Get Out of Debt Guy

Should We Run Away or Deal With Our Debt? - Kelly

Posted September 8

Question:

Dear Steve,

Can't decide what makes sense for us...My husband is 65, I am 55. I was downsized out of a very decent job 4 yrs ago, and couldn't find a comparable job so took a HUGE hit financially and work retail basically to pay for health insurance.

Hubby works for a VERY unstable privately owned company that is seriously going under....missed pay checks, etc. They have never offered insurance. This is a touch and go situation with his job. Every week we hold our breath. Hubby has TRIED to find another job, not much out there for a 65 year old man.

We own a larger 5 bedroom 3 bath home that is in rough shape, so too much work and expense to fix and sell, cracked foundation, needs roof, no basement, one car garage....plus we have several tax liens against us due to two years of contract work (which created a snowball bad deal with taxes owed the IRS).

Anyway, we think when all is said and done, the house will yield nothing in terms of profit to us. Hubby thinks sell to a flipper or walk away. Sad thing...our mortgage would be paid off in two years.

We have been trying so hard to just hang on till house is paid. Thought we'd then have money to pay the IRS, but they keep garnishing, adding interest, putting liens in place.

We feel like we are totally screwed no matter what we do. It's really getting us down. House coulda,, shoulda, woulda been somewhat of a nest egg. Oh well, we made bad choices getting in debt with IRS. Live and learn....we have a small OLD tiny farm house on acreage way out in the boonies. Hubby fixing up so we can move there. My husband and his brother own this 40 acre place in the boonies. We do have credit card debt and we need health insurance. SCARED of the IRS. Will basically have no jobs or money to pay credit cards if we end up out in the boonies. Far from any opportunity to make money unless I plant a garden and grow veggies or something.

Too close to the forest to see the trees....what do we do here? Walk away from house, file bankruptcy, move to farm? My biggest question...what happens to the house if we walk away...Mortgage company sells it for VERY little cuz we don't owe much and then there's nothing for the IRS and we STILL owe IRS a ton? I think by now we must owe the IRS $60,000? Ya, it was my hubbies great idea to wait to pay IRS, now we owe way more in interest and penalties than we ever owed in taxes.... Moving to the boonies we will have less ability to pay them (IRS).

Kelly

Answer:

Dear Kelly,

Thank you for writing to me.

I always say that at the end of the day debt problems are really math problem wrapped in emotion. And clearly you have the opportunity for all sorts of emotion to manifest itself in this situation.

My first priority is for you to do what is best for you moving forward. It's almost impossible to repair the past using the future.

From the way you describe your house, it has a lot of expensive issues that you could pour money into. It doesn't appear you have access to the funds to pay for it anyway.

You mentioned just selling the home to a flipper and walking away but you only owe two years left on the mortgage. It's not clear how much you think the home would sell for above the two years of remaining payments. Regardless, that doesn't sound like much of a nest egg but it may be something even though your opinion now is it will be nothing.

I completely understand the emotional desire to flee to the country where life seems like it would be less stressful and simpler. The mental picture of life in the country is the small old farm house may be comforting but it might not be better.

You paint the picture that moving out to the boonies would move you away from much, if any, of an income opportunity. My concern is that old farm houses are not like fine wine, they don't get better with age. Eventually you will be facing home repairs and maintenance issues but now with less income or no income to deal with them.

You will need to be proactive on maintenance of the farm house because you will be getting older and aging into a position you may not be able to deal with it.

In your current situation the math has not worked for some time. The unaddressed home issues, the back IRS debt and credit card debt paint a picture that your income was not sufficient to meet the demands of expenses for some time.

The best answer for you has two options:

Logically Thinking: The best option would be to talk to a real estate agent and get an understanding of the current market value of your home in it's current state. Also ask the agent for an estimate of a "fire sale" price so you know what you could get for the home quickly.

You should also talk to a local bankruptcy attorney who is licensed in your state and discuss your specific situation. IRS debt can be discharged in bankruptcy if it is of a certain age.

The bankruptcy may be a bit complicated by the ownership interest in the boonie farm but that's a question for the bankruptcy attorney.

Staying closer to employment is a smarter move. Even if you have to rent a place closer to town, it will give you a better chance of you both earning an income. The reality of living far out in the country with little to no income and planning to spend your days in an old farm house is a disaster in the making.

If you are both not working and earning credits into Social Security, your retirement income will be marginal and it doesn't sound like you have big retirement income to fall back on otherwise.

By talking to a real estate agent and a bankruptcy attorney you can get facts and data from which you can make a fully informed and logical choice about what is better for you moving forward towards your days when you will need income but will be unable to work.

If you decide that bankruptcy is a logical way for you to get a fresh start, then do that and keep things more in check moving forward.

Emotionally Thinking: Run away and hope the future is magically better while trailing around a bunch of debt that will push and stress you because it will be unresolved.

Conclusion

I totally get it. The pressure is building and you'd like to find some quick relief in what feels like an impossible situation. But rather than acting emotionally and potentially putting yourself in a worse situation, I think you have an opportunity to do some homework and set yourself up for a better future.

It sure sounds like the bankruptcy route would be worth strong consideration.

If you have a credit or debt question you'd like to ask, just click here and ask away.

Comments

Please with your WRAL.com account to comment on this story. You also will need a Facebook account to comment.

Oldest First
View all

About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.