Deciding if I should file chapter 7

[littlesophia]

Been reading these forums for a while, knowing our situation was not a good one credit wise.  Husband and I have decided to let our house go into foreclosure (have only missed one mortgage payment thus far) and after seeing an attorney I am considering a bankruptcy.  I would like to know what others think who may have been through something similar.  We are a 'mature couple' - 47 & 58.   In 2011 our son was in an accident; medical expenses and related costs from that and another health issue have resulted in us having over $42,000 in unsecured consumer debt.  There is a $10,000 student loan that payments haven't begun on yet, and yes I know that cannot be discharged. We also have a $171,000 mortgage on a house that has a tax assessment value of $90k and is in need of repairs (roof, wiring), a piece of land that we hoped to build on that is valued at $42k (we owe $32k).  One old horse trailer, and three vehicles are owned free & clear (all older 1994, 2002, and 2004, one in fair condition, two in good condition but still not worth a whole lot). 

We have already secured a rental home for which we will pay significantly less than our current mortgage payment and lower utilities. I've run the Snowball Debt calculator and if all was perfect we could have that $42,000 in CC debt paid off in approximately 4 years, but still with little to no money in the bank.  

The attorney suggested we consider chapter 7 bankruptcy because then by the time our credit score has returned to "good" we could potentially have that $40,000 in the bank to use toward buying or building a house, or relocating, or helping our son through college.  We've been through hell these last 26 months, and I never thought I would consider NOT making good on all my obligations and debts but I feel as though this is consuming me - and my family.

Difficult to discuss this with extended family or friends. We live in a small town and spouse and I are both in jobs that while not lucrative financially (we earn @ $67,000 a year combined), well, folks know us and I have some concern that declaring bankruptcy may haunt us in other ways.  But I know we are not contributing fiscally to the local economy or our community as we used to because we have been burdened so heavily with these things.

Any an all advice is welcome - husband just gives me an "I don't know what to do" response and I could use a fresh set of eyes to look at our dilemma.  Thank you.  

[SoulMaster]

What state are you in?

Do you have anyone else living with you?

If you sold the land, that's $10K, what if you sold 2 cars and the horse trailer?  How much would that bring in?  I ask b/c the trustee (dependent on the state) will probably allow you to kep 2 cars, but will take the land and at least one of the cars.  Before you think about BK, that's something to consider.  $42K in debt will settle for about $13K... which means, you may be able to avoid the BK entirely by selling some stuff and going through hard negotiations.  Then all you have left to go is the non-dischargeable student loan.

Also, if you SS your house rather than foreclose, you may be entitled to $3000-$30,000 in cash for keys money.  Moreover, if you strategically short sold rather than just walking away, you can probably stay in that house for a couple of years w/o paying rent or a mortgage payment.  If the attorney who helps you with a strategic SS does it right, you might even wind up with a principal reduction to current market value or stay rent-free for 54 months or more (I did this).

On the other hand, the attorney is right, BK+2 years = 700ish FICO.  But, avoiding a BK seems very possible in your situation, though the recovery would take a bit longer.  Here's the sticky wicket:  What if you do the BK now, and there are $300K in medical bills next year?  That, right there, is why BK should be avoided if it can be.

Good luck,

-SM

[littlesophia]

Thank you so much for the quick reply. We're in Washington state.  If we could sell either land or house we would; our county is very economically depressed and houses and land are on the market for 12-26 months. Our lender has not replied or responded to our requests for loan modification, cash for keys, or deed in lieu of foreclosure requests. They insist I must call them by phone but when I do I am put on eternal hold. We were with Bank of America, but they transferred servicing to Nationstar mortgage in May or June this year.

Selling the horse trailer and one vehicle would probably bring about $5,000.  The attorney I spoke with suggested we might be able to exempt the land under the homestead exemption because it is our intent to occupy in the future. I'm not incredibly attached to it anymore but the husband is.

I've not even considered settling the debt - I will certainly look into that.  Staying in the house isn't feasible for us either. It is in need of some big repairs that we don't have funds for. Also, it is 30 miles from where 2 of the 3 of us work and go to school (not much left for work in the small town where our house is; had to go to the next town for stable employment).

I do wish that I had been "OK" with letting the house go and stopping making payments a long time ago. I didn't want to face how bad the economic situation in our community was becoming.  I had not considered what would happen if we are slammed with more medical bills in the near future. That gives me something else to think about. Thank you.

[SoulMaster]

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@littlesophia wrote:

Thank you so much for the quick reply. We're in Washington state.  If we could sell either land or house we would; our county is very economically depressed and houses and land are on the market for 12-26 months. Our lender has not replied or responded to our requests for loan modification, cash for keys, or deed in lieu of foreclosure requests. They insist I must call them by phone but when I do I am put on eternal hold. We were with Bank of America, but they transferred servicing to Nationstar mortgage in May or June this year.

Selling the horse trailer and one vehicle would probably bring about $5,000.  The attorney I spoke with suggested we might be able to exempt the land under the homestead exemption because it is our intent to occupy in the future. I'm not incredibly attached to it anymore but the husband is.

I've not even considered settling the debt - I will certainly look into that.  Staying in the house isn't feasible for us either. It is in need of some big repairs that we don't have funds for. Also, it is 30 miles from where 2 of the 3 of us work and go to school (not much left for work in the small town where our house is; had to go to the next town for stable employment).

I do wish that I had been "OK" with letting the house go and stopping making payments a long time ago. I didn't want to face how bad the economic situation in our community was becoming.  I had not considered what would happen if we are slammed with more medical bills in the near future. That gives me something else to think about. Thank you.

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That stuff in red?  Get an attorney.  As a general rule, the banks hired $8/hr college kids who have no authority do to anything other than stall you into foreclosure.  (In fact, they get bonuses for foreclosing/denying mods and SSales as show here: http://www.cnbc.com/id/100818866).

I know an attorney who's from Washington, I'll ask him about the rules there.  Gimme a day or so to get back to you.

-SM