For Single Parent, Facing Debts Might Be a Better Move Than Bankruptcy
Q: I notice you, like most personal finance planners, discourage people from filing for bankruptcy. Are there any situations where you think it’s appropriate? I am 30 years old, earn about $45,000 a year and have more than $30,000 in credit card debt in addition to $9,000 in student loans.
Some of the debt is the result of a gambling problem I had for a time, but the vast majority was accumulated this last year and a half as a result of a divorce and custody battle. I now have sole custody of my daughter and have trimmed my monthly expenses as much as possible, yet can barely manage to pay the monthly minimums on my credit cards.
I am seriously considering filing for Chapter 7 bankruptcy by the end of the year. Are there any reasons I should not do so other than the obvious black marks on my credit? How long would the marks stay on my credit report?
A: Your daughter is the best reason I can think of to avoid bankruptcy. Going bust will affect both your lives for longer than you think.
A bankruptcy stays on your credit report for 10 years. You might be turned down for jobs, apartments or insurance coverage because of the black mark, because employers, landlords and insurers increasingly check credit reports.
Though you may eventually be able to get some types of credit and may even be able to buy a home, you will have to pay more in higher interest rates and application fees than someone with decent credit.
The money you pay in extra interest will not be available to fund your other goals, such as your own retirement and your daughter’s college education.
That said, your efforts to pay off your debt also will delay saving money for other goals. But taking charge of your money and your life will teach your daughter some valuable lessons about responsibility and self-reliance. What better place to learn than from a parent who faced up to debts?
At the very least, you should contact the Consumer Credit Counseling Service in your area. This nonprofit group can help you negotiate with your creditors for better terms, as well as teach you the money management skills that you lack. You might also consider a 12-step group such as Debtors Anonymous or Gamblers Anonymous.
There are situations where bankruptcy is unavoidable. Yours may be one of them. But get all the facts before you file, and think of both of your lives.
When Life Insurance Isn’t Needed
Q: I was intrigued by your reply to the reader whose friend was trying to sell her life insurance. I also have a friend who wants me to buy a policy, even though I’m single and do not plan to have children.
I really need to learn more because though I want to help my friend, I also don’t want to make a financial mistake. My friend keeps telling me what a great wealth-building tool life insurance can be, but somehow I don’t see how it can be better than simply investing the money.
Is it something worthwhile for a person with no children or spouse?
A: In this case, it would be a wealth-building tool--for your friend. You’re better off investing without it.
Life insurance doesn’t make much sense if there is no one depending on you financially. All your friend’s charts and graphs and razzle-dazzle about tax-free withdrawals don’t change that basic fact.
Any good personal finance book will give you the basics about life insurance. “Personal Finance for Dummies” by Eric Tyson and “Making the Most of Your Money” by Jane Bryant Quinn are good choices. You also can learn more about life insurance by reading our tutorial at https://www.latimes.com/insure101.
Register CPA Complaints Online
Q: I’m a certified public accountant and had a suggestion for the reader whose CPA made a mistake. If people think their CPA has performed shoddy work, they can file a complaint with the California Board of Accountancy, which is part of the California Department of Consumer Affairs. Its Web address is https://www.dca.ca.gov/cba. They don’t handle fee disputes.
A: Thanks for the excellent suggestion. Consider it passed along.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
