The Problem with Free Advice from a Financial Advisor

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Guest post by Cathy Moran, California Bankruptcy Lawyer

Cossitt Law Editor’s Comment: Cathy has a good point here. Bankruptcy lawyers have a have a variety of tools to choose from to help debtors get a fresh start and start saving for retirement. It is imperative that you understand all your debt relief options in order to make an informed decision about the best way forward. A consultation with a bankruptcy lawyer will help you understand the pros and cons of your options and so you can make an informed decision with confidence. You will also understand the next steps involved to address your problem and obtain relief.

The 65 year old woman featured in the newspaper’s Money Makeover series got a free review of  her financial situation by a professional financial advisor.

Over her working lifetime, she’s been the source of financial support for an extended family, including her aged mother and a disabled sister. Her aid to her family has come at the expense of her retirement planning. Expecting that she may live into her 90′s, she needs to increase her retirement savings, as she has no equity in her home to provide a cushion, says the professional. He advises her to pay off the $35,000 high interest credit card debt within two years and to eliminate the $750/1000 of new monthly charges to her credit card.

She’ll need to work at least part time for another 10 years, he projects, to accomplish her goals.


The goals are great.  However, there is no discussion about how this woman, whose hours at work have just been cut in half, is to accomplish this. The fact pattern screams at me: file bankruptcy!

Is there something about being a professional financial advisor that bars one from proposing bankruptcy? If “Capital Advisors” is in your business name, can you not suggest a consumer remedy? But, in the story as reported, there is no hint from the “expert” that bankruptcy might be an appropriate tool.

Facts point to bankruptcy

Let’s review the facts:

  • the lady is 65
  • her house has no equity
  • she cares for a 91 year old mother in declining health
  • her work hours have been halved
  • she has a modest 401(k)
  • the credit card balances are $35,000

From where I sit, it appears that the assets she has can be protected in bankruptcy by exemptions. I can’t imagine that advising a woman who has historically cared for all of those around her to stop caring for her aged mother. What if her health declines? Or she loses her job altogether?

What does paying off the credit cards get her? Wasted effort, in my book. Or worse, a dangerous gamble that nothing changes for the worse. And if her income is shrinking, where is the money to come from to pay off $35,000 in credit cards?

Advantages of bankruptcy

A Chapter 7 bankruptcy would eliminate the credit card debt within a couple of months. If 7 wasn’t suitable, a Chapter 13 would allow her to pay off the credit cards with virtually no interest. She could start seriously saving for retirement, freed from the credit card debt and the credit card interest rates.

The financial advisor who did this evaluation for free presumably isn’t a lawyer. But he should have enough of a grasp of the range of options to suggest his client get some input from a bankruptcy lawyer. Otherwise, his advice is worth just exactly what this woman paid for it.

Contact Cossitt Law at (406) 752-5616 to set up a consultation.



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