Author Topic: In laws are in massive debt - how can we help them get back on track?  (Read 14883 times)

Rivoli

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Hi Mustachians, just created this account to ask for advice on how to help my in laws.

They're in massive debt and we'd like to find a way to help them get out of it asap.  Just ignoring the problem and letting them deal with it themselves is not an option.  The in laws are first generation immigrants and have definitely fallen prey to the "American Dream".  They never had anything beyond an elementary education and are not savvy at all about how to handle debt.  I don't think they fully understood the implications of taking out loans and the effect that interest would have on that.  And by the time they had some inkling as to how much trouble they were in, their debt got so big that they felt overwhelmed and tried to ignore it.  We just recently found out how deeply in debt they are and their debt consists of the following:

- $75,726 CC loan spread out between 9 credit cards
- $14,394 car loan (Mercedes Benz)
- $353,273 mortgage

They have the following monthly expenses:
- $197/month car insurance
- $140/month cell phone
- $166/month TV/internet/phone
- $125 electric
- $120 gas
- $137 HO insurance
- $300/month LIRR train ticket
- $2,303/month mortgage
- $340/month car loan
- minimum for all cc, about $1,625

On top of that, FIL owns his own store which is not doing so well.  They're trying to sell it right now and are negotiating with a buyer to sell it for $43,000. They have the following debt in relation to the store:

- $70,000 bank loan
- 8 months of overdue rent at $2,800/month = $22,400

In terms of income, MIL brings home about $3,000/month, and we're not sure what FIL can bring in once the store has been sold.  He will most likely only be able to get a min wage job which means after tax income of about $1,000-1,200/month.  They live in Long Island right now but MIL's job is in NYC. 

We have asked them to give us a list of the interest rates for all these loans so we can see what needs to be tackled first.  We live a few states away from them so that makes helping them a little more difficult, but we definitely want to get them an appointment with a debt counselor or financial advisor. 

Other steps we want them to take:
- Sell the Mercedes and buy a cheaper and more gas efficient car.
- Either sell the house or rent it out(would be best if they could rent it out - they bought it for $450,000 and the current market value is $350,000). 
- If they're able to sell/rent the house, that would reduce a lot of monthly expenses - lower gas/electric, no need for LIRR monthly pass if they move to Queens, possibly no need for a car at all if they move to Queens.

Are there any other suggestions as to how we can help them?  Should they seriously consider bankruptcy or is that something to be avoided at all costs?  My husband and I have also considered the option of lending them some money, but we are also hesitant to do so because of the risks involved (we have about 90k in savings and stocks/investments that his parents don't know about and we don't want to tap into that unless absolutely necessary).  We're both only 24 and while we have decent knowledge of how to handle personal finances, never really had to deal with debt like this before.  We could really use the help of those older and/or wiser in this forum. 

ETA:  The store is owned under a LLC they created. 

My in laws have always seemed like very frugal people which is why this revelation has been such a big shock to me.  Up until my husband graduated from high school, they lived in a small 1 bedroom apartment in Queens.  He always remembered them being pretty careful with money.  Then when he went off to college, that's when my in laws bought the store (liquor store) and moved to LI, bought a house, etc.  I'm not sure where exactly this whole problem started, but I think that when they bought the store they had dreams of grandeur and didn't expect the economy to fall so drastically.  For the first couple of years business was good and they just did not prepare for a situation where the cash flow would decrease.

On top of that, my mil has a heart condition and had to get open heart surgery 3 years ago.  She has an artificial valve that needs to be replaced every 15-20 years or so.  We asked them if any of the debt was in relation to medical bills, but they said no.  I find it very hard to believe that their health insurance is that good though especially since a surgery like that is not cheap. 

I know everyone is concerned about whether or not they can change their behavior, but I truly believe they can.  They've always been frugal up until the past few years and I believe they can get back to that frugality once they fully comprehend how massive their debt is.  They are still in a bit of denial but are slowly waking up to it.  My husband and I first just need to get all the info we can from them and show them how big the problem really is.  Then we can get a debt counselor and discuss the possibility of bankruptcy...
« Last Edit: May 23, 2012, 09:18:17 AM by Rivoli »

grantmeaname

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I don't know that renting the house would be profitable, especially if they would then have to live somewhere else. If the house is worth what they owe on it, perhaps it would be better to sell it than keep it and try and make payments. Remember, even if the rent would pay the mortgage on its own there's vacancy, property taxes, insurance, repairs, and lost time to manage the house.

If I'm reading this right they're something like $500,000 in debt with a maximum combined annual income of $60,000. I don't see how anything but bankruptcy is possible unless there's something big I'm missing. Their mortgage and CC minimum payments alone are almost equal to their total possible income. It would be easy to make the case that servicing their debt would cause undue hardship, which is the big criterion for bankruptcies.

