Over $100,000 in Debt

[themoneytree]

We have just found out that my husband’s almost 80 year old Mother is over $100,000 in the hole.

There have been a series of very poor financial decisions over the past couple of years and she has now asked H to step in, get a power of attorney and take control of her finances to try and get things back on track.

I’m looking for a little advice if anyone has any.

She bought a car in December for $48,000 (she didn’t need a new car but is used to having one). Blue book on the car is now $38,000. Payment is $800 per month.

A lot of the debt is on various credit cards. She has a lot of store cards that she runs up. She’s a real shopper.

H is going to work out a payment plan to work on paying back the credit cards.

Our number one question is what to do about the car. H thinks sell it, get a loan to pay down the shortfall and buy a MUCH cheaper car. Any thought on this?

Additionally she has been sending her ex husband $600 per month which we hope that H put a final stop to today. Effectively she’s borrowing money to give it to him. Ugh.

[sadlebred]

First of all remember that in NO WAY are you and your H responsible for his mother's debt. YOU personally don't have to pay a penny of it back.

I say sell the car. Has your H thought of engaging the Consumer Credit Counseling Service to work out a debt repayment plan? It might help as they have some clout with the CC companies. I'd also take away those CC NOW.

From Clarkhoward.com:
Clark feels that Consumer Credit Counseling Service is the legitimate counseling service out there. They provide credit counseling for free and a debt management service for a three-to-five percent monthly fee not to exceed $50 (different for all states). Go to www.nfcc.org to find your local CCCS office.

[ellipses84]

How would her financial situation look if she didn’t have the debt? How is her health and what is her is her living situation or long term plan? Does she have any retirement assets?

I think you need to explore all options even those you wouldn’t necessarily explore for a younger person. Like, she’s not going to buy a house so I wouldn’t stress too much about her credit history. It may not make sense to pay it all off. Talk to a bankruptcy attorney and see what the viable options are. If there’s any elder services in your area, talk to them about resources.

There are legit debt consolidation services and you could at least have an informational call with some of them. Essentially they will manage all the debt, negotiate discounted payments / interest rates with the credit card companies, pay off the debt and she’ll pay a set amount per month to them. The only catch is she cannot use any of her credit cards anymore and they will close all the paid off accounts.

I’d definitely sell the car and get something cheaper. I’m assuming her interest rate isn’t great and that payment is crazy. Can you sell anything else she bought? That might get her debt to a reasonable amount that you could avalanche or snowball if you want to pay it all off slowly. I’d at least recommend getting a debt consolidation loan for the highest interest rate cards. These are likely the store cards. Your DH could also call the credit card companies and explain the situation and hope they take pity on her and at least lower the interest rate. If you have loan money you could use it as leverage, like if you can’t lower the interest rate, we are going to pay it off and cancel the account (regardless of if you plan to cancel them all eventually anyway).

Put a freeze on her credit so she can’t take out any new loans or credit cards without your DH’s assistance.

[gt7301b]

What does the rest of her financial situation look like?  How likely is she to stop spending on the credit cards?  What about her home?  Does she own her home or have any equity in the home?

I would focus on getting her to a point where the debt isn't growing because other actions don't really matter if she is still growing the debt.

[heygrey]

Freezing her credit so she can't open more cards would be my first order of business.

Is she borrowing money from other people? I would contact them and tell them to STOP. Previously loaned money will be considered debt to be repaid (assuming that was the agreement between her and them), but any money going forward will be considered a gift to your MIL. If other people are enabling it, they need to be held accountable too.

Does she have anything with tags on and receipts that can be returned right away? It won't make a huge dent, but it might be a good first step for her in correcting her own actions.

[momof2]

Setting aside the poor car choice, if she really has more than $50k in debt from a shopping habit — then she is an addict. And you need to treat her like one. Is she willing to acknowledge she is an addict? Is she willing to get a therapist, take meds (potentially) and start attending shopaholic anonymous type groups daily? Because if she isn’t, then your husband is wasting his time.

There are all types of potential solutions here. But literally none of them work unless she is ready to make radical change. And you need to go into this experience understanding this.

