Dear Liz: I was involved in a car accident and had no medical insurance. The hospital bill came to $39,000 and a helicopter ride was $15,000. The only way I could pay this was using credit cards. I have high credit scores. Am I better off filling for bankruptcy?
Answer: You were better off not using the credit cards. If you hadn't charged your medical bills, you probably could have negotiated a lower settlement amount with the hospital and medical evacuation company.
In many cases, people without insurance are initially charged more than those whose insurance companies have negotiated lower rates. We're not talking minor discounts, either: The "sticker price" for hospital care for an uninsured person can be two or three times the price paid by insurers, according to the National Consumer Law Center.
Medical providers in these situations are often willing to settle for the lower, negotiated rate, but you have to ask.
Also, most hospitals have charity programs that could have paid some of the cost if your income isn't high. A typical charity program would erase bills for people whose incomes equal 200% or less of federal poverty limits, and would offer discounts for those with incomes up to 400% of those limits.
Even if you didn't qualify for the charitable program, a close review of your bill might have turned up errors that, if corrected, could have lowered your cost.
Furthermore, most medical providers have payment plans that would have allowed you to reduce your debt over time at a much lower interest rate than what you're probably paying on your cards.
Now that you've charged these bills, you have to make a realistic assessment of whether you can pay them off within five years. If not, bankruptcy may be a better option. A Chapter 7 liquidation would allow you to erase unsecured debts such as medical and credit card bills, but may not be available if your income is too high. In that case, a Chapter 13 repayment plan would require you to repay some of your debt over the next five years and erase any remaining bills after you completed the plan.
Alternatively, you might negotiate a settlement with your credit card companies.
Any option other than paying your bill in full will trash those excellent credit scores. The damage won't be permanent, but it initially will be severe, and it may take several years for your credit to fully recover.
Dear Liz: My father died in June, and I inherited part of his stock portfolio. I understand in 2010 there is no estate tax but have heard different opinions (from my tax advisor and two financial advisors) as to what my tax basis will be when the stocks eventually are sold. The opinions are that 1) I will get no step-up in tax basis, so that I will pay tax on the difference between the sale price and what Dad paid for the stocks; 2) that I will get a 100% step-up, so that the stocks will get a new basis based on their value at Dad's death, which would minimize capital gains taxes; or 3) some combination of the two — basically, a certain portion would have the step-up allowed and the balance would not be eligible for the step-up. Can you clarify?
Answer: You'll need to talk to the executor of your dad's estate.
Here's why. When there is an estate tax in place, the assets in people's estates get "stepped up" to their value at the time of the person's death. This is a huge boon to the vast majority of estates. Most people's estates don't owe estate taxes, but they still get this favorable tax treatment so that no tax is paid on the gains that occurred during the person's lifetime.
When the estate tax disappeared for 2010, the step-up rules changed as well. Each estate instead is allowed $1.3 million of step-up, which the executor can allocate any way he or she wants, said estate attorney Burton A. Mitchell of Jeffer Mangels Butler & Mitchell in Los Angeles, although no asset can receive a step-up that's more than its fair market value.
If your father's estate was less than $1.3 million, then all of your inherited portfolio gets a step-up in tax basis. If it was worth more, however, some or none of the portfolio would get the step-up, depending on the executor's decision.
The executor has to file a form with the IRS outlining how the step-up is allocated. This form is due with the decedent's final income tax return, Mitchell said.
Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What's at Stake." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the "Contact Liz" form at http://www.asklizweston.com. Distributed by No More Red Inc.