He Enjoys a Good Time, but He Can’t Dance Around Debt

When it comes to his finances, Yancy Whittaker has just three problems: his past, his present and his future.

By his own admission, Whittaker, 42, has been extremely irresponsible about managing his money for all of his adult life. Earned or borrowed, if he could get his hands on it, he spent it. When the bills arrived, he sometimes let them sit unopened.

“I always liked to have a good time,” said Whittaker, a restaurant manager. “In the past, I was a dancing machine who spent too much time and money clubbing around.”

He was already in a tough spot financially when a bicycle accident laid him up for several months in 1995. Without work and social activities to occupy his mind, he had plenty of time to think about where he might be headed if he didn’t change his ways.

He now is almost $30,000 in debt--including $20,000 in student loans, $5,000 in back taxes and $2,000 in medical bills--some of which he has not made a payment on in more than a decade. Whittaker has no assets to speak of. He rents his Palm Desert apartment and does not own a car. He has no investments and in fact no savings at all. His phone service was even cut off three years after the unpaid balance ballooned past $1,000.

“I guess I’m just lucky that there’s no debtors’ prison,” he said.

His job pays him about $2,000 a month. After taxes and $500 in rent, $1,000 remains for groceries, utilities, pet food, bus fare and other necessities, plus entertainment. “I barely meet my cost of living,” he confessed.

“There’s never anything left over for savings or to pay my debts.”

Whittaker aspires to eventually own a restaurant. And though he’s painfully aware of the distance between his current financial state and his goal, it’s an ambition he holds dear.

“The prospect of owning my own restaurant sort of justifies my life,” he said, “but I’m not sure if it’s just a pipe dream.”

Setting lofty long-term goals can be a good financial-planning tool, but Whittaker needs to first address more immediate concerns, said Delia Fernandez, a fee-only financial planner in Los Alamitos. Unless and until he gets on steadier financial footing, she said, owning a restaurant will indeed be a pipe dream.

“I wish there were some magic bullet to solve your problem, but there’s not,” Fernandez said. “You need to look at what got you into this situation and take the necessary steps to get out of it, although it won’t be easy.”

After an Injury, Time to Think

The facts appear straightforward enough. Shortly after his discharge from the Air Force in 1979, Whittaker settled in Santa Barbara. He worked part time as a waiter while for five years he attended Santa Barbara City College--a school he admits he chose more for its tennis courts than its classes. He had help from the GI Bill, but once that ran out, he took out $5,000 in student loans.

He then moved to Arizona with the idea that he would study to be an engineer at the DeVry Institute of Technology. He got more student loans, but a year and a half short of graduation he exhausted his student-loan eligibility as well. He dropped out and headed to Palm Springs, where he had family.

But Whittaker’s modest wages from restaurant work did not keep up with his lifestyle, which included regularly dining out and visiting nightclubs. By the early 1990s, he had fallen behind on his federal tax obligations as well as his student loans.

Whittaker might have continued on his merry way had he not broken his leg badly in a biking accident in 1995.

He was laid up for several months, he said, giving him a lot of time to think about a debt burden that by then was approaching $20,000. His phone service was disconnected after bills went unpaid. Only the kindness of a landlord who allowed him to defer some rent payments prevented eviction.

“When I had the accident, I took a hard look at myself and said, ‘I’m broke,’ ” Whittaker said. “I had hit bottom and I’m still pretty much there. I’ve barely got my nose above a very wavy ocean.”

Whittaker has worked at his current job since 1996, but he has not tackled the student loan or tax problems.

Whittaker has been mulling his options for some time. One is filing for bankruptcy protection. He might have looked seriously into that by now, he said, but he’s been feeling overwhelmed and discouraged by the situation, figuring that tax and student loan obligations can’t be discharged in a bankruptcy proceeding anyway.

Chapter 7 May Be an Option

But according to bankruptcy lawyer John Merna of Lozano & Merna in West Covina, Whittaker may in fact be able to free himself from these debts in a Chapter 7 filing.

For Chapter 7 to apply to federal and state tax or student loan debts, Merna said, several conditions must be met.

Among them for back taxes:

* The debts must be at least 3 years old from the due date.

* The debtor cannot have a tax lien filed against any property.

* The debtor must have filed tax returns for the taxes owed.

* No fraud may be involved.

Among the conditions for delinquent student loans:

* The most recent payment must have been at least seven years ago.

* The debtor must be able to demonstrate, based on his or her income and expenses, that repaying the loans would cause an undue hardship.

* The debtor cannot have sought a payment deferral on his or her loan.

