Hello,
I've been trying to head off bankruptcy for a few years now, but am afraid it may be my only option left. I wanted to check here first if there are any other avenues to try (for my situation, and that are not scams). I've been trying to do research and see a lot about debt settlement companies and how most are scams, but even for ones that aren't, I wonder if I could do the same thing myself (or something similar). Anyway here is my situation (yes I know it's not good, but all the attempts at consolidation, etc. before have left things worse):
Married - wife just filed Ch 7.
- Assuming unsecured debt and medical bills go to 0
- Student Loans: 60k (federal)
- Also on vehicle loan 1 below (she is the primary driver)
My info:
- Unsecured credit cards/line of credit debt: ~260 k
- Student Loans: 45k (federal) + 13k (personal)
- 401k loans: ~30k total (made of 3 loans where 1 will be finished paying off around the end of the year)
- 604/mo - will be paid off around end of year
- 466/mo - will be a couple years
- 307/mo - will be a few years
- Personal Loans:
- 3,200 - 546/mo - will be paid off around January 2022
- 20k - 652/mo - will be a few years
- Mortgage: 117.5k (1,300/mo including property tax & insurance)
- HELOC: 40k
- Home value: ~190k (so about 32.5k equity)
- Vehicle loan 1: 43.5 k (in both mine and wife's name-wife is primary driver, recent purchase) - 775/mo (assuming about 0 equity)
- Vehicle loan 2: 22k (for teenage daughter, purchase a couple months ago) - 360/mo (assuming about 0 equity)
- Paid off vehicles (multiple-total value around 40k) - was planning to sell some, but not sure of how/if I should now/timing/what to do with proceeds
Combined income: ~200-205k gross, 134k net after taking out taxes, 401k payments, HSA, dependent care, health insurance.
State living in is IL.
Strategies?
Option 1: Stay the course - After figuring up all income and expenses, we would have to put all "normal weekly budget" expenses + some other utilities/cell on credit cards just to have enough. When factoring in how much goes to interest/principal this would put us still digging ~1k/mo more in credit card debt, which can't continue because of maxing out cards. Additional income sources such as extra work/side gigs can provide some to help bridge the gap, but would still likely be putting a decent amount on credit (but maybe slightly less than paying down on principal-assuming no "rainy day"/extra items). Looking ahead, about $1,150 in loans drops off around the end of the year/start of the next (too little, too late?) Could possibly use proceeds from selling some vehicles to help stay afloat. This all might be possible-but hasn't proven very promising so far. Also, we're doing this while contributing $0 to our 401k's, which I know is terrible long term.
Option 2: bk 13 - this would likely yield a tight, but much more doable budget. I have questions about monthly payments for the 13 and the vehicles/equity.
- I believe I can subtract up to 2 vehicles' loans - is that going to be just my wife and daughter's or if I got a car loan could it also be included? Is there such a thing where the 3rd vehicle for my daughter we just have to pay on top of the disposable income? Or would they make us get rid of one of the loans/cars? Will I have any trouble from the other vehicles I own (ie. if they say we don't need one or more of the car loans because we have other transportation)? My thought would be if a chapter 13 lasts 5 years, it's good to have a vehicle with low miles to last through that. I've read where the payment in ch13 must be at least the equity that would have been received in ch7, but I'm fairly certain my ch 13 payment over 60 months will far exceed my house+car equity. So the payment should be equal to the disposable income - or am I looking at that incorrectly?
- Can I sell a current vehicle and use it towards a downpayment (basically like trading in but trying to get more from the sale through private party)?
- I've read that before filing to stop paying unsecured creditors-but what are you allowed to do with any extra money after paying secured debts + normal living expenses?
- 401k questions:
- Can I deduct my 401k loan payments/count them as an expense in the ch13 payment calculation? I'm assuming yes, although the payment may change once each loan is paid off? Or does it somehow average it over the course of the plan?
- Can my wife begin contributing to her 401k (hadn't been before due to trying to make ends meet)? If so how much would be allowed or questioned? Can she go up to the IRS pre-tax limits? Would that effectively lower her income for the calculations?
- If I re-start contributing to my 401k, can any of that be excluded from income for the calculation? Does it depend on the amount? Does it depend on how long I've been contributing? I feel like I've read mixed reviews on this - some places it sounded like it might not be allowed, but I thought I read in one of the rules/laws where it should be allowed - but maybe I'm misreading something?
- Timing-what timing considerations should I take into account?
- Do I need to stop using credit cards for at least 90 days before filing? (I believe this is what I read)
- Is there any time I need to wait after the vehicle loans started?
- If I do sell a vehicle, is there any time to wait to file?
- Do 401k contributions have to be going for 6 months to count as a deduction?
- If I need to wait at least 6 months (or more), are there any good ways to hold off creditors that long?
- I've seen different hardship options on credit card pages, but not sure if this would be a good option and if it would even work for this
- Do partial min. payments make any sense, or is that seen the same as no payment and wouldn't help?
- If I skip payments, I'm assuming they'll just add on top of each other (plus fees) so then it wouldn't be a lesser payment later. For example if the mo payment was $100, and I skipped for 3 months, the min payment would then be $300+fees right? or would it be less than the sum?
- Setting up temporary payment plans?
- Should I answer calls?
- Any other options?
- Any other considerations for bk 13 I should keep in mind?
Option 3: Legit Debt service - would these be of any help here, or would I just be paying for the same end result?
Option 4: Negotiate debt down myself
- I believe there are tax implications to any settled debt. However, I believe there is an option to exclude this if the amount excluded is due to "dischare of indebtedness to the extent insolvent" which would allow me to deduct any settled debt up to: the amount of what I owed (for all debt in total? or just certain debts?) - the fair market value of my assets. I would think since my debts far outweigh the value of all the assets that I could effectively reduce the settled debt taxable amount to $0, right?
- Beyond tax implications, though, how easy is this to do? With my wife, I saw a range of offers she got for settlement from 10% off to 75% off, although I'm sure it depends on the creditor, and maybe the balance, etc.
- Another issue is with these settlements if they are wanting the money either all up front or even in shortened payments, it may still be difficult to do (or can do it for some while others are ignored-which could lead to more issues).
- How do I keep creditors happy enough that I can do this for a while (at least until I can afford to pay them all in a normal routine), without lawsuits, etc.
- Partial payments? Something else?
- Has anyone had/seen luck doing this?
Option 4b:
- Similar to option 4 above, but I target certain creditors that I don't want to burn and continue paying them (as long as it's not a bankruptcy I think this is allowed, right?)
- However, even the ones I pay - are they still likely to close my accounts because of everything else going bad on my credit report?
- But, even if they do close my accounts, maybe I'm not blacklisted from them in the future once I get things in order?
- And also with this option, how do I keep creditors at bay long enough to do this? partial payments? something else?
Any other advice/options/etc.?
I'm sure I've probably left out some key piece(s) of information - if so let me know and I'll try to update.
Thanks in advance!