[themoneytree]

May 25, 2024 21:28:27 GMT -5 ellipses84 said:

How would her financial situation look if she didn’t have the debt? How is her health and what is her is her living situation or long term plan? Does she have any retirement assets?

I think you need to explore all options even those you wouldn’t necessarily explore for a younger person. Like, she’s not going to buy a house so I wouldn’t stress too much about her credit history. It may not make sense to pay it all off. Talk to a bankruptcy attorney and see what the viable options are. If there’s any elder services in your area, talk to them about resources.

There are legit debt consolidation services and you could at least have an informational call with some of them. Essentially they will manage all the debt, negotiate discounted payments / interest rates with the credit card companies, pay off the debt and she’ll pay a set amount per month to them. The only catch is she cannot use any of her credit cards anymore and they will close all the paid off accounts.

I’d definitely sell the car and get something cheaper. I’m assuming her interest rate isn’t great and that payment is crazy. Can you sell anything else she bought? That might get her debt to a reasonable amount that you could avalanche or snowball if you want to pay it all off slowly. I’d at least recommend getting a debt consolidation loan for the highest interest rate cards. These are likely the store cards. Your DH could also call the credit card companies and explain the situation and hope they take pity on her and at least lower the interest rate. If you have loan money you could use it as leverage, like if you can’t lower the interest rate, we are going to pay it off and cancel the account (regardless of if you plan to cancel them all eventually anyway).

Put a freeze on her credit so she can’t take out any new loans or credit cards without your DH’s assistance.

So this was actually my take but my H feels that it would be morally suspect to not pay off the cards and that a bankruptcy might be really bad for her emotionally. I do understand his position with this and to a great extent I agree with him, however I feel the most important thing is how to keep her financially solvent for her final years.

She recently bought a new house and has about 50% equity.

Things went sideways for her a bit in the past couple of years when she finalized her divorce (they had lived separately for years with her paying for all of his expenses) and then her sister passed away who was her primary companion.
I am not making excuses for her poor decisions, but I do think that her shopping habit and poor financial decisions really ramped up since.

She did call her ex husband with my H present and had H tell him that she is unable to keep sending him money every month as she is literally borrowing money to be able to continue financing him.
He agreed, but we did discuss with her the strong likelihood of him trying to weasel money out of her for an ‘emergency’ or ‘just for a few months’. We’ll see what happens.

I think H is going to put a credit stop so she can’t open any further cards. Her credit has dropped significantly now so it might be less easy for her to get hold of new cards even if she wanted to, but we’ll see.

I have concerns. Leaving this morning H offered to make her a coffee to take and she adamantly refused and said she will get Dunkin Donuts on the way or at the airport. This may not sound like such a big deal but she visits Dunkin Donuts twice a day. We think she is spending about $8 at DD.
She is completely addicted although she says she can cut back to one visit per day. We’ll see.

H feels he can get her in financial order in about 3 years. That’s IF her financial behaviors change and she stops giving her ex money.

Obviously the car in December was a horrible, horrible decision.

Someone asked about her health. She has recently lost a lot of weight and her blood numbers are looking so much better. She’s off her diabetes meds, etc. She could pass away tomorrow or live another decade. We just don’t know.

I know the ‘right’ thing to do is to pay off the cards, but half of me wonders if she should stop paying them and look at bankruptcy.

Get rid of the car, get a cheaper one and aim savings at building an emergency fund and paying off the house and cheaper car.

I barely use credit cards and if I do I pay them in full at the end of the month so I have no idea what happens if you stop paying them altogether.

[themoneytree]

A little more background. It sounds like her ex husband has had money issues for decades. She said she almost divorced him 25 years ago due to his spending, but he went to a finance class so she agreed to stay with him.

Years later she got very sick and almost died (broken back from a work injury at the hospital where she worked as a nurse) and her doctor told her she should not live in a cold climate due to pain. He refused to move, so she moved south alone and financed both households. They must have lived in different ends of the country for at least 10 years while still married, but he had a girlfriend and they got along but had different lives totally.

She gets disability and maybe workers comp (?) so has an ok income.

