topic Re: Should I file bankruptcy? -- $40k+ cc debt in Bankruptcy

Should I file bankruptcy? -- $40k+ cc debt

flippy1234 — Tue, 19 Sep 2017 13:34:11 GMT

Hi there, I am looking for some advice to see if filing bankruptcy is the right move for me or not. Between my husband and I we have a little over $40k in credit card debt, I don't even know exactly how much because I've been burying my head in the sand trying not to think about it. We also owe about $3k to the IRS and are on a payment plan for that, along with student loan debt of around $24k for me and $60k for him. We also have a mortgage and two car payments.

We have NO late payments and are current on everything, but the CC min payments are around $1,000/month and we are obviously not making a dent. We can't seem to afford to pay more than the minimum right now, every once in a while I might throw an extra $100 or something when I have it, but we are obviously TERRIBLE at managing money. Our credit scores are low-mid 600s, and only because of credit utilization, no collections or lates or anything on there. We built a house a year ago.

I make $109k/year. My husband's income fluctuates all over the place, but I'd say he brings in around $2k/month on average, although sometimes there are months where he doesn't bring in anything at all.

Should we look into filing Chapter 13? Pretty sure we make too much money for Chapter 7?

Thanks for any advice you might have.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 13:46:55 GMT

@flippy1234 wrote:
Hi there, I am looking for some advice to see if filing bankruptcy is the right move for me or not. Between my husband and I we have a little over $40k in credit card debt, I don't even know exactly how much because I've been burying my head in the sand trying not to think about it. We also owe about $3k to the IRS and are on a payment plan for that, along with student loan debt of around $24k for me and $60k for him. We also have a mortgage and two car payments.

We have NO late payments and are current on everything, but the CC min payments are around $1,000/month and we are obviously not making a dent. We can't seem to afford to pay more than the minimum right now, every once in a while I might throw an extra $100 or something when I have it, but we are obviously TERRIBLE at managing money. Our credit scores are low-mid 600s, and only because of credit utilization, no collections or lates or anything on there. We built a house a year ago.

I make $109k/year. My husband's income fluctuates all over the place, but I'd say he brings in around $2k/month on average, although sometimes there are months where he doesn't bring in anything at all.

Should we look into filing Chapter 13? Pretty sure we make too much money for Chapter 7?

Thanks for any advice you might have.

I would say no. You just need to start actviely managing your money. With upwards of 140K a year of income, you should be able to pay that down in just a few years. first step is to make a budget and start sticking to it.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 13:50:54 GMT

@flippy1234 wrote:
Hi there, I am looking for some advice to see if filing bankruptcy is the right move for me or not. Between my husband and I we have a little over $40k in credit card debt, I don't even know exactly how much because I've been burying my head in the sand trying not to think about it. We also owe about $3k to the IRS and are on a payment plan for that, along with student loan debt of around $24k for me and $60k for him. We also have a mortgage and two car payments.

We have NO late payments and are current on everything, but the CC min payments are around $1,000/month and we are obviously not making a dent. We can't seem to afford to pay more than the minimum right now, every once in a while I might throw an extra $100 or something when I have it, but we are obviously TERRIBLE at managing money. Our credit scores are low-mid 600s, and only because of credit utilization, no collections or lates or anything on there. We built a house a year ago.

I make $109k/year. My husband's income fluctuates all over the place, but I'd say he brings in around $2k/month on average, although sometimes there are months where he doesn't bring in anything at all.

Should we look into filing Chapter 13? Pretty sure we make too much money for Chapter 7?

Thanks for any advice you might have.

You've mentioned the issues right here. I think you'll find that when you solve these you might be able to get out without a BK.

You need to know your financial situation inside and out. How to budget and learn how to manage money. Where are you spending your money? I'm guessing you're either way overextended on your house and two car loans (and need to reevaluate whether these things actually work on your income) or overspending in some other manner.

It can be a bummer to realize you actually can't afford some of these things, but it's worse living in debt and under the threat of one missed paycheck sending your credit into ruin.

