Considering chapter 7

[Anonymous]

It has been such a long year for my us. Last October, we moved to NY and started on a list of things to do from a mortgage broker. When he pulled my husband's score on October 24, 2018, the middle score was 481. We opened a secured loan for 12mos with the credit union, and paid it off this month. We opened a secured credit card with Citi and have had perfect payments on balances less than 10% of our limit. We have paid off $19k in charge-offs and collections; some were deleted, some refused to delete but updated to show paid. Middle FICO 9 score on the app now shows 597, and the mortgage broker pulled credit again Friday... 484. THREE FREAKING POINTS! Talk about disappointed!

We have been talking about filing a Chapter 7 bankruptcy. We definitely pass the means test. I've set up an appointment with the Legal Project because all the attorney's I've called today want $1,400-$1,700 up front. We don't have it. The first available appointment is November 27, so I snatched it up.

Income
$2,946 gross monthly with family of 7

Debts
- Citi Bank secured CC for $25.03
- Federal student loans (3) for $39,571.60
- Medical bills (5) for $820.60
- Direct TV for $844
- SJRSC tuition and fees for $1,796.00
- Dick's CC for $514.88
- National Grid for $533.66
- Ally Financial for $15,486.68
- Chrysler Capital for $13,980
- First Savings Bank CC for $328
- Bank of America CC for $3,990
- Discover CC for $2,173 with judgement
- MA Pay-by-plate toll for $25
- City parking ticket for $50
- Six Flags membership for about $270

Monthly bills
- Rent ($1,200)
- Life insurance ($105)
- Power/natural gas ($122)
- Cell phones ($138)
- Auto insurance ($116)
- Internet and basic cable ($126)
- Food, gasoline, clothes, etc.

Assets
- 2008 Odyssey with 199k miles (owned)
- 1997 Eclipse with 74k miles (owned, inoperable)
- Savings accounts with $110
- Checking account with $740

My #1 concern about filing is that it means we cannot look to buy a home for our family for 2 years from the date of discharge. We are currently living in the inner city, it's awful and these kids are hearing words they never should experience when they are at school! We are thinking we can try to find a different rental when we get our tax refund in February or March.

Which brings me to my #2 concern, which is protecting my tax refund. We are anticipating a federal refund of approximately $9k and a state refund of approximately $600. I rely on that $9k to help bridge the income gaps through the year (like clothes, food, winter heating bills, shoes) so we don't need government assistance. Can I protect this somehow?

Concern #3 is proving a hardship to discharge the federal student loans. Has anyone actually had success doing this? We are on an income-based repayment plan for $0 monthly payment each month but the interest rate (6%) is just adding and adding to the balance. Then, if we are able to rebuild credit and look at buying in 2 years, they count 1% of that loan toward our debt-to-income ratio which leaves us with very little buying power... especially in upstate NY where taxes are awful. Plus, there's no guarantee that income-based repayment will always be available, and we obviously can't file bankruptcy again if they take that payment option away! We will have children in the home for 18 more years (baby due in February makes us a family of 8) and we are going to die owing for college.

Lastly, can we really rebuild our credit in 2 years to be able to buy right after that 2 year discharge mark? Is that regularly done? We need a safe neighborhood and good schools.

If you read this far, thank you. We appreciate any guidance or insight you can provide!

[Girlzilla88]

Please don't file as they stay on your report longer up to 7 years and do hinder your home buying like you said etc....If you can I would stick it out most definitely but do this as an absolute last resort.    

[Anonymous]

Do you see an option that we are not seeing? Details...

- Citi Bank secured CC for $25.03 is reporting 100% positive each month

- Federal student loans (3) for $39,571.60 is reporting 100% positive each month

- Medical bills (5) for $820.60 are all listed as individual collections, updating as failed to pay monthly

- Direct TV for $844 is a collection, updating as failed to pay monthly

- SJRSC tuition and fees for $1,796 is a collection updating as failed to pay monthly

- Dick's CC for $514.88 is charged off but still updating monthly as failed to pay

- National Grid for $533.66 is a collection, updating monthly as failed to pay

- Ally Financial for $15,486.68 is the deficiency balance on a repossessed vehicle for last October; it's reporting as a charge off with $0 balance from Ally but a collection added 2mos ago for the account with the total balance

- Chrysler Capital for $13,980 is the deficiency balance on a repossessed vehicle for last October; it's reporting as a charge off with $0 balance from Chrysler but a collection added last month for the account with the total balance

- First Savings Bank CC for $328 has not updated since 2014 listed as a charge off

- Bank of America CC for $3,990 updating monthly as a charged off credit card

- Discover CC for $2,173 with judgement updating monthly as a charged off credit card, though the judgement is not listed on the reports at all

- MA Pay-by-plate toll for $25 not showing at all

- City parking ticket for $50 not showing at all

- Six Flags membership for about $270 not showing at all

[Girlzilla88]

Have you called some of the OC, or current Collections Agency and seeked for PFD.       If you can knock off a few of those it would help at least get the ball rolling and I would start with your larger ones first see if you can settle for a lower amount and PIF do NOT opt into a payment plan unless you absolutely have to and if they do agree then be sure you get it in writing (or via email) that they will remove it from all 3 CB's once paid.     Once that happens it can be 1-3 months for them to show gone gone from your report and that will help up your score and reflect more positively on you as well.     Even if you just get your biggest ones removed and only report the smaller ones it will def. help decisions for future loan/purchases etc.

