Mom's Filing For Bankruptcy, Now What?
Imagine for a moment that your parent, the person who took care of you throughout your childhood and possibly into early adulthood, is now in need of your help – and not in the way you ever anticipated. She’s not reached the point where she needs to consider assisted living, nor is she needing end of life care. It’s her monetary situation.
For whatever reason, your roles have reversed, and far earlier than you expected. Her finances are in disarray and she’s considering filing bankruptcy. Whether the situation has arisen from poor money management, economic hardships due to the employment market, unexpected and expensive life events or something else, the fact of the matter is you’re concerned about her and don’t know what to do.
Before you completely lose your cool and resort to mothering your mother, evaluate the situation.
Is All Bankruptcy ‘Bad’?
Bankruptcy has a bad reputation, but that reputation is not always warranted – nor is it uncommon or a final resort for financially irresponsible adults. While, of course, some people who file bankruptcy are financially irresponsible, plenty of others are not. Bankruptcy exists as a way to get a second chance, erase your financial slate and regain control over your financial profile.
For those over 65, the top five reasons cited for bankruptcy. Source: Kedikian Law
According to the American Bankruptcy Institute, approximately 1 percent of the population files bankruptcy each year. As explained by Best Consumer Solutions Alliance, “Bankruptcy is a legal procedure which can give people who cannot pay their bills a fresh start by discharging all or a portion of their unsecured debts.”
Source: Kedikian Law
It is important to know and understand that bankruptcy is not a death sentence for anyone’s finances, at least not in and of itself. It can be a godsend, if handled responsibly.
Therefore, if you discover that your parent is considering filing or has filed bankruptcy, the first step is figure out the whys behind the decision. If they come to you for advice, or if you are going to be their proxy eventually, ask them to talk to you about why bankruptcy has come up. Ask what their financial picture looks like in its entirety, and ask them to evaluate why they have ended up in that situation. Before becoming judgmental, hypercritical or condemnatory, stop and talk to your parent.
Discuss what has led up to the decision and what steps they are planning to take to make sure the bankruptcy is handled as a fresh start. Without parenting your parent*, treat them with the respect they deserve and allow them to make their own financial decisions.
If your parent asks for advice, suggest ways to build credit and how to aggressively budget post bankruptcy. Be firm, but handle the situation with finesse.
Basic suggestions for rebuilding credit include:
- Opening secured credit card(s)
- Paying all bills on time, every time
- When paying off debts, whether they are medical bills or credit card bills or loans, make sure that you are paying more than the minimum and the amount paid each month exceeds the interest rates on the credit lines
- Use only 30 percent of revolving credit limits
Basic budgeting suggestions include:
- Meticulously outlining incoming and outgoing expenses
- Eliminating recurring payments that are frivolous or unnecessary, such as cable TV or smartphones with expansive data plans
- Set money aside every month from the top of your income for emergency savings and/or retirement
- Pay in cash whenever possible
- Stop relying on credit cards to finance things that cannot be afforded by the money in your accounts
- Never give up
*There are instances that justify intervention of a child on behalf of a parent; if your parent is incompetent, you may be responsible for handling their finances.
Disclaimer: The above information is for educational purposes only. As Elder Law and bankruptcy law is extremely fluid and highly organic, it is highly recommended that before any decisions are made regarding your future or the future of your loved ones that a lawyer who specializes in Elder Law or bankruptcy, or a qualified/certified advisor be contacted. The information above does not constitute legal advice, nor should it be treated as such.
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