SpendyMcSpend

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I'm from LI and it might be possible to rent the house for the price of the mortgage and the property taxes but unlikely you will cover the utilities etc as well.  What town do they live in?  Property taxes are probably about $10k a year, so selling might be your best option.  Do they have any equity in the home?

SpendyMcSpend

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what about heat?

grantmeaname

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Do they have any equity in the home?
They owe $353 and it's worth about $350, so they're just about neutral.

Rivoli

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They live in Farmingdale.  They bought the house for $450,000 in 2005 and have paid about $100-150k.  I believe the $120/month gas expense includes the heat (this was the expense for March so it's probably way more for the winter months).  We still have to ask them about monthly grocery and auto expenses. 

If they sell the house, it would be a short sale, right?  What are the implications and what would the process be for that?  I know that short selling is a significant hit to the credit score, but their credit scores are probably already very low at this point.  the other big thing to worry about is whether or not anyone would even be interested in buying.  I'm not familiar with the real estate market in Farmingdale but it wouldn't hurt to try. 

We also haven't ruled out bankruptcy but that would be the last resort option.  If they're able to sell the house and store then there could be some hope.

gooki

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If I'm reading this right they're something like $500,000 in debt with a maximum combined annual income of $60,000. I don't see how anything but bankruptcy is possible unless there's something big I'm missing. Their mortgage and CC minimum payments alone are almost equal to their total possible income. It would be easy to make the case that servicing their debt would cause undue hardship, which is the big criterion for bankruptcies.

I'm with grantmeaname on this one. Although bankruptcy may not be the best option, it's something I'd at least consider.

Rivoli

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Yea we definitely have not ruled out bankruptcy, but want to see if there's anything else we could do.

SpendyMcSpend

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I'd write up a VERY accurate budget including heat all year round etc.  Then see if their incomes can cover the costs of their lifestyles.  If not, they may have to sell.  What is the business and can the FIL take some of his skills with that into another industry or job that is not minimum wage?

LI real estate is really expensive and sometimes not worth it, but rents in Queens can be high as well.  Where are they thinking of moving?  Filing bankruptcy might make a little harder to find an apartment.

KittyWrestler

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Buy them a Dave Ramsey's Total Money Makeover book. If they can't read English, explain it to them or read with them..
they need to get down to rice and bean level to totally focus on paying off the debt first, especially the CC debt. They are life destroyers.

That car has to go. Buy a 5K car that runs and start from there.

The house has to go. use whatever he money it has to pay off consumer debt. Get rid of the debt first. Then rebuild

grantmeaname

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Buy them a Dave Ramsey's Total Money Makeover book. If they can't read English, explain it to them or read with them..
they need to get down to rice and bean level to totally focus on paying off the debt first, especially the CC debt. They are life destroyers.

That car has to go. Buy a 5K car that runs and start from there.

The house has to go. use whatever he money it has to pay off consumer debt. Get rid of the debt first. Then rebuild
Their money may not even be enough to pay the interest on the debt, much less the minimum payments. The house is only worth what they owe on it (they have no equity in it, in other words), and the store is worth less than what they owe on it. I agree about the urgency of the situation and your advice for the car, though. Surely there's enough equity in the car for them to pay off the loan, buy something that costs a couple thousand, and have a little bit of cash to throw at some of the highest interest credit cards. That's a good thing.

Rivoli: If you're considering loaning them money, have you considered letting them move in with you?
While all options are on the table, what about moving somewhere other than New York? $36k isn't that much money if it forces you to live in the area with the highest cost of living in the country. I mean, a tenth of MIL's income only pays for her train ticket!
The other option I can think of is a balance transfer with a low introductory rate, but if they don't have any real income to throw at it I don't know how much good it would do. I also don't know how balance transfers work when you have $80k in credit card debt... I imagine that makes things more difficult.

Rivoli

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Kitty - I'll check out that book later tonight.  Thanks for the suggestion. 

Meadow - yea we're working on getting an accurate budget for them.  We've only recently found out about this debt so there's still a lot of questions to be asked.  Almost positive that their income will not cover their current lifestyle and their budget needs a major overhaul.  At this point they do not want to consider selling the house, but we will need to make them face reality.  My husband family in Forest Hills so if they were to move anywhere it'd probably be around there although I know it's not a cheap area.  No one else knows about their financial troubles except for us and they don't want anyone else to know but that's also something they might need to come to terms with.

