Baby steps and bankruptcy?

By Dave Ramsey

Baby steps and bankruptcy?

Dear Dave,

About a year and a half ago I had about $125,000 worth of debt and I filed Chapter 13 bankruptcy. The good thing is that I’m in sales so, without having to go get a second job, I can just work my butt off and make more income. I do have some things that were not able to be part of the 13, different tax issues and things like that with a fixed figure of about $2,000 of that left. I’ve got a ten-year-old car and a five year old truck that still have payments that are part of this bankruptcy that I can’t do anything about. I have to keep them running while they’re in this.

I’ve got your Baby Step One, $1,000 emergency fund, out of the way. How do I move on to Baby Step Two, the debt snowball, when I can’t really get out of this bankruptcy? My attorney says once the court finds out I’ve got the ability to pay more, they will begin demanding more money from me regularly.

Mike

Pittsburgh, Pa.

Dear Mike,

You’re going to need to break this into two steps.

First, you need to clean up all the debt that’s outside the bankruptcy. Car repairs need to be part of your budget. That’s a budget item, not really a debt. You need to clean up all the other debts first, using the debt snowball paying off everything from smallest balance to largest. It doesn’t sound like there are a bunch of those.

Second, what I’d do is either save up big piles of cash and pay off the Chapter 13 and ask for a voluntary dismissal, or item by item ask your attorney to release some of the big items from the bankruptcy and pay those. Change your payments and roll them down each time. If the court finds out you’ve got more money and demands more, that’s okay because that’s what we’re doing anyway is paying more and getting out of debt. So, just treat that bankruptcy like it’s a debt snowball also and get in attack mode. Just attack that thing. The goal is, if you’ve got four years left in bankruptcy, get out in two – then you get on with your life two years sooner.

Dave


Should elderly parents get long-term insurance?

Dear Dave,

My parents are 85 and 86 years old and they want to stay in their own home as long as possible. Their health is poor. Should we be thinking about buying some sort of long-term insurance for them in case they need to be put into a nursing home or need long-term care? We haven’t done this before because they really don’t have the money for it, but they don’t want to have to sell their house to pay for long-term care later.

Loraine

Pittsburgh, Pa.

Dear Loraine,

A good long-term care insurance policy should cover both in-home and nursing home care. Long-term care insurance is a necessity, as far as I’m concerned, for anyone over 60. Now, it’s a little tough to get when you’re 86. It’s like getting health insurance, it’s going to be tough to get them covered, but it won’t hurt to talk to an independent insurance agent – one who can shop among several different companies and knows about long-term insurance – and just ask about a policy. You can tell the agent what ailments your parents have suffered and see if the agent can tell you if they’re insurable.

My guess is that they’re not going to be very insurable – based on the age and frail health information you’ve provided. So you’re probably faced with their funding long-term care themselves. They may be faced with selling their home if they need the money. I know they don’t want to, but there are a lot of things we have to do that we don’t want to.

I wish I had a better answer, but I certainly would investigate this insurance to see what your options are. At least that way you’ll know for sure. Something they also need to consider is that 75 percent of women outlive their husbands. If he goes into a nursing home and it eats up what savings they have, that may not leave her with any good choices. I think you all need to talk through several scenarios; not to worry someone, but to prepare while you’re all sitting here calm before anything happens. Maybe sketch it all down on paper and initial it so everyone remembers later what was planned.

Dave

Disclaimer: Questioner’s identities have not been verified by Dave $ays column or this website.


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