The student loans aren't going anywhere in a BK, so you'd really just be talking the $40k of CC debt. I think you can get out of that on $133k of annual income, but you'll have to get your financial house in order. There is lots and lots of info here to help you

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 13:58:33 GMT

I would suggest starting out by looking into "total money makeover" by Dave Ramsey.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 14:08:57 GMT

If you have time and want more help, you could do the following:

1. List every single bill you have and amount (from both of you)

2. Every single credit card, monthly payment, balance and credit line (from both of you)

3. Take home money every month (from both of you)

4. Student loan balances and monthly payments (from both of you)

5. Car loans, balances and monthly payment (from both of you)

6. Other loans (from both of you)

7. Groceries spent (from both of you)

8. Gas spent (from both of you)

Re: Should I file bankruptcy? -- $40k+ cc debt

flippy1234 — Tue, 19 Sep 2017 14:49:43 GMT

Its worse than I thought. sigh.

1. List every single bill you have and amount (from both of you)

2. Every single credit card, monthly payment, balance and credit line (from both of you)

3. Take home money every month (from both of you)

4. Student loan balances and monthly payments (from both of you)

5. Car loans, balances and monthly payment (from both of you)

6. Other loans (from both of you)

7. Groceries spent (from both of you)

8. Gas spent (from both of you)

Take home pay

Me - $6,292.00 (currently putting 8% of my income into 401k (company puts another 6% on top of that)

Husband - $2000

social security - $640 (this is going away in 3 years)

Bills

Electric - $120-$220

Gas - $30-$60

Water - $160

Cell Phones - $250

Internet/TV - $150

Crossfit - $135

Roller derby - $50

HOA - $46

Mortgage - $2300

Car Insurance - $355

Car Loans

Car - $385 (owe ~$11k)

Truck - $650 (owe ~$40k, its newish)

Groceries - $1000

Gas - $250-$350

Student Loans

$22k & $60k — both currently deferred and not making payments.

IRS - $100

CCs - payments and balance

$52.00 $2,000.00

$90.00 $1,376.13

$25.00 $752.36

$64.00 $1,389.64

$65.00 $1,907.35

$296.00 $7,425.48

$46.00 $1,925.19

$108.00 $4,384.67

$147.00 $6,573.41

$114.00 $6,881.91

$117.00 $5,102.56

$140.00 $5,311.68

$131.00 $4,328.00

$117.00 $1,776.57

$61.00 $1,941.94

$23.00 $572.05

TOTAL Min - $1,300

Balance - $46,233

This obviously doesn't take into account things like clothes for the kids, random school/band fees for the kids etc. Theres always something coming up.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:05:07 GMT

Hmmm. There is $1400/month left unaccounted for based on what you've listed here.

You can make cuts.. Your phone bill should be half of what it is. Same for Internet/TV. Crossfit. A $650 truck payment is OUCH. Are any of your kids driving? Your car insurance is way expensive. (This would also go down if you got yourself out of overpriced vehicles.)

You can bring in more money. Can your husband pick up a new or second job, perhaps?

Cuts and bringing more $$ in aside, find out where that $1400/month is going . . . inside it is your get out of debt money.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:07:15 GMT

@flippy1234 wrote:
Its worse than I thought. sigh.

1. List every single bill you have and amount (from both of you)
2. Every single credit card, monthly payment, balance and credit line (from both of you)
3. Take home money every month (from both of you)
4. Student loan balances and monthly payments (from both of you)
5. Car loans, balances and monthly payment (from both of you)
6. Other loans (from both of you)
7. Groceries spent (from both of you)
8. Gas spent (from both of you)

Take home pay
Me - $6,292.00
Husband - $2000
social security - $640 (this is going away in 3 years)

Bills
Electric - $120-$220 - Why is this so high, live in a cold/hot state?
Gas - $30-$60
Water - $160
Cell Phones - $250 - You could easily change providers and bring this down to about $100 or less for sure ($100 savings). I pay $180 for 4 lines with Sprint.
Internet/TV - $150 - I would cancel cable TV asap, that is not a "necessary" it is a want. I don't have TV cable, just netflix. I keep internet for my home alarm. You could save an easy $100 here.
Crossfit - $135 - Ask the question, do you really neet it?? Unless you're professionally compete, i dont see the use. You could get a gym membership for less.
Roller derby - $50 - Same as above.
HOA - $46
Mortgage - $2300
Car Insurance - $355 - Both cars? have you tried getting quotes else where??