Grant - They are already working on selling the car so the car loan will (hopefully) be eliminated after that.  They already have 2 other cars (albeit very old and rundown ones...but at least they still work) so it's not urgent to get another one.  Moving in with us is not an option at all.  My husband is in the army with 2 years left in his commitment and we will be moving at least 2x in the next 2 years.  We do have family elsewhere, but we haven't even discussed the option of moving to another state yet...that looks like a good idea to me but it will take a lot of convincing to get them to move.  They've lived in the Queens/LI area for 25 years or so now and MIL has worked at the same place for just as long.  There's 1 aunt in Delaware and a few aunts in Toronto, but the majority of their family and friends live in NY/LI.  I'll bring up that option to my husband and in laws though and see where it goes from there. 

Daley

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Gotta agree with Grant's major suggestions on this one.

I personally think it's theoretically possible to shovel out of this under their own power, but it's going to take a massive lifestyle change and restructuring. Is the business in the FIL's name or is it an independent legal entity? If it's its own legal entity, absolutely have the business file for bankruptcy instead of trying to sell it off. That's one potential monkey off the back. Selling the house and car and being nearly break-even square on those debts takes off another couple huge monkeys. After that, the next major thing would be to move them elsewhere to reduce cost of living dramatically and hopefully get their potential income working for them again. Some parts of the country, a couple can live reasonably comfortably on $15-20k for everything with a few necessary sacrifices. That just leaves the $75k in credit card debt which has suddenly become far less of an insurmountable obstacle, and can be negotiated on and consolidated to lower payments and amount due. Under the right living situation for them with as little as $3500/month coming in, they could easily sock about $15k a year against the consumer debt and be free in as little as five years.

Is it going to be rough? You betcha. Dramatic situations have dramatic solutions, and sometimes that solution might even require leaving your home of a few decades and moving to a new part of the country. One way to pitch this might be a "fresh start" approach. This can be tackled and overcome without them necessarily having to file for bankruptcy themselves, but it'll take major sacrifices and they'll mostly have the sense of accomplishment of fixing the situation themselves at the end instead of being bailed out, and I think it's even potentially survivable even if they have to eat the debt of the business itself.

If a wall's hit though and everything doesn't nicely fall in line, personal bankruptcy might be the only remaining option.

tooqk4u22

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Based on the what you have described they are insolvement so as much as I the concept despises me the best option is

BANKRUPTCY!!!!!!!
BANKRUPTCY!!!!!!!
BANKRUPTCY!!!!!!!

Personally I think anybody who overdue it at the expense of everyone else and doesn't honor their obligations is offensive and should have to toil their lives away without joy....but we don't live in my world so for the one that we all live in this is a perfectly acceptable choice....with the only real impact is a ding to the credit score....uh that is probably shot already anyway.  So they can spend the next 20 years trying to do the RIGHT thing and go to the grave debt free or they can wipe it away with the stroke of a pen, start from scratch, live a cash based life, and spend the next 20 years a bit more relaxed.  It is the American way.

Lars

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Kudo's for stepping forward to help your in-laws. I don't have anything to add to the great "what they should do" ideas - just a few thoughts on the experience of helping guide someone in financial crisis (based on experiences and training doing long term financial mentoring as a volunteer).

Lots of patience. It can be frustrating at times - For example, they can want to change but decide some days its not that serious and they can live like they were before.

Find out their goals, guide them to the appropriate ones, and build your advice around those goals. This seems to work pretty well.

Take pleasure in even modest changes. Getting from where they are to 100% where all of you agree they should can be a long process.  Someday I hope to discover someone I helped got to 100%.

Bakari

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Step one:
in the kindest and gentlest and most loving way possible, direct them to the website mrmoneymustache.com

Step two:
this is no longer your problem -  but on the bright side, they will begin to solve it themselves.

Of course, this is assuming they read fluent English.

James

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I see very limited options, and lots of complex issues.  They absolutely need professional help.

If possible I agree with bankrupting the business in order to remove those debts.  From now on CC are cut up and CC companies get paid last.  Short sell or foreclose the house.  Even if they sell it for what they owe it's still a short sell, so talk to the mortgage company and figure it out with them.  They may allow a short sell with the mortgage company taking the hit rather than taking the expense of a foreclosure.  But it's going to take a lot of negotiating, and needs to be all on paper, no final agreements by phone.

Once they are out from under the house and the business, then you can see what's left.  If they are able to find someplace cheap to rent or someone to live with, then they can probably start to pay back the CC. If they can't pay them back despite mustachian living, then stop paying them and work on negotiating a smaller payoff amount and plan.  Eventually either the CC companies will negotiate a payoff that is affordable, or they will not get anything due to bankruptcy.  Either is fine at that point, your in-laws will have done the best they can to avoid it.

It's great you are willing to work with them, they really need the help!  If at some point they are obviously unwilling to take advice and make changes, be prepared to walk away and start preparing to pick up the pieces.  Don't loan them money and don't sign anything in your name.  Be loving, buy them food, offer advice, be there for them.  But don't risk your financial health or internalize their mistakes.

