Neighbor is going broke quick***Update p2 P/PD req***

[canwegosoon]

My neighbor "John" is a great guy, but has confided with me he has gotten himself in to alot of debt ( he lost his job..the company moved after 30years with them, and then almost died 2 years ago due to a sudden illness). My DH got him his current job, and he only has limited skills (no college, min. computer, no trades) in a local hospital. He told me his mortage is $850 and his take home pay is $750 biweekly. I know he is over his head with 4 cc and he can no longer make the min. payments. He also really needs new windows, and a new furnace. He has just gotten really behind due to his illness, where he was out of work for 4 months after being out of works for 18 months due to job moving.


He is 56, and has a really large IRA...his choices are borrow against the IRA with $18,000 penality(he called the IRS/researched this), or go bankrupt. Any other ideas...any suggestions. I have told him to look into all the STAR programs, and Heat assistance here in NY. He would never ask his children for help...he'd rather pay 18K than borrow money for 3 years when he can
take it without penality. I suggested seeing if he could roll the IRA into a 401 and then take a loan against that(I'm just trying to save the guy 18K).

Anyone have any experience with this, where I can direct this nice man to. He has been a wonderful neighbor and even helps his Aunt who has alzhimers.
Thanks

 

[donnabres]

You cannot borrow against an IRA. If you use it for collateral, or if the bank lets you borrow against it, then the entire balance is considered to be withdrawn on the 1st day of the tax=(calendar )year of the disqualifying act. If he is going to do this, he really better talk to a tax pro, or call and talk to a supervisor at the IRS.

He would have to pay tax and penalty on the entire amount. I can't imagine that a bank would allow him to do this, but I did run into one of my clients whom the bank did let him borrow against his IRA.

Best of luck to him...............

 

[vanyel]

Consumer Credit Counseling services - non-profit organization. You can find one in your area by looking in the phone book or going online. I know they have a website.

I serve on several boards with the local head of my communities CCCS and it's a good organization that won't take advantage of someone in a financial crisis plus they offer courses in money management, debt paydown and other things. They will negotiate payments and in some cases get the interest waived.

It's better than going bankrupt. Good luck to your neighbor.

 

[canwegosoon]

Wanted to correct some of my earlier post...I suggested that he try and roll his IRA to the plans they have at our hospital...403B not 401 as I previously posted. I have a feeling that the IRA withdrawl (if he goes that route) would be a partial distribution...but he already knows the penalitys will come to 18,000....I have also told him to verify this too...thanks donna.

 

[canwegosoon]

Consumer Credit Counseling services - non-profit organization. You can find one in your area by looking in the phone book or going online. I know they have a website.

I serve on several boards with the local head of my communities CCCS and it's a good organization that won't take advantage of someone in a financial crisis plus they offer courses in money management, debt paydown and other things. They will negotiate payments and in some cases get the interest waived.

It's better than going bankrupt. Good luck to your neighbor.

I have suggested this too...and also finding a job like a paper route...to make the ends meet...he gets 36 days a year off from the hospital...but I have never seen him go on vacation in 7 years. I feel so bad for him, he's all alone. I was thinking about calling my church (he used to go to another church, but they have a very small congergation) to see if they offer any services to the community.

 

[vhoffman]

Withdrawls from an IRA to cover medical bills are not subject to a penalty, but they are included intaxable income. You can offset the taxable income from the IRA withdrawl by itemizing and deducting medical expenses. It can get tricky, best to consult a tax advisor.

 

[Nik's Mom]

I also suggest the credit counseling. I had a friend on the brink of bankruptcy, and due to the suggestion of the DIS folks, I have suggested credit counseling. If that doesn't help, then bankruptcy is the last option.

 

[Belle1962]

Is he a vet by any chance? Contact your local VA for assistance--especially if he can re-fi with a VA loan. VA is VERY lenient with vets and credit ratings etc. he MAY be able to lower his payment if he switches to a VA loan OR if he currently has a VA loan they do re-fi. They also offer other services such as assistance in finding local programs, etc.

 

[badhairday]

Wow! That is really sad. If he has equity in his home, he could refinance possibly at a lower interest rate and incorporate his debt into the loan. If he pays it back bi-weekly out of his checking account, they will give him a lower interest rate (I'm a Realtor). He could also take a low interest equity line of credit, but then he would be paying that back as well as his mortgage.

There are also credit agencies he can call that will contact his credit card companies and work out a plan to pay back the debt without interest. If he declares bankruptcy, it does remain on his record for 7 years so if he ever had to make a purchase (i.e., auto) they may not give him the loan.

If he can prove the financial hardship, depending on what his IRA is invested in, he should be able to borrow from it and pay himself back. He should contact his previous employer for the plan benefits instead of the IRS. It his company invested in mutual funds, many of them allow you to borrow and pay yourself back with interest. That would be his best option, if his income is high enough to pay back the loan.

That's nice that you are trying to help him! Good luck!!

 

[crisi]

I wouldn't borrow against the IRA except as a last resort.

Can he take in a housemate? Sounds like he lives alone.

 

[canwegosoon]

I wouldn't borrow against the IRA except as a last resort.

Can he take in a housemate? Sounds like he lives alone.

He does live alone...I will suggest it, he might have a friend in a similar position. He refinanced right before he got really sick. And I do believe he is at his last resort...I think in his mind he has a IRA which he contributed to for 20+ years at the max. which was matched by his employer. I guess he has done pretty well because with the way he is talking, taking out $120,000 , he could make back in a few years. He also now gets 4% automatic contribution to a retirement account at the hospital, plus I think he estimates he will "retire" when he can no longer work or drops dead. He said that the guy who he spoke to at his IRA said to go bankrupt...but he would never do this. I think he would be living in his car first. He just isn't the type to diminish his responsibilities...I think he even still pays Alimony (not child support).

