October 28th, 2015
Debts paid, Lessons learned.
I don’t even know where to start… Partly because this story is a decade long and difficult to encapsulate, and partly because it is terribly embarrassing. But if by revealing my embarrassment and my mistakes and my naiveté, somebody else might feel less awful about theirs, I will count it a privilege to overshare this part of my life. I thank you in advance for your indulgence.
Perhaps I should start with the end. Today, after 9 long years, I made the last payment on a debt of over $100k to the IRS.
It all started in 2003 when my husband and I sold our house in Mar Vista after our daughter was born. I had suffered from postpartum depression for about six months and essentially stopped working, making it impossible for us to make our mortgage payments. Selling our house was our first mistake. We should’ve kept it, rented it, waited until my voiceover work took a swing back upwards. It always does. But we sold it, and ourselves, right out of the Los Angeles housing market which, at the time, was still booming. We used most of the very small profit we made and bought two rental properties in Oklahoma, sight unseen, but that didn’t stop us from buying a couple of other “investment” properties with no money down. That’s another story. Let me just say that 100% financing was all the rage in 2005.
About that time we also decided we were going to save our daughter from the insanity of Los Angeles and move to the midwest. So we bought a house in a Kansas City suburb, packed everything up, and waved goodbye to my home state. This house in Leawood KS was amazing. A mere $245k. A half acre. 2000 square feet. 3 beds, 3 baths. A basement in which I could build a voiceover studio. Awesome. A mansion by L.A. standards. And though it was never on our list of must haves, it turned out to be a pretty swanky neighborhood. Who knew? At that price it seemed like a fire sale to us, what with our west coast real estate sensibilities. Turns out we over paid. And we inadvertently threw in $100k to remodel the thing. We had intended to put in $20K, but that’s how remodeling goes, right? Where we got this money, I have no idea. Credit cards. Loans. Today, I tremble at the expense of needing tires for my car, let alone where I’d find $100k. But again, borrowing was all the rage and not a single lender said no. At least not until, after the remodel, we tried to refinance. Remodeling a house in the midwest does not increase home value like remodeling in California.
Then the ground began to shift.
Shortly after our move, my husband’s new job prospect in Kansas City fell through. His old job in Los Angeles kept him on, thank God. So, by necessity, he started commuting – coming home to Kansas from Los Angeles every other weekend – while he continued to look for work in KC. Our daughter was 3 years old at the time, and after about 2 months of that nonsense, she didn’t even want him to kiss her goodnight anymore. “Just go” she’d whisper, as he came to say goodbye before heading to the airport. It broke his heart. It was becoming clear we’d made a mistake moving to the midwest. (Ya think?) Our friends in Los Angeles knew this before we ever left, of course. We decided to “cut our losses” and move back to L.A. But it was there that our losses grew beyond our wildest nightmare. Right about that time the housing market began to crumble, and it always crumbles in the midwest first. We couldn’t sell our house. So, we rented it. To awful tenants. Then the house started to fall apart. We needed a roof, a new heating system, the basement flooded. You name it. We had purchased The Money Pit. We were now cash poor and tapped out of credit, and whatever equity we thought we’d gained by remodeling was now truly gone with the housing meltdown. So…
We emptied our 401k to save the house. We paid our penalties and our automatic 20% tax, but we had no idea that emptying that account would kick us into a higher tax bracket with seriously higher tax consequences, or that it would be the nail in the coffin of our financial undoing.
That year, we ended up with an $85k tax bill. And we were broke. We tried to sell everything, but nothing would sell. There was no help yet available from Uncle Sam for underwater mortgages. We were among the first wave of losers in the housing market crash of 2006, the lucky stiffs who paved the way for the tsunami of underwater home owners soon to devastate the economy to such a degree that the Feds were forced to step in.
We lost our Kansas City house to foreclosure in 2011. We lost our 401k. We were terrified of the IRS, who has rightfully earned its reputation for being intransigent, cold, and unrelenting in its collection methods. It didn’t matter to Uncle Sam that our dreams were crushed, that we were sorry for our terrible decision making, that we took responsibility for it all. It didn’t matter to them that the federal manipulation of money and interest rates and mortgage lending rules helped to create our perfect storm. Understandably, every piece of advice we got from every so called “expert” was not to negotiate with the IRS alone. Hire an attorney. Hire a specialist. Whatever you do, don’t face them by yourself. We hired one company promising to help us negotiate pennies on the dollar. They took us for about $5k and all we got were wage garnishments. We then hired a bankruptcy attorney to the tune of $9k who erroneously filed bankruptcy on our behalf TWICE before withdrawing the filings both times because he failed to gather pertinent information from us before filing. He also failed to tell us that voluntarily withdrawn bankruptcies stay on record for 10 years just like regular ones do, only without the relief of bankruptcy itself. No wonder he disappeared from our radar screen. We then hired a tax attorney to help us set up an installment plan and once again were threatened with wage garnishment. Needless to say we were seriously beginning to doubt our ability to judge anyone’s character. Lord.
Weary (so weary) in 2012, we fired the tax attorney and I called the IRS and FTB myself. What could they possibly do to me? Take my favorite sandals from Target? The well-worn china my mother-in-law gave to us? What? Our penalties and interest alone had grown to near equal our original debt which, if we’d just called the taxing authorities ourselves in 2007 and set up a payment plan, would’ve been paid by now. All that was required to negotiate with the IRS was my calculator and some very simple math. I did not dispute any part of the tax owed and told the IRS and FTB we just wanted to pay. Sweet music to their ears. We set up a plan for each, and each was accepted without a fight. Our plan for the State would take 4 years to pay off. Our plan for the Feds would take 6 years. But at least we could see the end.