When my H went up last year to get the old house ready for sale he helped the ex h move and said he had to thro out over 50 fleece sweaters that still had tags on them but were moth destroyed and stank of dogs.

MIL had to put a ton of money into the house to get it passable for sale. Low cost of living area so didn’t get a lot out of it.

The whole situation is a co-dependent mess. BUT she did get the divorce and she did sell the house last year. Now she has told him she won’t be sending him the $600/ month any more either.

So while she has been taking steps to cutting off that mess she has been making her own personal mess instead.

[niq]

I think you've gotten some pretty good advice. If she has equity in her house it's probably in her interest to pay off the debts. A 79 year old woman has a life expectancy of about 10 years, and probably more than that if she doesn't smoke, doesn't drink too much, etc.

What's her income? If you sold the car do you think you could get her to cash flow positive or at least break even?

Does she/you have an elder care attorney? I would set up a phone consult with one. They can give you some basic advice on her financial situation and might help you figure out next steps.

[midwestmama]

I would just like to say that I'm sorry your MIL has put her situation on you and your H, but at least she recognizes there is a problem and says she wants to do something about it. My MIL is a financial mess, and DH has offered to help her put together a budget, but she refuses to share her financial info in order for him to be able to do that. (She actually said that if she shared her financial info with DH, that she expected him to share his (our) financial info with her. That was bold, coming from someone who helped herself to going through our drawer of account statements to-be-filed while she dogsat for us years ago.)
 
Block the exH's phone number so he can't call her, and make sure his contact info is deleted from her phone.

Agree with others on addressing the shopping addiction and selling the car (and getting a car that is paid for or at least much cheaper, if she needs a car). It sounds like it might be good to look into therapy for her, as the shopping addiction might have been her coping mechanism for the marriage issues and her sister's death.

[themoneytree]

Thank you for all the advice. I will definitely suggest a therapist and we will see how things progress this week. We are hoping to get the car situation sorted out this week.

We should get the statements showing all the interest rates this week too.

Fingers crossed.

[simpsongal]

Good luck that’s a tough situation to unwind. If need be, maybe she can live on an envelope system for a bit. Agree re therapy. I hope you all can get her on track - it’s a good sign she’s asking for help.

Maybe you all can look into constructive activities for her too. My mom does all sorts of stuff for seniors and it’s cheap. Bus trips to the zoo and areas of interest. Make sure she checks out the library and thrift stores if she really needs something.

[Susie]

Yikes, that's a lot to take on, even if all you're doing is managing it on her behalf.

You probably know this, but don't take on a cent of it yourselves.  Don't co-sign any loans, don't lend her any money, etc. etc.  I'm sure it's hard to see her in this position, but "not my circus" needs to remain top of mind.

I would 100% sell the car.  Keeping a $38k car while it continues to depreciate just because you're upside down on it is throwing good money after bad in the form of interest on the car loan.  She can drive something perfectly safe and serviceable for like a quarter to a third of that amount.  IDK where she lives, but is a car even absolutely necessary?  The difference between "used to having" and "needing" is going to come up a lot now.

Credit cards need to be put on ice (possibly literally) so she doesn't keep using them, or cut up.  She seems like a good candidate for an envelope system.  

It might also be good to help her cultivate some free hobbies that might take the place of shopping.  Could she re-direct some of this urge to the library, for example, for books, movies, magazines, and other media that she can consume for free?  Can she/would she be interested in cleaning house and giving on Buy Nothing (or similar), either on her own or with help?

Dealing with the debt sounds like it may be your H's job to manage primarily, but not continuing to add to it is just as important and is going to require some major/intentional behavior changes from mom.

[janegold]

We were in a similar position a few years ago when FIL's dementia started worsening and we had to step in to help MIL figure out their finances. We had no idea they had $250k in debt (a second mortgage on their previously paid off house, a home equity loan, another bank loan, and multiple credit cards), all on a very modest fixed income.  They were taking out credit to pay off their mortgage, and things were quickly spiraling to the point where they were defaulting on everything.

