After 15 years at enron, Wanda Chalk’s work as a human resources generalist had finally begun to accelerate, right along with the fortunes of the high-flying energy company. In her position, Wanda was responsible for company essentials such as filling staff positions, performance evaluations, and benefits counseling. But when Enron abruptly filed for bankruptcy at the end of 2001 amid fraud and scandal, Wanda got a pink slip.
To say that Wanda, 42, and husband Robert, 45, were devastated is an understatement. Wanda was pregnant with the couple’s third child and about to send their now 19-year-old son off to college. “I was the major breadwinner in the family with my annual income of $60,000, including bonuses,” says Wanda. “We were destroyed financially.”
Because 60% to 70% of her retirement assets were in Enron stock, Wanda lost at least $60,000 in her 401(k). And stock options that were potentially worth more than $150,000 became worthless. The family had to survive on Robert’s salary of $35,000 as a sanitation supervisor with PepsiCola, which was not nearly enough. Brandon, the couple’s eldest son, had to table his plans to go to a historically black college and is now attending a community college. The family turned to credit cards to bridge the gap and had to go on Medicaid and WIC.
“I had to turn to community assistance organizations for school supplies and to churches for groceries,” recalls Wanda. “If it weren’t for the Houston Area Urban League and Home Owners Assistance program, we wouldn’t have been able to keep our home that we almost lost to foreclosure,” she adds.
The Chalks tapped their retirement plans, which cost them dearly because they were hit with early withdrawal penalties. They owed the IRS $16,000, of which $9,000 still remains. Despite their financial maneuvers, they still lack enough resources to pay their bills on time. The Humble, Texas, couple’s credit rating took such a beating that they haven’t been able to refinance their home because they can’t qualify for a good interest rate.
For a while, Robert worked two jobs and Wanda worked temp or part time. Wanda finally found a full-time job in January paying $33,000, about half her old salary.
Two years after the Enron debacle, Wanda is healing emotionally. She had started taking medication for depression but no longer needs it. The financial recovery, however, is far from over. “We live paycheck to paycheck,” says Wanda.
The family
has $5,000 in Robert’s 401(k) for retirement, no savings account, some $15,000 in credit card debt, and there’s nothing saved for 12-year-old Briana’s or 1-year-old Jaden’s college education.With all of the challenges staring them in the face, Wanda remains positive, “I realize that, in some respects, I was one of the blessed ones. A lot of people got hurt at Enron. Some people in their 50s and 60s won’t be able to get jobs, and they lost their retirement money. I just want us to get back on track.”
THE ADVICE
Sandra Salter, a financial advisor with American Express Financial Advisors in Newark, New Jersey, assisted the Chalks with a recovery plan.
DEAL WITH CREDIT DEPENDENCY
The first order of business for the Chalks is to get a handle on their cash flow. After analyzing the couple’s finances, Salter says they are short more than $500 on what they need to cover their expenses monthly. They must stop buying things they want and only buy essentials over the next year as they eliminate debt. Credit card payments are consuming their income, so they should try to lower their interest rates. “They should call the credit card companies and negotiate. This will allow them to pay off their bills at a faster rate, or have a lower payment when they need a little breathing room,” says Salter.
Salter also advises the Chalks to close all of their credit card accounts except for two major cards with the lowest interest rates. Too many open accounts may work against their credit rating. Fortunately, the Chalks now have a little something to work with. They should use $1,500 of the $2,000 they receive from the financial fitness contest to pay off balances on their Chevron, Dress Barn, and Victoria’s Secret cards. That move will free up more than $100 each month.
ESTABLISH AN EMERGENCY FUND
The Chalks have learned how life can snatch you from your comfort zone at any time. They need backup, says Salter. They should use the remaining $500 from the financial fitness contest and a recent $1,000 windfall to start an emergency account. After adjusting their budget and paying down more debt, they should devote $300 a month toward the emergency fund.
BUY DISABILITY INSURANCE
The Chalks’ current life insurance policies will cover the mortgage and some living expenses, but their greatest threat, says Salter, is disability. Wanda has no disability insurance through her employer and Robert’s
After the Chalks take care of their more pressing financial concerns, Wanda should explore getting long-term healthcare insurance.
FIND NEW INCOME
Robert worked two jobs but stopped once Jaden was born. The Chalks now have two choices: They have to severely cut back on expenses, or Robert should get another part-time job, says Salter. They simply don’t have the means to meet their financial goals.
“To move the family forward, Robert should seek a part-time job that will earn $1,000 a month,” says Salter. “This money should be used to pay off credit card debt and fund their financial goals.”
Ideally, the money could be used to fund the children’s education. Approximately $500 of the part-time income should go toward their college education each month. Salter recommends a 529 plan, where money grows tax-free and can be withdrawn tax-free when used for college. Says Salter of the family’s future, “They can rebound. It’ll take discipline, perseverance, determination, and time. But it’s doable.”
Winner No. 42 Wanda & Robert Chalk
Financial Snapshot:
|
HOUSEHOLD INCOME |
|
| Gross Income | $63,000 |
|
ASSETS |
|
| Market Value of Home | $135,000 |
| Market Value of Two Cars | 25,000 |
| Robert’s 401(k) | 5,000 |
| Robert’s Porcelain Doll Collection | 5,000 |
| Checking Account | 200 |
| Total | $170,200 |
|
LIABILITIES |
|
| Mortgage | $113,000 |
| Credit Cards | 15,000 |
| IRS | 9,000 |
| Total | $137,000 |
| Net Worth | $33,200 |