SpendyMcSpend

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Dave Ramsey never advocates bankruptcy.  He'd probably say to this family, cover your "4 walls" first:  food, lights, housing and transportation i think.. .  I forget what the 4 walls are.  He'd say to stop paying the credit card bills until you get the house and your life under control.  Then you'd offer the credit card companies settlements of about 50% of what the are worth (can only do this if you haven't paid in awhile).  If you can't afford that yet, you have to just stop paying them.


Bakari

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What downside is there to bankruptcy other than lowering your credit score?
Not paying the bills will do the same thing, plus kick in default interest rates.
If it means you get out of paying back debt, and the other option will do just as much harm to credit rating, its not a bad thing to at least consider.

If they are really serious about getting out of this situation (which was why I suggested they read MMM first of all) then these really aren't crises level numbers.

Of the ~5500 monthly expenses, 1500 of it is discretionary, and another 2300 is mortgage.
Sell or rent out the house (depending how much they can get in rent - if its more than 2300, rent it)

Live in a studio, or a room in someone else's house for a couple years.
Sell ALL of the cars, replace with bikes.
Cut cellphone, internet, cable, completely.
Keep the thermostat at 38 degrees, and wear coats indoors.  Use electricity only when necessary.
Now what's left is within there income potential.

I'm not sure why selling the business is a good idea if it is netting 3000 a month and the income potential is only 1000 without it.  How can he bring home 3000 a month if its not doing well?  I would define not doing well as bringing in minimum wage, or less, or even negative.  The business is in the red for existing loans, but selling for half the amount of the loans will not make the loans go away.

If they really want to derail the train-wreck that is coming, its gonna take some sacrificing of the "American dream" that they bought on credit.  It would be a sucky transition.  They would have to do things like *gasp* go to the library for internet, wear coats indoors, not own a car, and live in a room, but, if those steps were combined with either bankruptcy or negotiations with creditors then it would be totally possible to end up paying all living expenses with money left over to pay down any remaining debt.  After a few years of extreme frugality, once debt is paid off, they could  start building a mustache.

They COULD...

But they would have to want it.  If you suggested to them what I just wrote, there is little to no chance they (or anyone else) would ever go for it.  Like they have been doing, they'd likely decide to just ignore it instead... until the repo man shows up for the car and the bank rep shows up with the foreclosure and eviction notices, and then its too late to sell and they have nothing to show for their work at all.  Which is why I suggested that the first step is sending them to MMM

Fuzz

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Definitely second the idea that they need professional help.

These folks are an actual nonprofit, not a scam. They do free credit counseling across the country for people in need. A friend works there. check out CCCS of San Francisco. Set up an appointment.

https://www.cccssf.org/

I think bankruptcy is probably the best route. It's 7 years of a hit to your credit score, but you know that it ends after 7 years. They can't service their debt forever.

bdub

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I think bankruptcy is the only option.  You do not mention their ages but I would guess late-50's or early-60's.  If they try to pay that off with their current income level, they will likely but in their late-60s before it is paid off with no time to save for retirement. 

Wipe the slate clean, and move to a rent and cash lifestyle.

SpendyMcSpend

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I disagree about bankruptcy.  Without changing the BEHAVIOR, they will end up in the same exact spot in 5 years or less.  They need to learn to work their way out of this otherwise they will never change. :(

menorman

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I disagree about bankruptcy.  Without changing the BEHAVIOR, they will end up in the same exact spot in 5 years or less.  They need to learn to work their way out of this otherwise they will never change. :(
Somewhat along the lines of what I was going to say, although it seems that they should just go ahead and file bankruptcy ASAP to get it over faster. However, a behavior change is definitely necessary. "Lending" (giving) them money to pay off some bills won't do much good, but get them to some financial classes so they can really gain control of their lives will be much better for them.

SpendyMcSpend

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I disagree about bankruptcy.  Without changing the BEHAVIOR, they will end up in the same exact spot in 5 years or less.  They need to learn to work their way out of this otherwise they will never change. :(
Somewhat along the lines of what I was going to say, although it seems that they should just go ahead and file bankruptcy ASAP to get it over faster. However, a behavior change is definitely necessary. "Lending" (giving) them money to pay off some bills won't do much good, but get them to some financial classes so they can really gain control of their lives will be much better for them.

but how is bankruptcy (which lets them out of their problems) going to change their behavior?

smedleyb

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My sympathies to the OP.  This is a horrible situation for any in-law to be in. 

That said, bankruptcy is the only option given the realities of their financial situation.  Do not lend them money.  Do not attempt to "fix" their finances -- they will just drag you down into their financial abyss.

