Bankruptcy vs. chipping away at debt

[Anonymous]

2015 was a really bad year. So was half of 2016.

Bottom line is in a high stress season of life with two active toddlers, my wife and I were not making the best decisions financially and are now digging our way out. The details are as follows:

Car - $24,000 approx owed at 8% interest, $14k approx blue book value (worst decision ever)

Credit card debt - $15k over 5 cards (second worst decision ever)

School loans - $22,617 

We rent and have virtually no assets.

I'm resigned to paying off the student loans for years to come and have a workable solution to that debt.

But the car and credit card payments are eating us alive and keeping us from doing anything but live paycheck to paycheck with no surplus for emergencies or savings after our budget is fulfilled. We missed 4 months of payments on our credit cards due to the move last year and are barely keeping them out of collections for the moment.

I have a good job now which will offer us a little breathing room this coming year.

We have talked to a bankruptcy attorney and gone over the options. My wife filed chapter 7 six years ago afer a divorce so we only qualify for chapter 13, which seems like an awful lot of hoops to jump through for 3-5 years of constant hassle when we could still pay the minimums and file chapter 7 in a year. 

Our credit is in the low 500's. 

So until next year, bankruptcy isn't an option, but niether is paying the minimum and accumulating more debt.

What are some options for us to minimize further damage to our credit, get out of debt, get out of our car and start over? We are great at budgeting (now) and are ready to dig in to make changes. 

Any advice is appreciated!

[enjoimorenow]

Ch. 13 would set up payment plans where you pay back a portion of the debt owed.

Another option that would take time and hurt your scores now, but could help in the long run is to let the cards charge off, then you can probably settle for a fraction of what you owe without filing BK.

Otherwise, you could look to cut spending to help chip away at debt.  Possibly sell your car?  Get a second job like uber or something part time to earn extra money.

You can't get rid of the student loans in BK, so if you could sell your car and come close to breaking even, you probably don't need to file BK over $15k of CC debt.

A second job could probably easily earn that in a year or so if you just want to drive for uber part time on Friday and Sat nights, something like that.  If the CC's charge off it will hurt your score, but it's already pretty low anyways, so you could do that then try to settle with them for a lesser amount.  Maybe just do it with 1 or 2 of the higher balance cards.

[Anonymous]

I've heard that having a charge off with a note saying there was a settlement looks worse than a few missed payments with a "paid in full" note. Though seeing as our scores are so low now it may not make a difference credit wise, though it definitely would finincially!

I neglected to mention that I do have a good piecework job that will give us some breathing room starting in the next couple months. The more I work, the more I make so I can put in some extra hours as I'm able. I just don't see it paying everything off (possibly half of cc debt) and seeing as we would be barely scraping by if we did I want to make sure it's the best choice in paying down the credit cards seeing as our scores are trashed already.

But the car is the conundrum: I owe almost $10k more than it's worth and have only owned it two years. I just don't see any way out of it. It's a good car with a 100k mile warranty. I just don't want to dump $10k in to it to just get even on my loan...

[enjoimorenow]

Is the interest rate on the auto loan high?

Consolidating some of your debt would be ideal and help save you some money, but your scores are probably going to keep you from getting any loans right now.  BK will give you a fresh start, but you have to decide if it's worth it to have on your report for 10 years and unable to file again for that long if something bad happens for essentially $25k in debt.

the COs would look bad right now, but your scores arent high so as you start to rebuild and work on improving your scores those old missed payments and charge offs will mean less and less.

Perhaps you could talk with a credit counciling agency of sorts that could help make payment arrangements.  I'm not too familiar with them, but I've seen others who have used them on this board.

[Anonymous]

Im currently on the back stretch of a 13.  7 months to go.  And its been brutal.  If I were to do it over again, I would have just handled my debt on my own without letting a trustee control what I pay and to whom.  Also by now I would have been more than reestablished credit wise, and I would have been able to buy another car and home without issue.  YOu never know what the future holds, and if you absolutely dont need to file, DONT.  That will linger on your credit for 7 years if you get the discharge.  And a lot of people dont because they default on the payments.  We are good and should get to the end soon this year.  But man its been a long process.  I was able to rebuild some credit, but I need another car and Im wasting my money renting when I could be in a home for my family for much less.  

I say if you can avoid it and keep your credit together, do that.  Of if you can chapter 7 thats also not a bad process.  But 13 is brutal.  36-60 months in a lot of time to not be able to use credit for anything.  And you need to make sure your lawyer build into your plan some wiggle room for incidentals.  Thats your problem if you need extra money for an emergency.  Remember, WIGGLE ROOM in the plan.  If the lawyer is not willing to do this, get another lawyer.

[Anonymous]

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mountaintunes wrote:

2015 was a really bad year. So was half of 2016.

Bottom line is in a high stress season of life with two active toddlers, my wife and I were not making the best decisions financially and are now digging our way out. The details are as follows:

Car - $24,000 approx owed at 8% interest, $14k approx blue book value (worst decision ever)

Credit card debt - $15k over 5 cards (second worst decision ever)

School loans - $22,617 

We rent and have virtually no assets.

I'm resigned to paying off the student loans for years to come and have a workable solution to that debt.

But the car and credit card payments are eating us alive and keeping us from doing anything but live paycheck to paycheck with no surplus for emergencies or savings after our budget is fulfilled. We missed 4 months of payments on our credit cards due to the move last year and are barely keeping them out of collections for the moment.

I have a good job now which will offer us a little breathing room this coming year.

We have talked to a bankruptcy attorney and gone over the options. My wife filed chapter 7 six years ago afer a divorce so we only qualify for chapter 13, which seems like an awful lot of hoops to jump through for 3-5 years of constant hassle when we could still pay the minimums and file chapter 7 in a year. 

Our credit is in the low 500's. 

So until next year, bankruptcy isn't an option, but niether is paying the minimum and accumulating more debt.

What are some options for us to minimize further damage to our credit, get out of debt, get out of our car and start over? We are great at budgeting (now) and are ready to dig in to make changes. 

Any advice is appreciated!

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* Comments are based on these two sentences:

I have a good job now which will offer us a little breathing room this coming year.

We have talked to a bankruptcy attorney and gone over the options. My wife filed chapter 7 six years ago afer a divorce so we only qualify for chapter 13, which seems like an awful lot of hoops to jump through for 3-5 years of constant hassle when we could still pay the minimums and file chapter 7 in a year. 

* Please keep an open mind that even if you wait a year (post wife's previous Ch 7), that does NOT guarantee you will be eligible for a Chapter 7 Bk.

As you probably know, there is a Means Test to determine if  you are eligible for a Ch 7.  Secondly, it has to be approved by a Trustee.

My Attorney (if you can call him that) tried to get me into a Ch 7, and filed.  I kept asking him questions, and followed his legal advise.

Signed the paperwork (contract to pay for Ch 7 services) filed, began process.  Yeah, well, the Trustee didn't agree, so it had to go to a Ch 13, so I did, because it is a Solution, right?  * at no time did the Attorney or his staff ever mention that a Ch 13 will CO$T more than a Ch 7 out of pocket from me to the Attorney.

So if you have a Good Job now, that might mean you have the Means to PAY your debts, and NOT  just have them magically wiped away with a Ch 7. So please don't make the assumption that you are totally precluded from a Ch 13 for any reason.

Having a Good Job now is great because you can feed and clothe your Toddlers. Outside of that, go with the assumption that you are 100% responsible to pay for in full all of your existing debts and any incurred in the future.

Best Wishes!!!

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