Q. My husband passed away five years ago without life insurance, leaving me heavily in debt. I don't own a home, rent an apartment, and work part time. I turned 65 and get about $26,000 annually from Social Security and a small pension. My IRAs total $15,000. I also have a $68,000 life-insurance policy. My total credit-card debt is $48,000, with monthly payments of $1,000. What can I do?
- Name withheld,
A. "Most people want to do right, and you've gone beyond that by assuming the debts of your deceased husband as well as seeking to pay your own debts," says New York attorney Gary Schatsky.
"Unfortunately, your windows of settlement are narrow. Make a good-faith effort to [negotiate a settlement] with your creditors. If they will not, you may have to consider bankruptcy protection," he says.
"Normally, I would not recommend bankruptcy. But it was designed to provide relief to a person exactly like you, where you are paying out close to 50 percent of your income for obligations you may never be able to meet," says Schatsky.
Be sure to consult an attorney, he adds.
Q. I have received information on the "perfect investment for the 1990s and beyond" - viatical settlements, with a guaranteed tax-free income of 10 percent and up. Please advise me on any negative aspects to this investment. But hurry, I need to know soon.
A. David Bendix, a financial planner in Uniondale, N.Y. advises his clients to avoid viatical settlements, "both for financial and moral reasons."
Such settlements are made when a packager - frequently a marketing company - buys up a life insurance policy on a person diagnosed as terminally ill.
The sick person is then paid a certain percentage of the benefits, such as 60 cents on the dollar. The packager and investor pocket the remainder of the settlement when the ill person dies.
There is no guarantee that the person will pass on in the period assumed, says Mr. Bendix. And administrative expenses can also be high.
Morally, the investor profits from another's misfortune. Also, the original beneficiary "is cut out of the loop," Bendix says.
If you still decide to invest in a viatical settlement, look for packages sold by major insurance companies, says Bendix.
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