Contemplating Ch. 7 - Need Guidance

[Tabou82]

Okay, so I'm actually beyond the contemplating part since I've met with a Bankruptcy attorney and retained him with the intent to file. The thing is though I know how detrimental this filing will be to my credit profile and I'm wondering if I can pay off the debt within the next 2-3 years. I am a single mother of one (he's 15) with very little savings. I moved to a new city for a better job early 2020 but the offer was rescinded due to budget cuts and as I was just getting back into the interviewing cycle with other companies, COVID-19 forced us all to quarantine and the majority of jobs went offline. So basically I was unemployed the majority of year however I was recently hired by a great company and will start at the end of the year. The suckiness of all this is that while I was employed I devoured my savings to cover my rent and other living expenses and when that was near depletion, I began to rely on my credit cards. Since I was already unemployed when COVID-19 hit, I was unable to apply for any assistance and had to pay for EVERYTHING out of pocket. 

Here's the quick and dirty breakdown:

Savings = $2k

Rent: $1800/month

Utilities: $350 month (includes electricity, water, cable/Internet)

Groceries: $300/month

CC Debt = $90k w/ no lates (I used my savings to stay current on all accounts)

Student Loans = Deferment but monthly payment should be around $340/month

Salary = $115k/year (starts job on 9/21)

The bankruptcy attorney told me that filing will be in my best interest and given my unemployment status, filing chp. 7 is the logical option. I'm hesitant because I have trade lines with NFCU (who have been the best institution and really helped me during this time) that have quite high cc limits. I had a car financed through them but it was totaled about three weeks so I would also need to buy another one to get back and forth to my new job. So a lot of moving parts with this but I honestly don't feel good about filing bankruptcy. My family was unaware that my job fell through and since I'm the "breadwinner of the family" I felt very ashamed to let them know. While I have anxiety about this decision, it's still manageable and not drastically affecting day-to-day but I do hope to buy a house one day and help my son with college expenses. I don't have any retirement accounts just yet but I anticipate gaining more promotions and playing catchup with contributions at some point. Anyway, below is listing of my credit cards:

Is it possible to pay this amount of debt off with a $115k salary or should I go through with the filing? 

[sccredit]

Only you can answer if you can pay it back. I know losing access to a lender like Navy can be tough (I know, I did) but I promise you it is not the end of the world. Frankly, it sounds like pride is eating at you. Something I learned is I had to throw pride out the window. 2 years post Chapter 7 all of my scores were above 700, one into the 730s. It doesn't have to be a long recovery. The day I filed I slept better that night than I had in over 6 months.

[ghostVetFL]

You can always pay the debt back to NFCU to get back in. (Legally you don't have to) But a lot of people want to keep there connections with them so they do pay them back. They won't expect you back though until you completely make them whole. 

Good luck 

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@Tabou82 wrote:

Okay, so I'm actually beyond the contemplating part since I've met with a Bankruptcy attorney and retained him with the intent to file. The thing is though I know how detrimental this filing will be to my credit profile and I'm wondering if I can pay off the debt within the next 2-3 years. I am a single mother of one (he's 15) with very little savings. I moved to a new city for a better job early 2020 but the offer was rescinded due to budget cuts and as I was just getting back into the interviewing cycle with other companies, COVID-19 forced us all to quarantine and the majority of jobs went offline. So basically I was unemployed the majority of year however I was recently hired by a great company and will start at the end of the year. The suckiness of all this is that while I was employed I devoured my savings to cover my rent and other living expenses and when that was near depletion, I began to rely on my credit cards. Since I was already unemployed when COVID-19 hit, I was unable to apply for any assistance and had to pay for EVERYTHING out of pocket. 

Here's the quick and dirty breakdown:

Savings = $2k

Rent: $1800/month

Utilities: $350 month (includes electricity, water, cable/Internet)

Groceries: $300/month

CC Debt = $90k w/ no lates (I used my savings to stay current on all accounts)

Student Loans = Deferment but monthly payment should be around $340/month

Salary = $115k/year (starts job on 9/21)

The bankruptcy attorney told me that filing will be in my best interest and given my unemployment status, filing chp. 7 is the logical option. I'm hesitant because I have trade lines with NFCU (who have been the best institution and really helped me during this time) that have quite high cc limits. I had a car financed through them but it was totaled about three weeks so I would also need to buy another one to get back and forth to my new job. So a lot of moving parts with this but I honestly don't feel good about filing bankruptcy. My family was unaware that my job fell through and since I'm the "breadwinner of the family" I felt very ashamed to let them know. While I have anxiety about this decision, it's still manageable and not drastically affecting day-to-day but I do hope to buy a house one day and help my son with college expenses. I don't have any retirement accounts just yet but I anticipate gaining more promotions and playing catchup with contributions at some point. Anyway, below is listing of my credit cards:

Is it possible to pay this amount of debt off with a $115k salary or should I go through with the filing? 

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[jmw1]

There are a number of issues in your situation, but I do believe that chapter 7 bankruptcy is a no brainer due to the high amount of debt.   Paying $90k in debt plus the enormous amount of interest 100 cents on the dollar with *after tax* money from pretax $115k salary is Dave Ramsey fantasyland unless you are doing rice and beans for you and the son for years.  

First of all, your income may be too high if the totality of circumstances with your new job is considered despite passing the means test based upon past unemployment. The trustee may claim that your new job is sufficient to pay back your creditors some amount and kick you into a 13. Talk to your lawyer about whether you may get kicked into a 13.