We got their POA immediately; this required a good deal of coordination with the bank and other financial institutions. Then we had to see where we could come up with money to start reducing the debt down to a manageable level. Luckily, they owned some rural land that we were able to sell in short order to get rid of the credit card debt and some of the bank loans. We cancelled all the credit cards except for an "in case of emergency" card. We had to really go through their spending with a fine tooth comb and come up with a pretty strict budget just to get them to not be in the red every month and have them be able to afford payments on their second mortgage.

Good luck, it's a difficult position to be in but your MIL is very lucky to have you. It was VERY stressful in the early days, especially since my MIL was clueless, my FIL didn't have the mental capacity to help us understand their financial picture, and they had no centralized records. I had to spend weeks sorting through piles of old mail to get an idea of their full financial picture (and when I say I, I really do mean I - my H wasn't much help in the early days, and I strongly suggest you make this your H's responsibility to the largest extent possible). Now, we are about 3 years in and things are stabilized although I think we are all a little resentful - me for having this added to my already very full plate, H for having to take over the parenting role of his parents, and MIL for being essentially under our financial control. But they would have lost their house if it wasn't for us stepping in, so ultimately I'm glad they finally asked for help when they did.

[hermione]

At 80 is there any thought to sell the house and move into an apartment? Is she paying for upkeep like lawn service?

[themoneytree]

She bought this house about a year ago.
She had downsized into a trailer home but didn’t like it so bought this one. Then she had to buy appliances, redo things, etc, etc.

She has an inexpensive handyman to do the yard work. The house is a small two bedroom, single story and modest. I don’t think selling the house would gain much.

Clearly moving twice in two years likely didn’t help her financial situation either.

[themoneytree]

Her closest friend that she does everything with since her sister died just told her she’s moving away today. : (
I hope this doesn’t trigger another set back. I feel really bad for her.

[livinitup]

The morally correct plan is the one that most benefits your MIL’s financial well being within all allowable financial laws and regulations.

Not to overstate the obvious, but if the financial institutions that “allowed” your MIL to run up this debt were not acting in any best interest but their own, she wouldn’t be facing crippling interest charges and unnecessary debt.

Bankruptcy is not a moral failing. It’s a legally sound financial plan to structure debt and repayments. Call it “giving it back to the bank” like wealthy businessmen. Call it anything else. What you call financial restructuring doesn’t matter at all.

If your MIL is asking for financial planning help and your H is willing to give it, he needs to investigate and recommend the very best financial plan based on what is best for her, not her creditors. I feel confident that they have professionals working very hard for their own best interests already. And those lending institutions will be just fine.

All that said, your H is going to recommend and do whatever he wants to recommend and do. It might be worth mentioning that whatever drove her to do these behaviors that caused this situation will not easily end just because she suddenly feels desperate and is asking for a change. Overall, a spending plan change that aligns with what she wants to do - support her ex and shopping. Certainly dramatically decrease it but she may be successful long-term if she can continue a little bit. Less fighting, sneaking around, etc.

[jobae1234]

Jun 1, 2024 9:20:47 GMT -5 livinitup said:

The morally correct plan is the one that most benefits your MIL’s financial well being within all allowable financial laws and regulations.

Not to overstate the obvious, but if the financial institutions that “allowed” your MIL to run up this debt were not acting in any best interest but their own, she wouldn’t be facing crippling interest charges and unnecessary debt.

Bankruptcy is not a moral failing. It’s a legally sound financial plan to structure debt and repayments. Call it “giving it back to the bank” like wealthy businessmen. Call it anything else. What you call financial restructuring doesn’t matter at all.

If your MIL is asking for financial planning help and your H is willing to give it, he needs to investigate and recommend the very best financial plan based on what is best for her, not her creditors. I feel confident that they have professionals working very hard for their own best interests already. And those lending institutions will be just fine.

All that said, your H is going to recommend and do whatever he wants to recommend and do. It might be worth mentioning that whatever drove her to do these behaviors that caused this situation will not easily end just because she suddenly feels desperate and is asking for a change. Overall, a spending plan change that aligns with what she wants to do - support her ex and shopping. Certainly dramatically decrease it but she may be successful long-term if she can continue a little bit. Less fighting, sneaking around, etc.

