Welcome to Ask the Bills, where every two weeks Helaine Olen answers readers’ questions about their most nagging personal finance and financial etiquette dilemmas. Seeking advice on a money issue? Email helaine.olen@slate.com.
Helaine,
I fell, broke a bone, and ended up with enormous medical bills—the total was more than I earn in a year. I had some money saved, but not nearly enough. Foolishly, I decided my best chance to get the cash was to gamble. I only used money I actually had, so I didn’t create additional debt. But now it’s all gone, and I still have the medical bills.
The gambling was online and regulated, with no possibility of losing more than I deposited. As best as I can tell, I lost fairly. Why did I do it? I was determined to make a lot of money quickly. Not being a high-earner or a criminal, I couldn’t think of any other way. I realize now that it was a terrible idea, but at the time I wasn’t thinking straight. I’m now considering bankruptcy for the medical bills. If I were to file for bankruptcy, would the gambling be held against me?
Deep breath, Helaine. Deep breath …
You now know, dear reader, that gambling only works because the odds favor the house—and we all know how tragic it is that our country still seems to be incapable offering truly affordable health care. But you’re not here for a lecture, either financial or political. You need help. For an assist I called up an expert, North Carolina bankruptcy attorney Edward Boltz. He’ll guide us though the thorny thicket your dilemma presents.
First, a question: Where did the money come from? If you took it out of a retirement account, you win and you lose. That’s because money in retirement accounts is, with few exceptions, out of bounds to creditors in bankruptcy proceedings. So a bankruptcy trustee might simply assume you spent money that the outfits dunning you wouldn’t have been able to access anyway. More fool you, the trustee will probably think, but it will make your bankruptcy filing easier. If, however, that money came from a checking, savings, or brokerage account, things get trickier. That’s because those funds could have gone to a creditor. That will erect a red flag, but not an insurmountable barrier. It’s unlikely you could file for a Chapter 7 bankruptcy—that’s when, with certain exemptions, you turn over what assets you have to pay what debts you can, the remaining debts are discharged, and you get a new financial start. You’ll almost certainly be better off filing for a Chapter 13 bankruptcy. That’s when a court-appointed trustee creates a plan requiring you to attempt to pay back what you owe over a three- to five-year period. What you can’t repay will eventually be discharged. Boltz says Chapter 13 is the better route for you, because it will be obvious to all parties that you’re acting in “good faith” and not trying to pull a fast one. And, yes, federal law requires you to reveal all gambling losses you incurred in the two years prior to a bankruptcy filing.
Two other things: Don’t go this alone. Set up a consultation with a bankruptcy attorney, and make sure she represents you through the entire process. And don’t gamble again. Ever.
Helaine,
A colleague at work was telling me how she affords travel for her family of five: Every year she signs up for, and then subsequently cancels, credit cards that give you lots of bonus airline miles just for signing up. She uses the card responsibly for a year or so and then drops it, and then repeats the whole process all over again. Sounds great! But doesn’t this do horrible things for your credit score? Please advise. My trip to Majorca depends on it.
There’s fun in the sun in your future—at least according to Odysseas Papadimitriou, the CEO of CardHub.com and WalletHub.com, and our other guest expert this week. He says if you’re doing this with one card, once a year at most, you should be OK. Any more than that, however, and you could cause yourself some grief. When it comes to credit scoring, one of the issues is the number of inquiries by credit issuers. Credit monitors aren’t going to assume you’re gaming the points system to get a free flight, so the more credit inquiries you have in a short period of time, the more desperate you’ll look to them. Oh, and don’t try this at all if you’re within six months of buying a home, refinancing a mortgage, applying for a car loan, or some other major financial event. Even one inquiry can impact your credit score for a short period of time. That means you could end up with a higher interest rate (or be denied entirely)—and ultimately pay much more for that Majorca vacation than you realize now.
Helaine,
A few years before my boyfriend and I met, his mother got extremely sick. While he was taking care of everything at her home, it came out that she had opened a credit card under his name and let it go into a collection agency. A year or two later, it happened again. She’s also prone to letting expenses reach a crisis point and then asking for money on extremely short notice. If this were any other figure in his life, the obvious thing to do would be to report her for fraud and cut her off. Since he doesn’t want to file criminal charges against his invalid mother, he settled with the collection agency. Since then, he’s been trying to rebuild his trashed credit score by paying down a student loan and responsibly using a credit card. I love him, I want to marry him and I understand why cutting his mom off isn’t an option for him. That being said, I do want to get married, maybe own a house, and not have to eat cat food when I retire. Is there anything else he can do about his credit score if he’s not willing to turn his mother in? And do you have any suggestions about how we should organize our finances when we marry? I need to know what the legal and financial ramifications are for me in this situation, or how to limit the damages from his mother’s actions so we can build a life together.
First, from Papadimitriou: “Marry him! He treats his mother very nicely, and you can tell how a future husband will treat you by how he treats his mom.” All true.
But this is tough. Your boyfriend’s mom may be impossible and awful but, yeah, it’s kind of hard to turn in your own parent for fraud, especially an ill one whose illness is almost certainly exacerbating her financial woes. So what do you do now?
Papadimitriou strongly suggests your boyfriend subscribe to an all encompassing credit-monitoring service, one that uses all three of the major credit reporting bureaus and will alert your boyfriend quickly if someone applies for credit in his name. Although a free service—such as the one provided by, ahem, Papadimitriou’s own WalletHub, which uses TransUnion, one of the big three credit reporting bureaus—would be more than enough in most circumstances, it won’t do the job here, because mom could apply for credit with an outfit that reports to another bureau. Your beloved should instead use a service like TrustedID or IDShield. If any of these services alert him to an unauthorized credit application, he should immediately contact mom and cancel her fraudulent application. He could also freeze his credit by contacting the three major credit bureaus (Equifax, TransUnion, and Experian), but that’s not a perfect solution. Mom almost certainly knows enough about her son to wiggle around the security.
If you want to minimize the chances of your future husband’s bad credit from impacting your own, don’t make joint purchases with him and don’t get a joint credit card. In most states, you can’t be held liable for debt a spouse (or a mom pretending to be a spouse) runs up on a credit card that you’re not on. Unfortunately, that’s not true in the nine community-property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Moreover, unless you plan to put a future mortgage in your name alone, it’s possible his woes could cause a bank to charge you a higher interest rate. Finally, your boyfriend can work on improving his credit by getting a secured credit card and faithfully paying it off. This will all take work, but hey, so does marriage.