[Girlzilla88]

Ally and Chrysler are your biggest enemy right now 

[Anonymous]

We are out of money, and our income barely covers expenses. There's nothing extra to put towards these debts at this point.

[FireMedic1]

As it stands now you are $40,800 in debt. Looks different when you add it all up. Twice your annual income just about. I never say yes file BK. I just say is there anyway possible to pay this off and rebound your scores in the time it would take to file? Or will it take less time to file and have a fresh start and a successful rebuild. You know the answer. Its great you found a place like legal aid to help you out. It may suck with the living arraingements right now. But trying to pay all this off. You wont be able to get out. With filing you'll have a better chance. So need I say more?

Many people come here seeking advise. Myself I just lay out the pros and cons and leave it up to the poster. You'll be judgement free, debt free and in a couple yrs with a successful rebuild you can move out of that area or maybe sooner. Your scores will be a tad higher than now since you'll be legally debt free. Good luck on the path you chose to take.

[Anonymous]

Wow, it does seem different when you add it up! It would take us SEVERAL years to overcome that debt amount with the income we have.

The information provided in my initial post is JUST my husband's debts because his credit is the only one that matters for the mortgage application.

My debt is much worse. Maybe we can file together. I have been so hyper focused on my husband's stuff that mine has just sat.

[CH-7-Mission-Accomplished]

---

@Anonymous wrote:
Wow, it does seem different when you add it up! It would take us SEVERAL years to overcome that debt amount with the income we have.

The information provided in my initial post is JUST my husband's debts because his credit is the only one that matters for the mortgage application.

My debt is much worse. Maybe we can file together. I have been so hyper focused on my husband's stuff that mine has just sat.

---

With all due respect, you guys are in a really tough spot.    You have an income of under 3K a month and a family of 8 -- I assume the two parents and 6 kids.   When I was a loan underwriter we would take all gross income subtract all debts and then so many dollars for each family member.   Maybe something like $200/person and treat this as a debt.   I think this was for FHA/VA financing.

With 3K a month of gross income, and allowing 30% for total house payment (principal, interest, taxes, insurance, HOA fees, the total of these items could not exceed $1000/month.   And if they allowed a total monthly debt of 40%, that would be $1200/month for all debts, including the mortgage costs.  So you couldn't have a car payment for more than $200/month and no other debts.

When you buy a house, especally a modest one, all kinds of things can go wrong, and quickly.  A new sewer line can cost over 10K.   A roof 5K.   There's an endless array of exepenses.

I think you need to fix both your credit (do you work out of the home?   I can't imagine with 6 kids) and put the idea of home ownership on the back burner.   If your debts are an additional amount like your spouses, you should do a BK 7.

Also keep in mind that when they underwrite loans, even if you are on a deferred income based payment plan, the underwriters still use a percentage of your loan balance and count that towards your monthly debt for qualifictions.

No disrespect to you, but can you get your income up?

Usually areas away from city centers have cheaper rents.   Could you live further out and rent a place for like $800 or $1000?

Just some hints.   It's hard enough for people with massive debts and a very good income to get to the point of home ownership.   With bad credit and a low income it's darned near impossible.

Good luck.   All problems can be overcome but you are going to need help with credit and income.

[Anonymous]

The debt to income ratios have been a big point of discussion with the mortgage broker monthly for the past year.

Per the mortgage broker: With my husband's current income and all the collections gone from his credit, considering 1% of his student loan balance for a FHA mortgage, we will qualify for approximately $120k with $5k taxes and $1,800 insurance with 3.5% down after 2 years from date of discharge with a middle score of 620. That will put our mortgage, taxes and insurance at about $1,200/mo. which we have been paying (on time) for a year at this point. We have been told we will need 6mos reserves after down payment and closing costs.

Obviously with our financial constraints and needing about $15k cash to be able to buy, we may not be able to buy something on the 2yr anniversary of the discharge, but it's something to be working toward.

We won't be able to look in the suburbs or close to amenities, but we can absolutely find something in the valley towns within 45min of my husband's work. It's not ideal for me, but will likely have more space for the kids to run anyway.