I completely agree with all of this. These lenders and their crazy high interest rates aren’t worried about the morality of any of it. If bankruptcy is the best option for her, then pursue it. Do the best thing that’s legal and allowable.

[themoneytree]

We are considering a voluntary repossession of the car.
She put down $5000 on it but I think she had rolled over negative equity from her previous vehicle.
We were trying to see if she could secure a personal loan with the same bank for the amount of the negative equity on the car, but it doesn’t look like that will work.

MIL has done very well this week on spending and the credit counseling company recommended above will likely take on the higher interest credit cards and consolidate those.
They recommended keeping the credit union ones for my husband to take care of paying. They also have the lower interest rates.

So things are going ok so far except for the car which is a real headache.

[aprilsails]

I'm glad you're making progress. DH had to take over his parents finances due to his dad developing dementia. It's super not fun, but once he got things fairly organized it's been going much more smoothly.im glad your MIL was able to stick to her budget and I hope she cooperates through all this.

[themoneytree]

The car was returned to the bank for a voluntary repossession. We’ll have to see if there are any further repercussions, but we are hoping the bank writes it off.

The expensive and unnecessary life insurance policies have been cancelled and there have been no more payments to her ex (so far).
Additionally her new car is so much less expensive that her vehicle insurance has significantly decreased as well.

Because the interest rates she was offered on the $9k car she bought were so ridiculous, we stepped in and paid for it cash so she will pay us back for that, but we won’t charge any interest so she should be in much better shape. I think so far she’s saving over $2000 per month which can now go towards paying off her credit cards.

I do think she seems to be holding up well with not buying useless crap so far. I just hope she can keep it up.

[heygrey]

themoneytree, that is a great update! I hope she is able to maintain this new spending lifestyle and stay in a good place financially.

[mcsangel2]

Jun 14, 2024 17:06:26 GMT -5 themoneytree said:

The car was returned to the bank for a voluntary repossession. We’ll have to see if there are any further repercussions, but we are hoping the bank writes it off.

The expensive and unnecessary life insurance policies have been cancelled and there have been no more payments to her ex (so far).
Additionally her new car is so much less expensive that her vehicle insurance has significantly decreased as well.

Because the interest rates she was offered on the $9k car she bought were so ridiculous, we stepped in and paid for it cash so she will pay us back for that, but we won’t charge any interest so she should be in much better shape. I think so far she’s saving over $2000 per month which can now go towards paying off her credit cards.

I do think she seems to be holding up well with not buying useless crap so far. I just hope she can keep it up.

Don't forget she'll receive a 1099-C at the end of the year for the amount of the writeoff. It will be the difference between what was owed on the car minus what they will sell it for at auction (which is usually really low). The writeoff amount will be treated as income and she'll have to pay taxes on it.

[themoneytree]

Jun 17, 2024 20:05:14 GMT -5 mcsangel2 said:

Jun 14, 2024 17:06:26 GMT -5 themoneytree said:

The car was returned to the bank for a voluntary repossession. We’ll have to see if there are any further repercussions, but we are hoping the bank writes it off.

The expensive and unnecessary life insurance policies have been cancelled and there have been no more payments to her ex (so far).
Additionally her new car is so much less expensive that her vehicle insurance has significantly decreased as well.

Because the interest rates she was offered on the $9k car she bought were so ridiculous, we stepped in and paid for it cash so she will pay us back for that, but we won’t charge any interest so she should be in much better shape. I think so far she’s saving over $2000 per month which can now go towards paying off her credit cards.

I do think she seems to be holding up well with not buying useless crap so far. I just hope she can keep it up.

Don't forget she'll receive a 1099-C at the end of the year for the amount of the writeoff. It will be the difference between what was owed on the car minus what they will sell it for at auction (which is usually really low). The writeoff amount will be treated as income and she'll have to pay taxes on it.

I didn’t know that. Thank you for the head’s up!

[hazelden]

I've copied/pasted more info about voluntary repossessions below. I'd really strongly encourage your family to at least consult with a bankruptcy attorney. Trying to manage 100k in debt without the full picture of all the consequences could have you "throwing good money after bad" as my dad would say.

