Widow Can Protect Social Security Benefits From Attachment by Credit Card Issuer

Q. I am a 70-year-old widow with a rather large credit card debt that will take me many years to repay. Meanwhile, my only income is my Social Security. If I default on this debt, can the card issuer attach my Social Security benefits?

--J.H.

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A. If you keep your Social Security benefits in a savings, checking or other account that is devoted entirely to these funds (and you can clearly trace the funds in this account to your Social Security check), the benefits are protected from attachment. However, if you mix them with funds in other accounts, your benefits are subject to attachment.

By the way, in California, this principle generally applies to other types of pension payments. But before you conclude that this approach gives seniors carte blanche to run up big debts, you should know that creditors are not prevented from seeking repayment from a debtor’s estate. Creditors often won’t pursue a judgment against a debtor until after his or her death for this reason.

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Q. I know that you can begin withdrawing funds from your individual retirement account without penalty upon turning age 59 1/2, but what does this really mean? Is it the actual date of turning age 59 1/2, or the tax year in which the event occurs? I will turn 59 1/2 in March. May I take my first distribution now?

--D.J.S.

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A. The law means exactly what it says, an Internal Revenue Service spokesman says. You may take your first IRA distribution upon turning age 59 1/2--and not a day before.

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Q. Your recent comment that durable power of attorney documents no longer carry a seven-year term but rather expire at a date set by the principals led me to wonder about the document I signed in 1990. Does that expire in seven years as stated on the form, or whenever I decide?

--B.W.

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A. According to Los Angeles lawyer Ken Kossoff, your document will expire this year, as stated on the form. It is not covered by the new law. To extend your coverage under a durable power of attorney, you must execute a new form.

These forms are available from your attorney or from the California Medical Assn.

To obtain them from the CMA, send $2 plus sales tax based on your county’s tax rate to CMA Publications, P.O. Box 7690, San Francisco, CA 94120-7690. The CMA will send you the form, a pamphlet outlining its contents, instructions on how to execute the document and an identification card for you to carry in your wallet in the event of an accident.

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Q. Is a Veteran’s Administration loan a recourse or non-recourse loan?

--A.C.

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A. Assuming that the VA loan was used to purchase a home, it is considered a non-recourse loan under California law. For the uninitiated, a non-recourse loan does not permit the lender to attach a borrower’s other assets if he or she should default on the note. A recourse loan permits the lender to go after other assets for repayment.

The general law in California classifies loans used to purchase a home, or purchase money mortgages, as non-recourse loans. But beware: Once you refinance your house, your new loan is no longer a purchase money mortgage and is a recourse note.

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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053 or send electronic mail to [email protected]