Written by Charleston Bankruptcy Lawyer, Russell A. DeMott
Senior citizens have problems with debt just like everyone else. Over the last couple of weeks, I’ve met with two sweet older ladies to discuss their financial problems.
First things first
The first thing I do when dealing with an older client is to determine what assets they have. Many times, the answer is little to none. One of the ladies I met with had only her personal effects, social security, and a small pension. The other had a vehicle as well.
The meetings went something like this:
Client: “What should I do?”
Client: “What do you mean by ‘nothing’?”
Me: “I mean do absolutely nothing. Stop paying this debt. You need your income to make ends meet. The creditors can’t take your Social Security, your pension, or your 10-year-old car. Forget about the debt and enjoy your life.”
These two nice ladies were what some call “judgment proof.” I call it “collection proof” because it’s a bit more accurate–a creditor could get a judgment, but the creditor can’t collect on the judgment.
Why not file bankruptcy?
One of the ladies wondered about going to prison for not paying her debt, which is a common myth. The other wondered about her car being taken. Neither of these fears was warranted. First, we have not had debtors’ prisons since the 1830s–except for debts arising out of family court obligations, that is. Family court debtors’ prison is alive and well, particularly here in South Carolina where our family court system is archaic and badly in need of an overhaul.
And as for the other lady’s vehicle, it was fully exempt–that is, it wasn’t worth more than $5,350, which is the current exemption amount for vehicles here in South Carolina. There is no need for either of these ladies to file bankruptcy.
But what about their credit ratings?
I’ve said it before and will say it again here: Bankruptcy is good for your credit. However, someone in their 80s doesn’t need to worry about a FICO score. So what’s the point in filing bankruptcy?
But Suze Orman says I should pay my debt!
Suze Orman was recently asked:
Q: After taking out cash advances on her credit cards, my 81-year-old mother is out $8,000. She lives on $600 a month from Social Security and cannot keep paying on this debt. Can you advise me on how to proceed? How do I get her out of credit card debt?
A: As daunting as an $8,000 debt looks, I’m relieved the figure isn’t higher, given your mother’s generous nature. A cash advance on a credit card is one of the worst types of borrowing because the interest rate is typically 21 percent or more. It’s fruitless to try to talk your way out of this; the card issuer has every right to expect repayment.
To regain control of her debt, have your mom keep paying at least the minimum due on the monthly credit card bill. On-time installments are vital for protecting her FICO credit rating. That’s important because if her score is at least 700, she has a good chance of being able to transfer the entire balance to a new card with a lower interest rate. Many card issuers offer zero percent interest for the first year when you move your balance to their card. At CardTrak.com, click on Credit Cards, then choose Balance Transfer to find issuers offering the best deals. But only sign up for one card—multiple applications made at the same time can actually hurt her credit score. (emphasis added).
For those of you who are skeptical that Suze really said this–I was–you can read the Q and A here.
St. Louis bankruptcy lawyer Wendell Sherk recently responded to this horrible advice in “Suze Orman Recommends Bankrupting Retiree–Without the Benefits.” When I read Wendell’s post, I wondered if he got it right. Was it possible a nationally known financial “guru” said something so profoundly stupid? So I checked. Yep, she said it.
Octogenarians living on $600 a month and FICO Scores? Hey, Girlfriend, Engage the Brain!
This advice is bad for several reasons:
- Why should an 81-year-old care about her FICO score? Is Grandma going to apply for a 30-year mortgage anytime soon? Or a car loan? Yes, I know people are living longer these days, but not that much longer.
- What would this elderly lady live on once she makes minimum credit card payments? Her daughter points out that she has only $600 in income per month on which to live. Orman forgot to tell the daughter how mom would survive. Is grandma going to live in a homeless shelter while she pays Visa and MasterCard back? How will she buy food? What about her medicine?
- Why not do nothing? This is especially true if grandma has no non-exempt assets from which creditors can collect.
- Why not settle with the creditors? Why not tell the daughter that she could settle that $8,000 for $2,000 to $3,000 and, daughter, you pay for it. After all, mom raised you and you owe her–big time.
- Why not explore bankruptcy options? Again, doing nothing is probably better, but for $1500 or so, that $8,000 can be wiped out in a Chapter 7 bankruptcy.
“The card issuer has every right to expect repayment.”
This statement bothers me the most. It’s true that Visa and MasterCard have “every right.” Don’t get me started on that. But what about Grandma’s rights? Why the concern for Corporate America over all else? Why don’t we ask why the card issuer issued so much credit to an elderly lady with almost no income? Isn’t there some justice when creditors loan money to people they know can’t pay it back and…drumroll please…they don’t pay it back?
This underscores something very important: Be careful where you get legal advice. Getting it from non-lawyer talk show celebrities like Suze Orman can be dangerous. If she’s your girlfriend, you’d better get another.
Wow, she really said this. I would like to say I can’t believe that Ms. Orman would give such bad advice, but in all honestly I am not. I have watched her show on and off and read a few of her articles, many of which drive consumers to the same advice. This is yet another example of why you should speak to a qualified consumer debt attorney who understands the legal ramifications of doing or not doing something rather then a talk show host or even just friends.
Sadly, you will hear similar comments from Dave Ramsey as well. Much of what he says is great, practical advice for getting out of debt. But, when he tells a 25 year-old single gal with no income and $150,000 in medical debt, to come up with a 15 year plan for paying it off because she’ll feel better about herself than if she files bankruptcy, I cringe.
Both Ramsey and Orman have crossed the line from professionals who give advice to media figures with a business to uphold. Neither is well served giving debt management advice to see a bankruptcy attorney. I refer clients to their works, because at their base they have sound theories on how to manage and reduce debt. However, the shame they encourage others to feel about filing bankruptcy doesn’t help at all.
I’m a 69- year old lady who has been on SS disability since 2003. Have listened to Suze several times, but she is really talking to people who make money and spend it. I don’t go to Starbuck’s, get pedicures, buy clothes or any of the other things she says to cut out to have more spending money. I have no debt, but no spending money either. After my utility bills (which I’m currently trying to lower), medications and doctors, repairs on condo, etc. I hardly have enough to eat. She is totally unrealistic about how a great deal of the country actually lives! Don’t listen to her any more. And I did have a bankruptcy some years ago because of living on cash advances (before getting disability) and it is NO disgrace.