Secondly for the benefit of future readers, taking savings, especially from retirement accounts, to make minimum payments is a huge mistake when you know you need to file BK. It's exactly the same thing as taking $100 bills out of your wallet, dumping them in the toilet, and flushing them. Paying a really good lender like Navy is nearly the equivalent since there are many other lenders out there you can substitute with.  You probably had an exemption for cash that could have protected the money from creditors. 

Third, I think it's a good idea to tell your son what is happening and what might happen in the future. If you end up in a 13, there is no room in your budget to help with your son's college expenses. If you believe the official line in a 13, you should be paying your unsecured creditors every last extra dime the trustee claims you have and not having those poor unsecured creditors you wronged fund your son's college. 

Four, the car is a tricky problem. You may need a financed vehicle to inflate BK budget expenses to stay in a 7 or to make the 13 cheaper. The one bright side to paying minimums is that you may have a so-so interest rate on a car loan before you start defaulting.  Under normal circumstances, I think financing a car especially new is a bad idea but you may have to do it this time.  A new car comes with a warranty and you might need it if you are forced into a 13. 

I think that's enough stuff for you to think about. Good luck. 

[Anonymous]

I'm going to chime in to say if you're going to start a new job soon that will put you over the income threshold for Chapter 7, you might want to do it now while you can plead poverty on your bankruptcy schedules.

They go based on average household income over the past 6 months and see if it's lower than the median income for your household size in your state (count everyone who lives with you because your son increases the income limit even if he doesn't work).

When I filed, my husband had been prohibited from working by Immigration until we got his EAD in March and he started a job in April, but I qualified for Chapter 7 because we had very low income for the previous 6 months.

Work with your attorney to exempt as much property, cash, bank balances, and other assets as possible either under your state exemption laws or the federal ones if you live in one of the 17 states that allow it. (Where you can pick the ones that better cover your property situation.)

In most cases, a Chapter 7 just wipes debt and you don't lose much, if any, property.

It's not as bad as they say it is. You can figure out how to live with less than stellar credit for a while.

Discover gave me a secured card fresh out of bankruptcy and my husband added me as an Authorized User on his Capital One. I was also able to dispute the car loan I filed bankruptcy on, on the technicality that it wasn't a joint account anymore (the bankruptcy made it an individual account for my ex), and it fell off my credit reports. (565 to 574 on TU, similar elsewhere, and this is before the new cards even start reporting).

Usually by the time people have to ask, they really should file. Their credit is ruined. They'd bleed themselves trying to pay it when it's already done more harm than a bankruptcy and fresh start would. The "counseling" tries to scare people away by acting like it's the end of the world and it's not, and they try to direct you into a repayment plan, which you probably shouldn't agree to. Just say the stuff and get your certificate.

Not the end of the world. Best decision I ever made considering what was going on before the filing. As soon as my case was file, the phone stopped ringing, my PO Box stopped getting stuffed full of hate mail, and then it all just went away. The Trustee meeting was like 2 minutes maybe, and nobody flipping cares.

[Anonymous]

JMW1 didn't seem to mention that in a Chapter 7, you don't necessarily lose the car. 

A couple things can happen. You can reaffirm the car loan and discharge everything else, and just keep making the payments.

You can tell the Trustee you want it appraised and see if the bank will sell it to you at FMV. Some will, because if they repo a car and sell it at auction, they'll get next to nothing for it.

If you're going to lose the car either way, or seriously think you might, sometimes it's easier to just let it go as part of the bankruptcy, but make sure you lose it _in_ the bankruptcy to avoid a repo and a bankruptcy on your credit after you re-emerge.

JMW1: "Secondly for the benefit of future readers, taking savings, especially from retirement accounts, to make minimum payments is a huge mistake when you know you need to file BK."

It's worse. If you're under 59.5 years old, you also owe the IRS next year on income tax with a penalty rate for early withdrawal, and if you thought the credit card people werre bad, just wait for the IRS.

"Under normal circumstances, I think financing a car especially new is a bad idea but you may have to do it this time."

When I financed the Kia Soul "!" model with my ex, we paid $27,600 total (at 0%, but still), and by the time I let it go back to my ex, I still owed $22,000. 22 months into the life of the car, I finally filed bankruptcy. Ex had paid it down to 19,800, but the car's only worth $12,000. 

New car is a terrible deal.

"A new car comes with a warranty and you might need it if you are forced into a 13."

New cars and their warranties are not what they used to be. Many manufacturers don't even stand behind their work for more than 3 years or 60,000 miles now, they build them with the cheapest components, and they're already falling apart a long time before the payments end.

To top it off, many dealers try to stuff in fake warranties from some company in Chicago that doesn't answer the phone. So if you are going to buy an extended warranty, make sure it's from the FACTORY and not one of these scam companies, and also make sure it's at the right price. The finance department likes to start high and see if you pay the sucker price, but if you're prepared to walk, things like this can come down to nearly half what they started at.

Mom gave me a 2003 Impala with 260,000 miles on it, and even with repairs, the math works out better than the Kia payments and the "full coverage" car insurance where the check goes to the bank if you get in a wreck.

You'd have to have at least $600 repair bill every month to come out behind from a car payment+insurance.

I liked the bankruptcy better than the Kia, honestly.