I am not sure if he qualifies for VA Loans, I think he was in the reserves. I have suggested also getting on a list like the Post Office, where he would be making more money. He doesn't think he will be able to refini due to his payment history in CC...but I will tell him to look into the VA.

Keep the ideas coming...Thanks

 

[Chicago526]

If he still pays allimony, see if he can get that stoped. Who the heck gets allimony anymore, anyway?

A room mate is a great idea, better yet, if he has a three bedroom house, he should get two. He could charge half his mortgage payment to each roommate and live for free! Then he should have plent of money to pay down his other debt.

There is a website called Roommates.com, he could post an add there. I think there are a couple of other roommate sites too. That's how my friend found her home, she rents a room from a single guy with a three bedroom town home. She pays $400 a month for the room and all utilities. She only has to pay for her own food. That's half what a studio apartment goes for in our area, so it's a good deal for everyone involved.

 

[pilgrimage]

I don't know about your area, but there are emergency food assistance programs in many communities so he's save on groceries. A number of churches and charities provide one week of staples and fresh vegetables donated from members and grocery stores and farmers . This can be a real Godsend.

He is eligible for VA medical assistance at no charge, so that will save Doctor bills.

There are free resources at crown financial (I think its' crown.org or crownministires.org). My heart goes out to such a good soul.

 

[crisi]

As I recall, it takes quite a bit to be eligible for VA medical assistance. He may not qualify as long as he still owns his own home, unless his disability is service related. Not sure on the current rules.

(Can I just say we treat Vets crappy? - they SHOULD get VA medical assistance.)

 

[llyolf]

I'll second crown.org

founded by Howard Dayton and (now deceased) Larry Burkett... very good financial tips.... and they can point him to financial counselors as well..

Later,
Paul

 

[seashoreCM]

I would consider bankruptcy before withdrawing from an IRA.

Even though bankruptcy stays on your record forever, people after bankruptcy often get amazingly high credit scores just a few years later, because after you go bankrupt (chapter 7), you cannot go bankrupt again for 7 years.

Can he sell his house and come away with some money left over after the mortgage loan is paid off in the process of selling? Bankruptcy with the condition of keeping the home (and also the mortgage) is possible but does no good if he cannot sustain the mortgage payment after the bankruptcy. But if the home does not fetch enough to pay off the mortgage, bankruptcy will wipe out what is left (the deficiency) and not produce a taxable event in the form of forgiven debt.

Your neighbor (if necessary with help from family or friends or accountant or you) should size up his finances for the next 24 months. If he foresees disaster within that time, even 23 months later, he should consider bankruptcy seriously. Except that bankruptcy is usually not worthwhile if the total amount of debt excluding unpaid taxes is less than five figures.

A useful purpose of bankruptcy is to get lower interest rates. You start by not going bankrupt immediately but threatening to. SOmetimes credit card companies and other creditors will willingly reduce both the interest rate and monthly payment in response.

I say, do not sign up with a credit counseling agency that expect you to pay them the agreed upon consolidated monthly payment and they divvy it up among the creditors. It is better that you make the payments directly. There are too many stories of credit counseling agencies just pocketing the money.

Disney hints:
http://members.aol.com/ajaynejr/disney.htm

 

[kilee]

As unpopular as it is I second the bankruptcy role. He would also need to unload the house. The mortgage is just too high for his salary. If he spends his retirement money now, how does he intend to support himself on social security? Unless if he's pretty young and has a plenty of time to rebuild.

Otherwise, a medical crisis can be a disaster. I know, DH went through 16 weeks of an uninsured critical care illness a few years ago. We needed to win the lottery to pay them. I would have to work for nearly 10 years and pay every last cent to get those bills paid off.

Either way it's great he has a supportive friend.

 

[bdcp]

He'd be better off if he has enough equity to take out a reverse mortgage and take care of his other expenses or sell the house and move into a condo with a cheaper mortgage amount. Also, spouses who aren't working at the time of the divorce and haven't been can get alimony. My ex SIL got it for 4 years. She refused to work once the separation happened (she had no interest in working on the marriage and didn't stop him from leaving) and said she didn't have to work. No one bought that one. She waited til after the divorce was settled and found a teaching job(has a college degree) and still gets the original settlement plus child support. So, it does happen, depends on income levels of both.

I agree dont' touch the IRA. That's his retirement nest egg. He just needs to hold on til he can withdraw an annuity from it.

 

[Alicnwondrln]

i know bankruptcy is a very hard decision to make but it doesnt sound like he has other options
i have friends who had to do this they owed over 50 grand mostly medical bills and her DH had lost his job
its not a good option but sometimes its there for people who have no other options
i think its a bad subject on this board
people have posted asking for help with bankruptcy or admitting they did it and people have jumped all over them like they were the devil and that they were sherking there responsibilities
that is true but not all the time and people are way to judgemental

 

[suevee]

If bankruptcy is an option he needs to start the ball rolling as soon as possible as the law changes in Oct 1 making it much more difficult to do. So he should really look at this option seriously now. Bankruptcy is to help people like him who through no fault of their own (ie job loss, major medical crisis) remain solvent. If he could declare bankruptcy and take in a roommate or two then his retirement should be safe. He will regret taking out that money now.