There Might Be Hope

Andy's mom is ready to file bankruptcy. She has $115,000 in debt because of a $42,000 balloon payment due in April, a $21,000 car debt, medical debt and credit cards. Dave doesn't believe his mom is bankrupt.

QUESTION: Andy in Colorado Springs finally broke through Powdered Butt Syndrome with his mom, and she’s ready to file bankruptcy. Andy wants to help her avoid it. She makes $1,500 a month and is 60 years old. She has $115,000 in debt because of a $42,000 balloon payment due in April, a $21,000 car debt, medical debt and credit cards. Dave doesn’t believe his mom is bankrupt.

ANSWER: They could file bankruptcy and wipe out all this debt. The balloon payment and the medical debt are unsecured. The $40,000 in credit card debt is unsecured. If they hand over the car keys, they will be debt-free after filing bankruptcy. They can do that.

But you must understand that the debt is not the problem here—it’s the symptom. Their problem is income and stupidity on spending. I’ve done that so I know what it is. You don’t buy a $21,000 car when you’re broke and disabled. What was the finance manager smoking when he did that deal?

If she and her husband both got jobs, they could settle this house deal for probably 10 cents on the dollar. Then they could sell the car and work their way through the medical debt. Then if the credit card debt goes bad and they settle that for 20 cents on the dollar, they could probably work their way out of this and not file bankruptcy.

They are going to lose the car either way, and people are not going to get paid what they are owed either way. But them making it through this has a lot to do with their willingness to work to increase their income. They can file bankruptcy, but it will not solve all their problems.

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