I would like to examine a subject that is reasonably uncomplicated but very important: debt and your family.
Over the last several weeks, I have encountered the family subject in a number of different ways at Steidl and Steinberg. Family No. 1 came to see me because of a large amount of student loan debt. It is a small family, just mother and daughter. But for such a small family, the debt is huge, about $100,000 in student loans, all taken out by the daughter, all co-signed by mom. The daughter, who is employed, isn’t making nearly enough money to pay on this debt, which is mostly private student loan debt, and the collectors are hounding her. The collectors are hounding mom, also, as they tend to do when the primary borrower isn’t paying.
A Chapter 13 reorganization plan that was filed by the daughter. She is making payments of $150.00 per month to the Court for the next five years, which is split between her student loan creditors a credit card, and other debt. This will keep all of the creditors off of her back and will prevent the student loan collectors from garnishing either her tax refunds or income.
At the end of the five years, the non-student loan debt will be gone. The student loan debt will still be there and, while the student loans are able to accumulate their normal interest during the five years, there are no fines or penalties.
Hopefully, after five years,one of two things will have happened: the client will have a better employment situation that will allow her to pay off the student loans more quickly, or maybe Congress may have gotten smart and helped out our young, our best, and our brightest. If not, we will be there to help again.
Mom can’t be touched by the student loan creditors during this five-year Chapter 13 Plan filed by her daughter. An attempt to collect from mom is a violation of the Bankruptcy Code which forbids collection activities against a co-signer for a consumer debt in Chapter 13.
Family No. 2 is a more difficult situation. Mom and Dad went into a lot of debt over the years for a number of reasons: medical, business (mostly a failure to pay taxes), and a large dose of overspending. Much of the overspending was on vacations, often with the pretense of not denying anything to their children. Some of the debt was to provide vehicles for the kids. But after all of the years of necessary and unnecessary spending, the amounts owed to the tax and credit card creditors became insurmountable without help from the Court.
The recommendation is to consider Chapter 13 to pay off the necessary debt over the next five years. What do I mean by necessary debt? This is the amount of debt the law requires them to pay over the time of the Chapter 13. So what happens to the rest of the debt? In this case, they will pay just a small fraction of their credit card debt and older IRS debt over the five-year Chapter 13 Plan. This will save them tens of thousands of dollars.
There have been strains on the family, some caused by borrowing from others over the years to support their lifestyle, and some caused by medical problems. Once the Chapter 13 is done and the debt is paid off to the non-family creditors, perhaps the easing of the stress will help.
Family No. 3 is mom, dad and three kids. There is a lot of credit card and loan debt (about $50,000), but no student loans or tax debt. Mom is home with the kids, all of whom are young, so it is up to dad to support the family. He is trying hard by two full-time jobs. This means that he almost never sees his family, or, when he does, he is so tired that it is difficult for him to enjoy them.
Dad is also complaining about growing medical concerns. He tells me he needs to work this much to pay the credit card debt. I told him he doesn’t if he will consider a Chapter 7 or Chapter 13 bankruptcy. He did that, allowing him to give up one of the two jobs. Their family income is way down, but dad no longer has those huge credit card payments. He is getting more healthy, sees his family much more often, and he and his wife are sticking to a budget. He thanks me every time he corresponds with me, and best of all, the family, already strong, should grow even stronger as they enjoy much more time together.
Family is too important to allow debt to get in the way. Just be careful in how you approach it. And let us help.