Dear Quentin,
My girlfriend owes over $200,000 in medical and credit-card debt, but she believes it can be settled for 5% of the total amount if someone else will pay that.
She reasons that her creditors wouldn’t have a claim on anything in my name, so they will take whatever I offer to settle on her behalf. She said she can give me the money in cash.
Could this make me responsible for her debt? Would it be better for her just to declare bankruptcy, or try to negotiate the debts herself? Is this a good idea?
The Boyfriend
Dear Boyfriend,
Your girlfriend’s proposal is woven from red flags.
You don’t say whether or not the credit-card debt was part of your girlfriend’s medical financial crisis, but either way I can understand her worry, stress and — yes — desperation to clear this dark cloud hanging over her head.
The logic of your girlfriend’s proposal appears to be based on her assumption that the creditors will be more likely to negotiate with her partner in the belief that she has no money. Hence, her paying you cash for whatever sum you settle for.
I have very little doubt they would see through that charade. Her estimate that you/she would only have to pay 5% also seems like a pipe dream: $10,000 is not a sufficient incentive to abandon pursuing her for the remainder of the $200,000.
She is dealing with at least two creditors, not one. That further complicates matters. Don’t agree to anything. Avoid being dragged into this financial maelstrom. It does not bode well for her ability to navigate life in a responsible manner.
Medical debt is the No. 1 cause of bankruptcy in the U.S., with some studies putting it at anywhere between 45% and 60% of total filings, despite the fact that nearly half of the U.S. population has employer-sponsored health insurance.
Millions of Americans are either one paycheck away from the street, or one medical crisis away from bankruptcy. Over half-a-million families go bankrupt every year due to medical reasons, according to one estimate. It’s a big problem.
“Avoid being dragged into this financial maelstrom.”
This study in the American Journal of Public Health concluded that bankruptcy is most common among middle-class Americans, who shoulder increasing copayments and deductibles despite the Obama-era Affordable Care Act.
Lower-income Americans “less frequently seek formal bankruptcy relief because they have few assets — such as a home — to protect and face particular difficulty in securing the legal help needed to navigate formal bankruptcy proceedings,” it found.
As for negotiating a debt, Equifax has some tips. “When dealing with a collection agency, start your negotiations low. Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75,” it says.
“Before fulfilling any payment agreement you negotiate with a debt collector, make sure you get the terms in writing,” the credit bureau agency adds. “Then, after your debt is paid off, request a written confirmation that you have settled your debt.”
Message to your girlfriend: Sticking your head in the sand is not an option. An outstanding debt will negatively affect your credit report. But asking a loved one to put their head above the parapet in your place is a foolhardy errand.
Even if your girlfriend managed to have a significant portion of her debt canceled, she would need to report that canceled debt on her tax return. Tell her that, and ask her whether she would be prepared to do so. The answer may be illuminating.
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