Do support them emotionally.  Do help then figure out the intricacies of the bankruptcy laws and getting a good lawyer.  Do help them find a new place to live.  Is it possible for all of you to live together in such a way that everyone benefits (e.g., they get affordable housing, you get a live in nanny)  [edit: just saw that you live several states away]?  Are you and your spouse their only support, or is there other family too who can help?

Also, I find it hard to believe the budget you've given is accurate.  There's no money for shopping/luxuries which I find hard to believe given they own a Benz.   



« Last Edit: May 22, 2012, 10:37:43 PM by smedleyb »

smedleyb

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but how is bankruptcy (which lets them out of their problems) going to change their behavior?

The same way bankruptcy changed Dave Ramsey's behavior:  it affords them a fresh start.

SpendyMcSpend

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but how is bankruptcy (which lets them out of their problems) going to change their behavior?

The same way bankruptcy changed Dave Ramsey's behavior:  it affords them a fresh start.

Sort of.  He had to pay a lot of that money back though AND it prevented him from operating his business the way he was used to (by financing real estate).  His credit was too shot to do that anymore so he needed to start a new business.  Anyway, I still fail to see how this is going to change their behavior...

smedleyb

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but how is bankruptcy (which lets them out of their problems) going to change their behavior?

The same way bankruptcy changed Dave Ramsey's behavior:  it affords them a fresh start.

Sort of.  He had to pay a lot of that money back though AND it prevented him from operating his business the way he was used to (by financing real estate).  His credit was too shot to do that anymore so he needed to start a new business.  Anyway, I still fail to see how this is going to change their behavior...

Dave Ramsey declared bankruptcy.  He was given a fresh start.  He used that fresh start to start a financial religion preaching against the evils of debt.  He sells the possibility of debt free existence to indebted people.  He prays on the financially weak.  That's the man we want to be listening to?

SpendyMcSpend

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but how is bankruptcy (which lets them out of their problems) going to change their behavior?

The same way bankruptcy changed Dave Ramsey's behavior:  it affords them a fresh start.

Sort of.  He had to pay a lot of that money back though AND it prevented him from operating his business the way he was used to (by financing real estate).  His credit was too shot to do that anymore so he needed to start a new business.  Anyway, I still fail to see how this is going to change their behavior...

Dave Ramsey declared bankruptcy.  He was given a fresh start.  He used that fresh start to start a financial religion preaching against the evils of debt.  He sells the possibility of debt free existence to indebted people.  He prays on the financially weak.  That's the man we want to be listening to?

I don't think he preys on the financially "weak."  Most Americans are in debt.  It's become something that is rather normal although it hurts people in the end.  He is not selling anything that will hurt them and many people have been helped by his teachings.  Preying would mean he is selling them useless whole-life policies or things of that nature.  Is the possibility of debt free existence not possible for these so-called "weak" people?  How judgmental.

smedleyb

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The OP also needs to consider the possibility that his in-laws may have a major problem they're not sharing -- perhaps a gambling or a shopping addiction.  There's always more than meets the eye in cases where the family finances have spiraled out of control. 

Which is why I strongly feel bankruptcy is the only reasonable option.  Will it change their behavior?  Probably not, but it might.  In either case, it's the best option for the OP, who needs to think seriously hard before giving away money to the in-laws.  And yes, you're giving it away, because you ain't ever getting it back. 

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Sort of.  He had to pay a lot of that money back though AND it prevented him from operating his business the way he was used to (by financing real estate).  His credit was too shot to do that anymore so he needed to start a new business.  Anyway, I still fail to see how this is going to change their behavior...

But by not paying for awhile and negotiating a 50% discount he'd have avoided that?  I have no opinion one way or the other, but I think the people advocating for bankruptcy in this thread are basically saying: your credit will be shot either way, might as well do the one that helps you out more (wipes away more debt).

And you say you fail to see how it could change their behavior.. did it change his?

It won't change it on its own, it'll just enable more of the same behavior.  Any true, lasting change has to come from within.  That could still happen either way.
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KittyWrestler

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but how is bankruptcy (which lets them out of their problems) going to change their behavior?

The same way bankruptcy changed Dave Ramsey's behavior:  it affords them a fresh start.

Sort of.  He had to pay a lot of that money back though AND it prevented him from operating his business the way he was used to (by financing real estate).  His credit was too shot to do that anymore so he needed to start a new business.  Anyway, I still fail to see how this is going to change their behavior...

Dave Ramsey declared bankruptcy.  He was given a fresh start.  He used that fresh start to start a financial religion preaching against the evils of debt.  He sells the possibility of debt free existence to indebted people.  He prays on the financially weak.  That's the man we want to be listening to?

I don't think he preys on the financially "weak."  Most Americans are in debt.  It's become something that is rather normal although it hurts people in the end.  He is not selling anything that will hurt them and many people have been helped by his teachings.  Preying would mean he is selling them useless whole-life policies or things of that nature.  Is the possibility of debt free existence not possible for these so-called "weak" people?  How judgmental.

