I appreciate all the insight from this forum. It really has helped ever since we made the tough decision to declare Chapter 7. I wanted to post our story, maybe its relevant to others.
In 2010, we were doing pretty well. Very little debt, 720+ credit scores, great jobs. Good savings. I was approached by an acquaintance (not really a friend) with a business opportunity. At first I was reluctant, but over the next few weeks, it kept creeping in the back of my mind. I'd tell myself that it was too much risk, but then I would run spreadsheets calculating potential. I can say it now, I got greedy, and emptied my savings and invested into a small business venture.
At first, I had planned for it to be passive. But during the honeymoon period of the new venture, things were going pretty well, so I quit my job to focus on the business full time. In the fall of 2011, my business partner's wife got a job three hours away and announced that he would be moving. He asked for me to buy him out. I couldnt quite buy him out all the way, but I took my 401k from the job that I had left and bought him down to a 15% equity.
During the summer of 2012, it was very evident that the business was starting to go south. Having no credit card debt and solid credit, credit was easy to find. I floated business expenses on credit cards so that I could make payroll. I basically stopped taking a salary in order to keep things going, which led to more personal debt. A year later, the three year lease was coming up. I called my business partner to discuss not renewing the lease and closing shop. I found out that he had taken out $50k in debt against the business and not told me. Even though his stake had been bought down, he still had equal responsibility on the loans associated with the business.
He declared Chapter 7 immediately. I met with the bank that held the SBA loan to see what my options were. With an SBA guarantee, they were not interested in me signing an unsecured note. I declared Chapter 7 personally, reaffirmed my mortgage and took a new job in my former career field within about a month during the summer of 2013. I was able to breathe again, and start the route to recovery.
My wife was extremely supportive during the whole ordeal. She had signed onto the business loans so she was affected as well. A supportive spouse was the key. I had all the feelings of embarassment, failure, etc. But our attorney assured us that it was likely no one would ever know - its not like the general public logs on to PACER. The only problem that we had planned to move to a better school district for our daughter to start kindergarten. We knew we would not be able to purchase a home for at least two years (the FHA Back to Work deal is crap, no one knows anyone that has successfully done it). Last year, we sold our home that we reaffirmed and moved into a rental home to get her started in the right school district.
Our discharge date was 11/22/13. On 11/7/15, we were approved for a portfolio loan (3.625%) and an FHA loan (3.5% +PMI, made it through automated underwriting even) provided we did not close until after 11/22/13. Yesterday we received the clear to close, and we will close around 12/11 on our dream home. We chose the portfolio loan even though its a 5/1 ARM. We'll look to refinance sometime between thr four year mark and the end of the 5 years. Its a gamble, but factoring in the PMI, the break even interest rate is 5.5%.
Both of our high credit scores were 712, my middle score was 699 and hers was 695. So 700 two years after Chapter 7 is possible. I was probably high on inquiries or it could be higher. We have about $54,000 in open credit. While I miss my AMEX and the benefits, Capital One has been good to us, as well as our local credit union (both have five figure credit limits). We have Barclays cards, and of course we had to start with the CreditOne/Merrick Bank crap. In fact, CreditOne charged me the annual fee last week and I happily canceled it. Hope this helps someone! I'll be happy to answer any questions about our process.