From Capitol One:

Many of the disadvantages that come with voluntary repossession are the same financial challenges you may encounter with any repossession. A few key concerns are:

You'll still owe the remaining balance on the loan, or, if the car sells at auction, you'll have to pay the deficiency balance

If you don't pay the remaining balances, the lender could turn the account over to a collections agency or even take you to court

It could have a negative impact on your credit score, even though the repossession was done voluntarily

[themoneytree]

Jul 1, 2024 13:30:56 GMT -5 hazelden said:

I've copied/pasted more info about voluntary repossessions below. I'd really strongly encourage your family to at least consult with a bankruptcy attorney. Trying to manage 100k in debt without the full picture of all the consequences could have you "throwing good money after bad" as my dad would say.

From Capitol One:

Many of the disadvantages that come with voluntary repossession are the same financial challenges you may encounter with any repossession. A few key concerns are:

You'll still owe the remaining balance on the loan, or, if the car sells at auction, you'll have to pay the deficiency balance

If you don't pay the remaining balances, the lender could turn the account over to a collections agency or even take you to court

It could have a negative impact on your credit score, even though the repossession was done voluntarily

This was all taken into account. The whole situation was a lot less than ideal, but paying over $800 / month on that car was really what was killing her.
Her credit is already shot at this point. We are hoping that the lender will write off the difference. If not we are prepared to handle it.
H talked with the bank a lot before making the decision to return the car. He tried to roll the the deficiency into a new loan on a less expensive vehicle but it didn’t work.

Honestly they should never have given her that loan in the first place. I mean I don’t blame them, but she’s elderly and a cursory glance at her finances would have told them she would be unable to pay it back.

[mcsangel2]

Jul 2, 2024 11:15:06 GMT -5 themoneytree said:

Jul 1, 2024 13:30:56 GMT -5 hazelden said:

I've copied/pasted more info about voluntary repossessions below. I'd really strongly encourage your family to at least consult with a bankruptcy attorney. Trying to manage 100k in debt without the full picture of all the consequences could have you "throwing good money after bad" as my dad would say.

From Capitol One:

Many of the disadvantages that come with voluntary repossession are the same financial challenges you may encounter with any repossession. A few key concerns are:

You'll still owe the remaining balance on the loan, or, if the car sells at auction, you'll have to pay the deficiency balance

If you don't pay the remaining balances, the lender could turn the account over to a collections agency or even take you to court

It could have a negative impact on your credit score, even though the repossession was done voluntarily

This was all taken into account. The whole situation was a lot less than ideal, but paying over $800 / month on that car was really what was killing her.
Her credit is already shot at this point. We are hoping that the lender will write off the difference. If not we are prepared to handle it.
H talked with the bank a lot before making the decision to return the car. He tried to roll the the deficiency into a new loan on a less expensive vehicle but it didn’t work.

Honestly they should never have given her that loan in the first place. I mean I don’t blame them, but she’s elderly and a cursory glance at her finances would have told them she would be unable to pay it back.

I'm curious what type of vehicle it was and what the interest rate was? and if it was new or used?

[themoneytree]

It was new car with the negative equity from the previous new car rolled into the loan. The car before was only two years old. 🙄 If she had just kept the previous car she would have been tight financially but could have managed. Buying this new car was the catalyst for the whole house of cards collapsing.

Her sister (who passed away) worked for a car company or a dealer or something like that and she got used to having a new car every couple of years at a big discount. H had tried to talk to her about buying a new car every two years before this, but her sister was a forceful person and they just kept doing it.
I just don’t understand what she was thinking in December when she went for this new one. It was 100% unnecessary and she didn’t say a word to either of her sons about it until it was too late.

[dr.girlfriend]

This is a longshot, but in terms of interests, does she have an emotional attachment to the stuff she's bought or would she by any chance be up for selling some of it on ebay, etc? It might give her something to do and an additional source of income, and declutter at the same time if she's willing. And then if she were successful she could transition to buying at thrift stores and reselling and that might soothe the shopping habit.