Car Loans
Car - $385 (owe ~$11k) - can you refinance?
Truck - $650 (owe ~$40k, its newish) can you refinance?

Groceries - $1000 - How many people on your family? i spend between $400 - $450/month for a family of 3 (including me). Before we go groceries, we open the fridge and see what we need to buy and for that reason, we do not throw away food that would otherwise go bad from sitting in the fridge for too long because you buy so much of it. By now, we know exactly how much of each to buy. We also do not go around buying junk food or unecessary things (not saying you do).

Gas - $250-$350 - is it possible for you two to commute sometimes?

Student Loans
$22k & $60k — both currently deferred and not making payments. - This will kill you when you start paying again, i'm sure you know but, they still add interest on your loans. You should be a least paying the interest...but we know you can't at the moment, just saying

IRS - $100

CCs - payments and balance
$52.00 $2,000.00
$90.00 $1,376.13
$25.00 $752.36
$64.00 $1,389.64
$65.00 $1,907.35
$296.00 $7,425.48
$46.00 $1,925.19
$108.00 $4,384.67
$147.00 $6,573.41
$114.00 $6,881.91
$117.00 $5,102.56
$140.00 $5,311.68
$131.00 $4,328.00
$117.00 $1,776.57
$61.00 $1,941.94
$23.00 $572.05

TOTAL Min - $1,300
Balance - $46,233

Something it's not adding up, your monthly take home is $8,932 - bills $7,807 = $1,125...where is this $1,125 going?? savings? You might want to revisit your budget, seems to me that you have an extra $1125/month to do as you please, and if that's the case, you could be paying things off much quicker..

Also, based on what you're spending, there's a least $350+ in savings by switching and cutting some bills off.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:08:52 GMT

@Anonymous wrote:
Hmmm. There is $1400/month left unaccounted for based on what you've listed here. Agree, found this as well.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:22:54 GMT

I may have missed something, but the expenses you list come out to a little over 7500 per month. If you can cut out luxuries outside of the listed expenses, you can already pay $1400 above the minimum per month. Even though your DTI is high (well over 50% if you include student loans,) it looks like there is a way to dig out if you can be disciplined.

Only you can decide which luxuries you're now willing to give up, but it should be clear at this point that you don't make enough to keep spending the way you do. Your student loans are accruing interest, your credit card debt will drown you, and the best way out is to take solid control for the future. Take a look back the last 3-6 months and categorize every transaction. Eliminate the things you can or will and make a new budget that leaves a little bit of spending for entertainment. If it doesn't add up, you'll have to give something else up. This won't be any different in BK, you'll still only have the money you have to spend each month.

Next, figure out a debt repayment strategy with a snowball or avalanche calculator. If the payoff timeline is longer than you like, you'll have to make cuts elsewhere. Again, you can already have $1400 per month above the minimum if you stick to the expenses you listed above. Cutting down your phone, tv, and gym bills could get you closer to $1800 above the minimum. Cutting your grocery bill down could net another $500 per month ($1k is profligate with your cash flow issues.) $2700 would pay off a 20% interest loan of $46,000 by June of 2019, and $3100 would get you working on the student loans by March of 2019. That seems like a pretty short timeline to worry about a BK over if you can meet it with moderate discipline. Even $2k a month would wrap the CC debt up by March of 2020.

The best part of these changes is that they can carry over to the student loan debt as well. You guys can be totally out of debt in under 10 years with a $2k a month payment towards debt and no new accrual of debt.