Yeah totally agree.. I have a fair share in personal finance education and I think Dave Ramsey's got a lot of knowledge on how to live on rice and beans to knock out debt.. He preaches and teaches people some fundamental principles. Like you shall never take out loan to buy cars or any assets that will de-appreciate in values. You shall never buy consumer goods with credit. If you don't have cash to buy that shiny dishwasher, save up and pay cash for it. If you make 100K a year and you have $50K in credit card debt, you should be able to find a way to pay it off in one year... Eat rice and beans, cut out everything, live off bare bone budget and pay that damn debt off!

These are great teaching! And you don't need to pay him to get that kind of teaching, just tune to the radio and listen a few shows..

Rivoli

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Thanks for all the input so far everyone - definitely good to see all these suggestions and see both sides of the bankruptcy argument. 

My in laws have always seemed like very frugal people which is why this revelation has been such a big shock to me.  Up until my husband graduated from high school, they lived in a small 1 bedroom apartment in Queens.  He always remembered them being pretty careful with money.  Then when he went off to college, that's when my in laws bought the store (liquor store) and moved to LI, bought a house, etc.  I'm not sure where exactly this whole problem started, but I think that when they bought the store they had dreams of grandeur and didn't expect the economy to fall so drastically.  For the first couple of years business was good and they just did not prepare for a situation where the cash flow would decrease.

On top of that, my mil has a heart condition and had to get open heart surgery 3 years ago.  She has an artificial valve that needs to be replaced every 15-20 years or so.  We asked them if any of the debt was in relation to medical bills, but they said no.  I find it very hard to believe that their health insurance is that good though especially since a surgery like that is not cheap. 

I know everyone is concerned about whether or not they can change their behavior, but I truly believe they can.  They've always been frugal up until the past few years and I believe they can get back to that frugality once they fully comprehend how massive their debt is.  They are still in a bit of denial but are slowly waking up to it.  My husband and I first just need to get all the info we can from them and show them how big the problem really is.  Then we can get a debt counselor and discuss the possibility of bankruptcy...

Rivoli

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Forgot to add - the store is owned under an LLC they created.  I didn't even think of having the store declare bankruptcy but that looks like a good alternative to them selling it. 

In laws are in their mid 50s and have no plans for retirement.  I don't think retirement is really an option at this point given the situation they're in.  They do have a lot of family close by but no one else knows about their financial troubles, at least not yet.  There's going to have to be a major lifestyle overhaul so people will start having suspicions eventually so my in laws will need to get over their embarrassment.  We can't be the only ones helping them - they need people who are closer to them for support as well. 

SpendyMcSpend

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Sort of.  He had to pay a lot of that money back though AND it prevented him from operating his business the way he was used to (by financing real estate).  His credit was too shot to do that anymore so he needed to start a new business.  Anyway, I still fail to see how this is going to change their behavior...

But by not paying for awhile and negotiating a 50% discount he'd have avoided that?  I have no opinion one way or the other, but I think the people advocating for bankruptcy in this thread are basically saying: your credit will be shot either way, might as well do the one that helps you out more (wipes away more debt).

And you say you fail to see how it could change their behavior.. did it change his?

It won't change it on its own, it'll just enable more of the same behavior.  Any true, lasting change has to come from within.  That could still happen either way.

It is more likely to happen if they have to dig their way out with frugal habits than if all the debt is just forgiven.  Also, he has a small business and if he wants another one, it might be hard with a bankruptcy on his record.

grantmeaname

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Are you basing that on anything other than your opinion or tabloid anecdotes? I feel like both cases are really very similar for the people involved, and in both cases dramatic lifestyle changes are required. So why would one magically make you frugal forever and the other leave you with a risk of straying towards overspending again?

smedleyb

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Forgot to add - the store is owned under an LLC they created.  I didn't even think of having the store declare bankruptcy but that looks like a good alternative to them selling it. 

Rivoli, quite often the debts of the LLC are secured by the credit of the owner of the LLC, and not the LLC itself.  Thus you borrow money to buy the business in your name, but then place the business into an LLC.  Whether or not the LLC itself can access credit depends on other factors, like profitability, time in business, etc.   It's an important distinction.


SpendyMcSpend

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Are you basing that on anything other than your opinion or tabloid anecdotes? I feel like both cases are really very similar for the people involved, and in both cases dramatic lifestyle changes are required. So why would one magically make you frugal forever and the other leave you with a risk of straying towards overspending again?

Because by digging themselves out of debt, they create frugal habits.  This is rather obvious.

