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Monday, Jul. 13, 1998
Divorce leaves mom, kids struggling
With growing debts and unreliable child support, bankruptcy is best way out
BY JEFFREY TOMICH
Staff WriterAllison McConn is 23 and financially strapped. Seriously in debt, she just went through a difficult divorce and wants to begin a new financial life for herself and her two toddlers.
McConn (not her real name) lives in Corpus Christi and earns $13,500 a year as a receptionist. She has children ages 2 and 3 and $21,150 in assets, which include equity in her home, personal property and a car.
Her annual expenses include approximately $25,000 in overdue credit card payments, and several accounts are in collections because she didn't have enough money to make minimum payments after her husband left.
McConn rarely has more than a few dollars in her checking account because money is spent paying bills as soon as she gets a paycheck. She has a life insurance policy for $21,000, but no savings, investments or retirement plan.
Her ex-husband is supposed to pay $600 per month in child support, but often doesn't. McConn also is responsible for a $20,000 note on her ex-husband's pickup, though he kept it after the divorce.
McConn's financial goals begin with ridding herself of credit card debt as quickly as possible so collection agencies will stop harassing her. She also hopes to start a savings plan and to be able to live on her monthly income without having to borrow month-to-month.
Her financial situation was analyzed by Jim Mailhes, a chartered life underwriter, chartered financial consultant and certified financial planner in Corpus Christi.
Mailhes consulted Jan L. Shephard, a Corpus Christi bankruptcy attorney. They concluded that McConn should file Chapter 7 bankruptcy.
``It's very unfortunate that she has had to suffer through an obviously poor marriage situation, but the divorce has left her in financial disarray as well,'' Mailhes said. ``Unfortunately, her story is not unique.''
Shephard noted that McConn's monthly expenses of $2,281 exceed her monthly income of $1,718, which includes the $600 in child support she often doesn't get.
``Even if she fed and clothed her family for less than the $2,281, she could only hope to break even with respect to income and expenses,'' he said. ``Accordingly, she has no ability to pay debt, except for her car and her house.''
A Chapter 7 bankruptcy would end McConn's legal obligation to pay her $25,000 in unsecured debt, plus the debt she co-signed with her former husband for the truck he was given in the divorce, Shephard said.
Under a Chapter 7 filing, debtors retain certain exempt assets, such as their home, and others are sold with proceeds going to creditors.
``I know she would rather not file for bankruptcy, but given her current financial situation, she has no alternative,'' he said. ``She already has bad credit, so a Chapter 7 bankruptcy would not worsen her financial situation. In fact, the Chapter 7 would improve her chances to meet her goals because it would clear her of debt.''
A Chapter 13 bankruptcy, which allows debtors to keep assets and commit a portion of their income to pay off creditors, isn't advisable since McConn doesn't have sufficient income, Shephard said. A Chapter 7 filing would allow her to live on her current income through sound money management.
Mailhes suggests McConn focus on getting the child support that's owed her. The state court system has programs designed to force deadbeat dads to pay child support, Mailhes said. He advises that McConn investigate those programs to recover money she's owed.
``The farther behind the ex gets, the harder catching up becomes,'' he said. ``If being nice doesn't work, get tough. You're fighting for your children's welfare.''
The next step toward McConn's goal of living on her monthly income is controlling expenses, Mailhes said. That could start by eliminating the $50 per month she spends for cellular phone service.
``If you must be able to be contacted at all times, you can rent a pager for about $8 a month and then stop at a pay phone to return calls,'' he said.
Mailhes also feels McConn's $1,025 per year homeowners policy is too high. He said she should consider a 1 percent deductible policy that should run $500 to $600 per year, and advises her to shop for the lowest available rates.
McConn also needs additional life insurance, he said. ``Since you obviously can't count on your ex-husband financially to provide for your children, you should purchase a minimum of $150,000 of term life insurance for about $15 a month or less,'' Mailhes said.
Finally, Mailhes suggests that McConn start a savings account and build a balance of several thousand dollars to use for emergencies or a new automobile.
And if McConn eventually gets another credit card, she should stick to one card and pay off the balance at the end of each month, he said.
The Caller-Times is seeking people to share their financial situation with the newspaper's readers. Your name will not be used in a story and the financial planner's advice is free. Call Caller-Times business writer Jeffrey Tomich at 886-3678 or write him at P.O. Box 9136, Corpus Christi, Texas 78469.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web