Our luck began to change in 2014. I’d put my shoulder to the wheel and ended up having a pretty good year, and by a stroke of good fortune we were able to pay off the State of CA last September, 2 years early. It felt miraculous.
By several different standards, we make a lot of money. More than enough. By Southern California standards, we are just a working class family, trying to make ends meet, living paycheck to paycheck with no room for error. The bankruptcy attorney we hired refused to refund our money and has stopped returning our calls. The IRS attorneys we’d hired to help us in the beginning had class action and criminal suits filed against them and are in jail. Our credit is gone. We have Federal and State liens on our persons. And even living modestly in L.A., our rent is exorbitant. All that remained were the two modest investment houses in Oklahoma, neither of which had appreciated in the last 10 years. Still, we’d put 10% down on each and had ten years of paying down the mortgages. Perhaps there was something there to be culled. I brought this to My husbad’s attention, and this past Spring we put them on the market.
We closed on Oklahhoma house number one at the end of July, and on Oklahoma house number two on the 2nd of October. Our net (I should say “the return of our money down” as it could hardly be called profit) from both houses combined was a mere $56k. When I was in New York a couple of weeks ago, I was on hold for 90 minutes just to find out what our IRS payoff was – expecting something around $65k. We figured the sale of the houses would cover most of the remaining debt, but not all, and we were prepared for several more months of regular payments. The IRS agent uttered a figure that took me aback. $54 thousand. We could pay in full, with two grand to spare. I hung up the phone, dropped my head in my hands, and cried my little eyes out.
I’d like to tell you that paying off this debt in full was altogether celebratory, but it wasn’t. I’ve been a little depressed these last two weeks. The reality of it all just smacked me between the eyes, like standing in the aftermath of a tornado that has done its damage and dissipated. I’m so relieved it’s done. But what do I do with what’s left? I’ve spent the last decade – most of my 40s and into my 50s – with this beast on my back, as has my husband. It has colored everything, every last part of our lives. Our marriage. Our daughter – what we have been able to provide her, and what she’s gone without. She could’ve used some educational assistance, tutoring, perhaps schools better suited to her learning issues, and we can’t get her developmental years back. They are gone. We sold furniture, beloved drum kits, instruments. We’ve sold more crap on Craigslist than I can recall. We have foregone seeing family and aging parents, and visiting our dearest friends in their times of need. Even our inability to join friends at dinner or a concert now and again reverberates with a bit of melancholy. Each place we’ve rented has gotten smaller each time we’ve needed to move. It has been a most humbling experience. We made some really, REALLY stupid decisions, and we have paid more than a fair price for our failings. Isn’t it funny… In my stubbornness, I still maintain had we made those decisions a decade earlier, they wouldn’t have appeared so stupid. Some might have called us genius (!) and we likely would have made a nice nest egg for ourselves in real estate. Ha. No point in re-writing history. Stupid is as stupid does…
I think I ended up with the equivalent of a PhD double-major in Life and Economics – a detailed education in real estate, finance, borrowing, credit; in the fallibility of attorneys and experts, and opportunists who seek out the weak to exploit them. I learned what I am made of and that no expert has my best interest at heart – not like I do.
I learned I am not my credit score.
I am not my bank account.
I am not my failures.
I am not alone.
I learned to cook.
I learned to share.
I learned to live on less.
I learned to want less – less stuff, anyway.
And I’m happier that way.
I learned to want more of the good stuff:
More truth.
More transparency.
More love.
More humility.
More grace.
More faith.
More creativity.
More expression.
More presence.
More life.
And here I stand. 53 years old. At zero. No nest egg. No house. No property. No savings. No investments. No credit. We will not be paying for our daughter to go to UCLA, let alone Princeton. If she goes to college at all, she’ll be working to pay for it, and that may end up being the most valuable part of her education. I’d be lying if I told you that all of this doesn’t scare me. At the same time, I know I am terribly lucky to have been imparted by my father and mother and the whole of my faith family a value system that confirms the state of my heart matters more than the state of my finances. That’s an immeasurable gift for which I am eternally grateful. It’s what carried me through.
I am finally free of a truly ridiculous burden – and yet men have jumped off of bridges for less. That’s not lost on me.
I am also quite aware that this decade of struggle was, by and large, a “Western-world” problem. What we’ve gone through – this loss of security, of comfort, of “stuff” is nothing new, nothing unfamiliar to countless numbers of people over the course of time; nothing uncommon in the least. Hundreds of thousands of people in this country are still inside of similar or worse struggles. Some have a long way to dig before they find some light. Some may leap from the bridge. I can’t even talk about the rest of the world. My goodness. What’s a FICO score to a man scouring the streets for something to eat, or to a woman desperate for a place to lay her head in safety? What’s a foreclosure on a credit report to a refugee desperate to touch his feet to free ground?
Perspective. That’s what this has taught me. Perspective and gratitude. Gratitude in plenty is easy. Gratitude in darkness, in want – that’ll test your mettle. And mine was tested, for sure.
That’s it. Just a little thing called freedom. That’s the gift I wanted to celebrate with a bottle of fantastic champagne. So… Cheers, my friends. Here’s to hope, to perseverance, to gratitude.
I’m good now. 🙂
Onward.
xo