In Whittaker’s case, however, his records are incomplete, so it’s not clear even to him what actions he has taken.

Merna urged Whittaker to consult a lawyer to determine exactly where he stands.

“Potentially, his debts may qualify, but it’s a complicated area,” Merna said.

Regardless of whether Whittaker can seek bankruptcy protection, he needs to dramatically change his financial habits if he ever hopes to have a sense of achievement and security, Fernandez said.

“The bottom line is that you need to either raise your income or cut your expenses,” Fernandez told him.

On the spending side, Fernandez sees some hope.

“You may be able to wring 5% or 10% out of your non-rent spending,” she said, noting that Whittaker still likes to go out for the occasional drink with friends. “Think through all your expenses,” she continued, “and pay yourself first by putting money into a savings account. Saving money is like exercise: It’s hard to do at first, but it gets easier as it becomes a habit.”

With all that, however, Whittaker would be saving only $75 to $100 per month.

“The thing you really need to do is raise your income,” Fernandez told him.

Whittaker’s boss has made it clear that there is little hope for a significant raise at his current job. That means it’s time to change jobs, Fernandez said. He should seek higher pay and a position that will provide health insurance and a retirement plan, benefits he doesn’t currently enjoy.

“You’ve already seen what can happen if you have an accident without insurance,” Fernandez reminded him.

And starting to provide for retirement is something Whittaker should not put off any longer. The sooner he can get going, the longer there will be for compounding to do its work to increase his nest egg. Fernandez would also like to see Whittaker open an individual retirement account or start contributing to a 401(k) plan as soon as possible.

Whittaker said he does periodically send out his resume in response to newspaper advertisements. He has been called in for several interviews, he said, but he somehow never seems to make the final cut.

“You need to be a lot more proactive by networking through a local restaurant organization, for example,” Fernandez said. “You should also visit placement centers at local colleges to check for job listings and to get some coaching on your resume and interviewing skills.”

She also urged him to expand the search by applying for hotel management slots. And if Whittaker can’t find a better job in the Palm Springs area, he should extend his search into livelier markets, she suggested.

Lacking Funds, Try Sweat Equity

When Whittaker does start making more money, it’s crucial that his spending not swell with his pay.

“A better job is only part of your solution,” Fernandez admonished. “It’s just as possible to go broke on $50,000 a year as it is on $24,000 if you’ve got bad spending habits.”

As for Whittaker’s long-term goal of opening a small restaurant, Fernandez is cautious.

Whittaker figures he will need $150,000 to get started. But unless he gets some kind of windfall, he is unlikely to be able to save that sum before he reaches retirement age. With his credit record, he is also unlikely to have much luck trying to borrow the cash.

A possibility, she said, is for Whittaker to develop relationships with people in the industry who might consider offering him an ownership interest in return for his management skills. “It might be a sweat-equity type of situation,” she said.

But the heart of the solution, Fernandez said, is that he needs to take a mature approach to money.

“Adulthood is the willingness to accept deferred gratification,” she said. “You need to make plans, pay debts that you incur and spend only what you have.”

Whittaker agreed, saying that his “dancing machine” days are long over.

“Breaking my leg was a wake-up call. When I was laid up, I had a lot of time to think about things, and I realized it’s time to get serious.”

He plans to get legal advice to try to resolve his debt problems as soon as possible, and he’ll be taking a more aggressive approach to his career. And, yes, he vowed, he’ll begin saving money too.

“I knew that any solution to my problem would be tough, if not impossible,” he said. What Fernandez has advised “makes a lot of sense. By Christmas, I expect my situation to be a lot different.”

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Graham Witherall is a regular contributor to The Times. To participate in a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. We cannot respond to all inquiries.

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Information about choosing a financial planner can be found at The Times’ Web site at https://www.latimes.com/finplan. The site offers stories, phone numbers, addresses and links to related sites.

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This Week’s Make-Over

Subject: Yancy Whittaker,42

Occupation: Restaurant manager

Gross annual income: $24,000

Financial goals: Get out of debt; eventually own a restaurant

Debts: Nearly $30,000, most of which is student loans but includes medical bills and back taxes

Recommendations:

Consult with a bankruptcy lawyer to see if any debt can be discharged.

Search aggressively for a new job that offers higher salary, benefits and greater opportunity for advancement.

Commit to living within his means and begin building a nest egg

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Meet the Planner

Delia Fernandez is a fee-only planner and owner of Fernandez Financial Advisory in Los Alamitos. She teaches in the UC Irvine Extension personal financial planning certificate program and has 21 years of experience in the financial services industry.