Daley

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Rivoli, it's really starting to sound like this isn't going to be near as rough a ship righting as it originally looked like. You get them back on their original path and lifestyle before the changes plus a few more frugal modifications from all the tips from our fine community on how to reduce day to day costs, get rid of the big ticket items like the car and house which appear to be relatively easy to break even on, looks like the business will be a somewhat easier write-off (if you can even call losing a business to bankruptcy easy, but the alternatives are far worse - also consult with a lawyer given the LLC status and debt security first before getting too excited)... I think they could be recovered and sitting quite pretty with the remaining consumer debt (with some rate and balance negotiating and consolidation) in far less time than it'd take to recover from personal bankruptcy.

No matter what choices you propose and what paths they take, I wish them and your whole family the best of luck managing and recovering from this.

Bakari

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Are you basing that on anything other than your opinion or tabloid anecdotes? I feel like both cases are really very similar for the people involved, and in both cases dramatic lifestyle changes are required. So why would one magically make you frugal forever and the other leave you with a risk of straying towards overspending again?

Because by digging themselves out of debt, they create frugal habits.  This is rather obvious.

I think you misunderstand how bankruptcy works.
You don't get to just erase on your debts.
You either set up a payment plan with a negotiated reduced total, or you have to sell ALL of your assets and pay back a negotiated reduced total. 
Your debts are not just all forgiven because you declare bankruptcy.

If you just stop paying, the government can garnish your wages, and you don't get to negotiate.  At least with bankruptcy they can do it partially on their own terms.

Either way they need to make drastic life changes to avoid repossessions and foreclosure.
Either way their credit is shot, possibly for the rest of their life - which is GOOD because it means they will have a hard time taking on more debt even if they wanted to.

Like I.P. mentioned, its good news that they know how to be frugal, so it won't be such a shock when they downsize life

Maybe, if you think they would take it well, you might point them to this thread after they've been reading the blog for a while...

Rivoli

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smedleyb - yea I understand that.  There's so many moving parts to think about!

IP - thanks for the well wishes.  The easiness of righting the ship will be heavily dependent on if and when they can sell the car and house.  It might take a while and we still need some time to convince them to make this drastic transformation.  At the moment they're not even considering selling the house, but I hope we can show them how that's the best (and probably only) option right now.

Bakari - I've been reading the MMM blog and loving it so far.  I'm going to make my husband read it too since our finances could use some Mustachian transformations as well.  My in laws can read and write English, but they're slow at it so it'd be best for us to summarize what we've read to them.

Daley

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You know, something just clicked for me regarding all the info you've given us, Rivoli. You're both 24 currently, your in-laws didn't make these moves until after your husband graduated high school... this means the ruinous debt has only happened within the past six years, tops. A point that is both terrifying and relieving depending on how you look at the numbers. More importantly, looking at the mortgage and car balances in relation to the price of the property and the likely cost of the vehicle... up until the money started drying up and they got upside down (I may be assuming, but it kinda looks like they turned to credit cards to cover shortfalls on income more than living too high on the hog), but it looks like they were hammering pretty well on paying off those debts and keeping up with the house and car payments. After all, they've already covered 22% of the home's original value in that time. Granted, the outstanding consumer and business debt fits nicely into that same wad of cash, but it's still worth noting.

Just trying to look on a bright side here. Their moderately more aggressive payments on the physical assets may be the only saving grace to helping them get out of this without being completely battered due to the real-estate bubble bursting and the economy sliding. It also indicates at least a certain level of financial responsibility even as they were digging the hole. Given their past background and financial management combined with this event, I have a feeling they'll learn well from the events and take to the changes easier than you might think. Just point out that in a way, the past six years are a sort of wash. Use those lifestyle changes as the signposts that got them there, then explain that the only way to get back out is to return back to their former and more humbler way of life, and show that outside of the (possible) business and consumer debt, they are at least nearly break even if they walk away. The idea of selling the house might just logically flow out of that line of thought.
« Last Edit: May 23, 2012, 12:42:03 PM by I.P. Daley »

rationaloptimism

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Re: In laws are in massive debt - how can we help them get back on track?
« Reply #42 on: April 26, 2014, 02:29:04 AM »
Rivoli, be careful! 

Planning and advice are fine things to offer your in-laws.

But you are on a very dangerous path here.  You are good-hearted and well-meaning, and your in-laws are drowning in debt.  That combination is VERY likely to lead to the following outcome:  you will compromise your financial future to help, and in the process you will SLOW DOWN their necessary adjustment to a more frugal lifestyle, which will ultimately hurt them too and mean that more total money is wasted during the transition. 

Let's say that you give them $10,000.  That would wipe out 11% of your accumulated life savings and all the future growth of those savings.  And what would it accomplish?  It would keep their creditors at bay for an extra couple of months at best, it would let them slightly delay necessary changes like replacing the nice car with a beater, it would soften the lessons they need to learn from this financial crash, and it would reduce the amount of time they have left to save for retirement after they go through bankruptcy or work off the debt. 

