Don't let Debts Grow Old With You

Dear Debt Adviser,I turn 60 this year and I'm single. I owe the IRS $75,000 and $8,000 in state taxes. I also have a student loan of $40,000. I have a degree in business management. I make about $30,000 annually, but have no savings and no retirement. I liquidated my 401(k) when I was unemployed -- a big mistake. I need advice on how to turn this situation around. Also, please share my story of what not to do. This has been a very stressful and shameful experience for me.-- Diane

Dear Diane,I feel for you and I can tell that you feel even worse. But don't be ashamed. We all make mistakes. Beating yourself up over things that can't be changed won't help. It's easy to say in hindsight that using your 401(k) funds while you were unemployed was a mistake. But at the time, you did what you thought was best.

And besides, the game isn't over yet. Yes, you are 60. So what? My brother changed jobs at 60 and stepped into a great position in a new industry. You can, too.

Don't give up on the prospect of getting a higher-paying job. I don't know what kind of work you used to do, but with a positive outlook, some networking and maybe some career coaching, I'd like to think you can find a higher-paying job. Networking with friends, family and church members is a great way to find opportunities that aren't advertised, which most jobs aren't.

Unfortunately, taxes and student loans are the two kinds of debt most difficult to get relief from. It's not impossible, but it's difficult. You do have some options, however. Here are some suggestions.

Your student loan options include working in a field that will grant you loan forgiveness, such as certain teaching positions or nursing. You may also qualify to have your student loans discharged in bankruptcy. You must prove "undue hardship" in order to have your loans discharged. Combining your age, salary and other debts, I believe you have a chance of convincing the court that you qualify.

I recommend you contact a bankruptcy attorney and get some professional advice. You can search for a pro bono, or free, attorney at the American Bankruptcy Institute's website, or you might try the Legal Aid office in your area.

With the IRS, one option is asking for "Uncollectible Status" on what you owe. This will stay collections, in the hope that your situation will improve. Also, check out how to make an "Offer in Compromise," detailed in IRS Form 656-B.

Dealing with the IRS is always a delicate business. I suggest you get professional opinions about these options from qualified advisers. Beware of debt settlement firms, though, as they have terrible track records and typically charge large fees.

You have come through a very difficult time in your life, and have a job in place. Things are finally taking a positive turn in your life. Don't give up on yourself now.