include:
- Chequing accounts and savings accounts
- Stocks and bonds
- Certificates of deposit
- Property other than your principal residence
- Additional motor vehicles if you have more than one.
And, assets that are not counted typically include the following:
- Your main residence
- Personal property and household effects
- A motor vehicle
- Life insurance with a face value of less than $1,500
- Up to $1,500 in funds set aside for burial
- Certain funeral arrangements such as pre-burial agreements
“Things like this can be complicated and affected by local rules,” says Margolis. “Ultimately, one should consult a local elder law attorney for definitive answers and advice.”
Robert Powell is the editor of TheStreet’s Retirement Daily and a regular contributor to USA TODAY. Do you have questions about money? Email Bob at [email protected]