Creditors have no recourse if debtor dies penniless
October 10, 2012
DEAR BRUCE: My mother is 83 years old and is $20,000 in debt. She raised us as a single parent and couldn't buy property or save a lot of money. She lives solely on Social Security, and I help her out by making payments to some of her creditors. She's afraid to have her credit affected, so I've been helping her out in this way.
My brother thinks I am throwing away my money. He claims that at her age, there's nothing they can do to her, and so it doesn't make any difference now. — Reader, via email
DEAR READER: Your brother is correct. There's little, if anything, that creditors can do to your mother. If you and your brother did not sign for her credit card, the debt realistically goes away with her when she dies. In other words, the creditor is stuck.
Your mother is concerned about her credit. I would assume that she is at her max or that she is still using the card and making minimum payments. Maybe she is making the minimum payments so she can continue to borrow money. The morality of that is another question.
DEAR BRUCE: I would like to purchase an established business, a retail pharmacy that has no competition at the moment and is in a rural area. The seller is asking $700,000. How would I go about financing it? — S.P., via email
DEAR S.P.: You've asked a very involved question in just a few lines. The purchase of a small business is generally financed through the seller. The seller is not going to be enthusiastic about that, but he or she is going to find out sooner or later that the kinds of people who want to buy small businesses rarely have big bucks at their disposal. Sit down with the seller and ask how much of the paper he can carry.
If you have good credit, you might consider talking to a bank. There are also other lenders who specialize in financing businesses, although the finance costs are going to be significantly higher than a bank would charge.
If you have substantial equity in a home, a second mortgage (home equity loan) may be another way to go. If you don't have any cash of your own, that is likely going to be a problem.
If you are married, can you live solely on the income of your spouse? If so, you would not need to take a paycheck from this new venture, which might shorten the finance period and make it more favorable in terms of a loan.
DEAR BRUCE: What is the best approach to paying for college when one hasn't been preparing financially? We have the ability to make monthly payments and have outstanding credit, which means we will be able to borrow. — P.R., via email
DEAR P.R.: First of all, you could investigate a PLUS loan, which is a parents' loan for undergraduate students. The good thing is these loans are not hard to find; the bad thing is you must start to repay the loan immediately; repayment is not postponed until students graduate.
Another thing to consider is where your student will be going to school. If you cannot handle the huge tuitions that some schools charge, you may want to consider sending your student to a community college, if one is available. Your student could live at home for two years and then get into a good school for the last two years. If you have a home, you could certainly get a home equity loan to help if your credit is as good as you state.
In my opinion, kids should contribute to their education. Not only is it financially helpful, but from the standpoint of building character, it's unbeatable.
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