The last couple of options are more relationship issues. First, you all should consider selling the truck. You're likely stuck with a loan that is underwater and don't have cash to get out from under it, but $650/month is quite a bit with the other cash flow issues. A loan or trade may be possible to wash the difference, but you have to be sure the overall payment is going way down to make this an option in your situation. A used truck fits your budget much better and should seriously be considered. Finally, does your husband have more earning potential? It sounds like he does contract work, but doesn't work every month. He might be able to pick up another few grand a year, which would help the cause immensly.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:31:29 GMT

@Anonymous wrote:
@Anonymous wrote:
Hmmm. There is $1400/month left unaccounted for based on what you've listed here. Agree, found this as well.

This is because you asked for a really specific list; not for a breakdown by category of all expenses. There is certainly unlisted spending, but I doubt it is because the OP was avoiding listing it. I've seen that happen before too, but the benefit of the doubt is needed based on the earlier phrasing.

I do agree with your breakdown earlier, and imagine that none of the other spending is on necessities.

Re: Should I file bankruptcy? -- $40k+ cc debt

flippy1234 — Tue, 19 Sep 2017 15:37:16 GMT

I guess I forgot to add any spending on eating out, coffee, plus with kids there's always extra stuff that comes up. School supplies, school clothes, $600 in band fees last month for my older daughter. etc. I was just listing out all my bills that are due.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:42:54 GMT

No worries, that's why a 3-6 month lookback is so powerful. I personally do a year, but that can be pretty overwhelming if you don't keep the books as you go. Eventually you get to a place where the only surprises are true accidents; I hit another car, my kid broke their leg, etc. If you get a great budget in place, you know what you'll be paying for your kids extra curriculars, the water heater going out after 15 years isn't a suprise since you saved for a replacement, and the maintenance on your cars is all planned for.

Sincerely, I think you guys are capable of pulling through this, but you'll know better once you make a budget. If you put one together and find that you just can't keep up, then you need to consider bankruptcy. Give a conceptual budget a real shot first, though!

Best of luck to you.

Re: Should I file bankruptcy? -- $40k+ cc debt

flippy1234 — Tue, 19 Sep 2017 15:46:00 GMT

@Anonymous wrote:
No worries, that's why a 3-6 month lookback is so powerful. I personally do a year, but that can be pretty overwhelming if you don't keep the books as you go. Eventually you get to a place where the only surprises are true accidents; I hit another car, my kid broke their leg, etc. If you get a great budget in place, you know what you'll be paying for your kids extra curriculars, the water heater going out after 15 years isn't a suprise since you saved for a replacement, and the maintenance on your cars is all planned for.

Sincerely, I think you guys are capable of pulling through this, but you'll know better once you make a budget. If you put one together and find that you just can't keep up, then you need to consider bankruptcy. Give a conceptual budget a real shot first, though!

Best of luck to you.

Thanks

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:50:41 GMT

It really just comes down to making choices.

If the kids are going to be in expensive activities and you want to be able to give them that, maybe a new house and new cars don't fit in the picture.

If everyone loves the house, then some of the activities have to go by the wayside to afford it.

Some good friends of mine come to mind. They have 3 kids that are mostly grown now, but were involved in tons of sports/activities. That was very important to them, but required them driving beater cars to be able to afford. They had always lived at the beach and moved into town when they had their 3rd child for a nice sized house. Decided the beach was more important and moved back there and into a small rental.

As you work out your budget and find where every $ is going, look over that list and start prioritizing. Keep what is most important to you and be ready to let some things go (knowing that what you're letting go is what is allowing you to keep what you've prioritized.)

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 15:59:57 GMT

Well said Steelers.

This is the exact process my wife and I used when we kept a budget. Everything is about making the choices you are most satisfied with. We decided that more money allocated to travel was worth more to us than a bigger house, a new car, or a second car. No regrets.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 19:31:10 GMT

@flippy1234 wrote:
Its worse than I thought. sigh.

