Dave Says

Friday, July 18, 2008 at 3:34am

Dear Dave,

My uncle’s wife died last year. An attorney handled probate for him, but I don’t think it was an estate attorney. He doesn’t know if she had life insurance, and now he’s left with medical bills totaling about $8,000. There are also credit card bills of $11,000.

The house is paid off, but he wants to get a loan and consolidate the bills. He currently receives about $3,000 a month income between pension and Social Security and he’s a little confused about financial matters.

What can we do?

– Sheila

Dear Sheila,

You’re right about one thing. A consolidation loan isn’t the answer to his problem. You need to sit down with your uncle and very clearly think through everything that’s going on right now.

Whenever someone passes away, their estate – anything they owned – stands good for any bills owed. In this situation, her portion of the house has to stand against her bills that she owed. If her bills go unpaid, the companies owed – medical or credit card – could take a lien against the house. That means if he ever sells it, they’ll take what’s owed from the sale before he sees any money.

But this is not a huge mess, and he can get out of it if he’ll make a plan and stick with it. You need to sit down with him and work out a really tight budget that he can live on. List all of his debts from smallest to largest and map out a game plan for how he’ll attack the debt every month.

If he would live very frugally – on about $1,000 a month for a while – and use the balance to pay off debts, he could be debt-free in a year. If he’s lives a little higher on the hog, it could take a year and a half.

You’ve identified the biggest problems here, which are disorganization and no game plan. Creating a budget means setting out realistic mathematical goals, and as a loving family member it would be a good idea for you help him work this plan – at least for the first few months.

– Dave

Dear Dave,

I was dating someone that I expected to marry and then we broke up. Before that, she was having car problems and I co-signed a lease with her. She still has the car, and so far she’s made one payment and I’ve made one.

We have a forfeiture agreement on the car that states if she doesn’t make a payment by the end of the month, I come get the car. Now, her parents have offered to buy her another car and she wants to just give me the leased car. I’ve already got a leased truck, so what’s the best thing to do?

– Darrell

Dear Darrell,

Well, you’ve already done two of the biggest things I tell people not to do: You’ve leased a vehicle and you’ve co-signed. That two big no-nos at once!

If it were me, I wouldn’t take the car as fulfillment of the amount she owes. She needs to find out what the buy-out amount is on the car, sell it and pay the difference to the lender. If she doesn’t have the money, her parents could pay the difference since they’re offering to buy her a car anyway.

The reality, Darrell, is that you are going to have to take control of this situation. If she won’t do something right away, you’ll have to take the car, sell it and finance the difference. Let her know if it comes to that, she’ll be seeing you again because you’ll sue her for the amount you had to finance.

The lender will call her once or twice, but they’ll call you a dozen times because they know you’ve got the deep pockets. She’s not good for the money and they know that. That’s why they wouldn’t lend her the money without you as a co-signer!

Don’t let the car be repossessed, either. They’ll take the car and sell it for less than wholesale value, then come sue you for the difference. I know you were just trying to help her, but now you’re legally responsible in this mess, too.

This is a great example of why you should never co-sign for someone even if it’s someone you’re planning to marry.

– Dave

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