No Cinderella Ending For a Mess Created by Fairy-Tale Behavior

Special to The Times

Dear Liz: After 25 years as a homemaker and mother, I was divorced. I had to find work, create an income and begin life over. I am now 65 and in very good health, with loving children and a small business. But I am in debt and have no savings for the future.

I awake each day to find I have more debt. It's not healthy debt that I could handle, but over-the-top debt that I will never be able to repay. I acknowledge that I have a Cinderella mentality, thinking a prince will come along to rescue me, and that I've lived an upper-middle-class lifestyle that's beyond my means. I have done my emotional work in overcoming the idea that I'm a victim and thus not responsible for my situation.

But I still can't act. My children do not know of my impending disaster nor do my clients. I feel frozen and unable to reconcile myself to the inevitable, disrupting their lives and their image of me. What now?

Answer: You act.

Emotional work is all fine and good, but it's pretty useless if you're not using your insights to change the way you behave.

And, as you intimated, you're behaving like a child. Children can believe in fairy tales and last-minute rescues, but grown-ups take charge of their lives.

This won't be fun. If you truly can't repay this debt, you may end up filing for bankruptcy or negotiating settlements with your creditors. You may have to move and live a more basic lifestyle. And every day you delay, you're adding to the pile of debt.

You already have two things -- good health and loving kids -- that many rich people would trade their fortunes for. Keep that in mind in the coming difficult days.

Bankruptcy Law's Effect on Debt From Divorce

Dear Liz: My husband owned a home with his first wife. In the divorce, she got the house with the stipulation that he would receive half of the $25,000 down payment when it was sold. She defaulted on the mortgage, however.

The lender sold the house at auction and then came after my husband for the amount that was still owed. The divorce papers had stated he would not be liable for such a debt.

My husband attempted to sue her for the $9,000 he paid the lender plus the $12,500 he was promised, but she filed for bankruptcy and his claim was one of the debts that was discharged. I've done research on the Internet and it seems like his debt shouldn't have been erased.

Do you think we have a case?

A: It depends.

If your husband's ex-wife filed her bankruptcy case before Oct. 17, 2005, when a new bankruptcy law took effect, then her debt to him could legally be erased, said Leon Bayer, a Los Angeles bankruptcy attorney.

The new law, by contrast, says that a debt created by a divorce agreement can't be wiped out in a Chapter 7 bankruptcy liquidation, although it may be erased in a Chapter 13 repayment plan. If the debt was incorrectly eliminated, your husband would be able to pursue his former spouse for the $12,500, Bayer said. In addition, he could sue her for the $9,000 he paid to the lender if the divorce court required the ex-wife to hold him harmless from that debt, as your letter seems to indicate.

By the way, there is a chance that the lender shouldn't have been able to dun your husband for the $9,000 debt. Several states, including California, have "anti-deficiency" laws that prevent mortgage lenders from trying to collect such debts if the loan in question was a "purchase money mortgage" -- in other words, if the loan was used to buy the property. If the loan was subsequently refinanced, though, anti-deficiency laws typically don't apply.

If you still think your husband might have a case, Bayer recommends contacting a local attorney for help.

Liz Pulliam Weston is the author of the books "Your Credit Score" and "Deal With Your Debt," both published by Prentice Hall. She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or use the "Contact Liz" form at Distributed by No More Red Inc.

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