1. List every single bill you have and amount (from both of you)
2. Every single credit card, monthly payment, balance and credit line (from both of you)
3. Take home money every month (from both of you)
4. Student loan balances and monthly payments (from both of you)
5. Car loans, balances and monthly payment (from both of you)
6. Other loans (from both of you)
7. Groceries spent (from both of you)
8. Gas spent (from both of you)

Take home pay
Me - $6,292.00 (currently putting 8% of my income into 401k (company puts another 6% on top of that)
Husband - $2000
social security - $640 (this is going away in 3 years)

Bills
Electric - $120-$220
Gas - $30-$60
Water - $160
Cell Phones - $250
Internet/TV - $150
Crossfit - $135
Roller derby - $50
HOA - $46
Mortgage - $2300
Car Insurance - $355

Car Loans
Car - $385 (owe ~$11k)
Truck - $650 (owe ~$40k, its newish)

Groceries - $1000
Gas - $250-$350

Student Loans
$22k & $60k — both currently deferred and not making payments.

IRS - $100

CCs - payments and balance
$52.00 $2,000.00
$90.00 $1,376.13
$25.00 $752.36
$64.00 $1,389.64
$65.00 $1,907.35
$296.00 $7,425.48
$46.00 $1,925.19
$108.00 $4,384.67
$147.00 $6,573.41
$114.00 $6,881.91
$117.00 $5,102.56
$140.00 $5,311.68
$131.00 $4,328.00
$117.00 $1,776.57
$61.00 $1,941.94
$23.00 $572.05

TOTAL Min - $1,300
Balance - $46,233

This obviously doesn't take into account things like clothes for the kids, random school/band fees for the kids etc. Theres always something coming up.

As others have pointed out, there is well over $1000 available in your budget to attack the debt with. You just need to hunker down, cut out ALL unaccounted spending, and use the snowball method to attack those bills. I would also suggest stopping your 401K contributions until you have everything under control - thats another $700 a month you can use towards this. With that plus budgetary cuts you could have 2k a month on this no problem.

There is no reason you can't have all the CC debt paid off in less than 2 years.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Tue, 19 Sep 2017 22:43:25 GMT

@Anonymous wrote:
I would also suggest stopping your 401K contributions until you have everything under control - thats another $700 a month you can use towards this.

I agree with everything except this. I would keep contributing what I needed to to hit the company match. I.e. if the company matches 1:1 on the first 6% and nothing after, I would hit that consistently. That is a 100% rate of return, and not something I would forgo if even remotely possible. Even if it is 6:8, the rate of return is still very high at 75%. In this case, there is plenty of money sloshing around in the budget to make things work without forgoing other financial opportunity.

EDIT: Actually, both rates of return will be slightly higher than I suggested with the marginal value of tax deferred. I'm not up to the challenge of estimating what the rate of return would be for an average state at the noted income, but a 1:1 salary match is a >100% rate of return, something that can only be found with extreme risk or through these matching programs.

Re: Should I file bankruptcy? -- $40k+ cc debt

Anonymous — Wed, 20 Sep 2017 13:57:22 GMT

@Anonymous wrote:
@Anonymous wrote:
I would also suggest stopping your 401K contributions until you have everything under control - thats another $700 a month you can use towards this.
I agree with everything except this. I would keep contributing what I needed to to hit the company match. I.e. if the company matches 1:1 on the first 6% and nothing after, I would hit that consistently. That is a 100% rate of return, and not something I would forgo if even remotely possible. Even if it is 6:8, the rate of return is still very high at 75%. In this case, there is plenty of money sloshing around in the budget to make things work without forgoing other financial opportunity.

EDIT: Actually, both rates of return will be slightly higher than I suggested with the marginal value of tax deferred. I'm not up to the challenge of estimating what the rate of return would be for an average state at the noted income, but a 1:1 salary match is a >100% rate of return, something that can only be found with extreme risk or through these matching programs.

I know some disagree as its leaving money on the table. Thats somewhat countered by less interest on the debt that you will be paying down faster. Obviously thats going to be much less, but that 700 a month alone will pay off several of those card bances within just 6 months - seeing those payments go away can be a huge incentive and motivational factor.

Re: Should I file bankruptcy? -- $40k+ cc debt

flippy1234 — Wed, 20 Sep 2017 14:07:58 GMT

My company matches 100% of 5% (and then an auto 1% on top of that), I don't want to leave that 5% on the table, but I think I will stop the other 3% for now and use that for debt.