Worst of all, offering financial help would establish you and your husband as the lenders-of-last resort--a source of funds that your in-laws will then expect to tap again in the future.  When you finally do reach your limit and refuse to, say, take out extra loans of your own to help "save the house" or "save the business," there will be hard feelings.  And the hard feelings won't be due to your in-laws trying to take advantage of you--I'm sure they aren't like that.  The hard feelings will be due to you failing to meet expectations that YOU yourself set by offering financial resources to them when they were under pressure.  Since they are guaranteed to be under pressure for a long time to come, you shouldn't start offering money unless you can afford to never stop.  If you wouldn't buy luxury cars and expensive mortgaged homes for yourself, it's crazily self-destructive (and unfair to your own future children) for you to subsidize those luxuries for people whose lifetime earnings to-date far exceed yours. 

I'm sure your in-laws are wonderful people, I'm sure they wouldn't try to take advantage of you, and I'm sure that they were victims of the American marketing machine and the culture of debt.  But you have to remember that they are DROWNING in debt.  And drowning people will push their rescuers underwater just to get a breath.  Drowning people aren't TRYING to hurt others, but they are in the middle of drowning, and the survival instinct is primal. 

24 year olds should not funnel ANY of their savings or incomes towards ameliorating or postponing these types of disasters.  Your in-laws are broke and deeply in debt.  They are facing some combination of bankruptcy, many years of repayment, and deep cuts in their lifestyle.  You can't prevent any of this.  So keep your financial powder dry.  Provide emotional support.  Provide intellectual and planning support if you wish.  (Even there, though, you might be better off finding a mustachian financial advisor or debt counsellor for them, to keep the emotional support of family separate from the tough lessons and painful budgets they need from a financial plan.)

Any financial help you give should come much later.  Don't injure yourself by trying to step in front of the oncoming train of pain.  Instead, give them a bit of seed corn later to help them rebuild.  Helping out with a deposit on a cheap apartment post-bankruptcy will be much more helpful than helping them make their current unaffordable mortgage payments a couple of extra times.

Anyway, I applaud you for your empathy and desire to help them.  I just want to remind you of what we were taught as kids.  When someone is trapped in quicksand, the worst thing you can do is jump into the quicksand to try to save them.  That causes two people to drown instead of one.  The way to save someone caught in quicksand is to help them grab a tree branch and pull THEMSELVES out.

OldDogNewTrick

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Re: In laws are in massive debt - how can we help them get back on track?
« Reply #43 on: April 26, 2014, 05:21:25 AM »
Mostly likely the CC debt was racked up to keep the failing business afloat. You have a couple good years, buy a house and car and then the downturn hits... you keep thinking things will get better...but they don't. Personal credit cards to keep the lights on and the shelves stocked...but it isn't enough. I have a lot of sympathy for their situation.

They need to go scorched earth with their financial situation. They don't have an income that will allow them to dig out easily from this. I'd have them go speak with a bankruptcy attorney for advice. If they dump the car and house and move somewhere with low cost of living they could probably get through this without going bk.


Villanelle

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Re: In laws are in massive debt - how can we help them get back on track?
« Reply #44 on: April 26, 2014, 06:04:46 AM »
I've seen it go very, very wrong with several friends when they'v loaned the in-laws money.  It's like giving cash to an addict to help him get back on his feet.   No matter how much he swears he's trying to get clean and he needs the money for rent and he'll never use again, chances are very very good that he's going to buy dope, not groceries.

Until they've shown you that they are actually turning things around, the likely outcome of giving them money is going to be that they continue on this same path.

If you are hell bent on giving money instead of advice and physical work, I'd suggest you directly pay one or more of their bills, rather than giving them money.  At worst, the outcome is the same, but at best, you prevent them from wasting your money along with their own.

But giving them money at all just prevents them from living with the reality of their choices.  I don't know that that is a favor.  I do understand that you want to help, and that's admirable.  I just don't know that giving them money will actually be the most help to them long term. To me, of more *true* help would be setting a budget for the, helping them find a bankruptcy lawyer, helping them find a place to which to relocate, putting in work around their house to increase its value, etc. 

marty998

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Re: In laws are in massive debt - how can we help them get back on track?
« Reply #45 on: April 26, 2014, 07:07:08 AM »
Guys this is a 2 year old thread. I think Rivoli is long gone.....

Villanelle

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Re: In laws are in massive debt - how can we help them get back on track?
« Reply #46 on: April 26, 2014, 10:43:37 AM »
Doh!  Thanks.

OldDogNewTrick

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Re: In laws are in massive debt - how can we help them get back on track?
« Reply #47 on: April 26, 2014, 01:32:10 PM »
Wonder how it all turned out?