Mom bails out son, ends up underwater
By Erica Sandberg
December 27, 2013
I have put my son's defense attorney's bills on three of my credit cards — about $16,000. He cannot find work, has disabilities and cannot get Supplemental Security Income. Now they have cut my hours at my school job. Should I file bankruptcy or try to do a debt consolidation? I have no idea what I'm doing. — Pamela
Why on earth did you do that?
Never mind. It's the rare parent who doesn't make an irrational decision at some point regarding their kids. This is especially true when a child is in serious trouble. Of course you want to help. However, by trying to ease your son's pain, you helped yourself into your own set of problems.
It's important to understand what will happen if you don't meet your financial obligations. I'm going to tell you, not to scare you, but to help you be strong. With the proper information, you can make a plan about what to do now.
A credit card company doesn't care whose expenses you charged or what they were for — they just want you to send them at least the minimum payment. Fail to do that and you'll fall behind. Late payments will be noted on your credit reports and damage your credit scores. If you don't pay at all, you'll be in default, and the creditors will either sue you or sell the debt to a collection agency (which may also take you to court).
However, when the credit card company extended you an unsecured line of credit, they did so at a risk. They could not be sure that you'd pay them back. And one of the problems with that is that you, the cardholder, can discharge the balance in bankruptcy court. If you don't have the means to pay, at this moment and in the conceivable future, you probably qualify for Chapter 7, which is a liquidation of allowable debts. Those can include legal bills that you put on a card (as well as those that you just owe the attorney), unsecured loans, collection accounts, medical bills and money owed to utility companies.
Whether you should pursue Chapter 7 depends on how serious your financial situation is. If you can pay your debts, you ought to. It's better for your credit in the long run and, besides, you promised to pay when you signed up for the credit card. But if you truly do not have any way to meet your payments, can't sell non-essential assets to cover them and see no bright light at the end of this dark tunnel, then yes, go ahead and consider it. There will be significant credit damage, as a Chapter 7 bankruptcy will appear on your reports for 10 years, but you will enjoy a fresh start.
You also have other options. Chapter 13 bankruptcy allows you to make smaller debt repayments through the court, but you need an income for that. If your job disappears, that won't work for you. Consolidation loans are available only to those with good credit. They work by bundling the various debts you may have into one new loan. Because you have credit cards that allow you to pay almost indefinitely and a loan commitment rarely exceeds 10 years, the payments would be higher. So debt consolidation is probably out given your low income. Seeking help from a nonprofit credit counseling agency is also an option, and their debt management plans will allow you to package all your debts together, as you would with a consolidation loan. However, as with the Chapter 13 bankruptcy, you have to have enough money coming in to meet the debt repayments.
Or you can handle this problem another way: with your son's help. If he does not know the serious nature of your financial picture, tell him. While he hasn't been successful in getting a job, maybe this information will inspire him to take anything that comes along. Then he can forward you at least a portion of his paychecks each month. With his contributions, you may be able to satisfy the debt, even with your reduced income.
Got a question for Erica? Send her an email.