So lost on what to do - should I file Bankruptcy or try to work it out - please help

[Anonymous]

So ashamed to even put this out here but I'm desperate for some advice from those wiser than myself.  Obviously, I have quite a bit of debt and it's been something that has happened over several years.  I've only made it worse when trying to make things better.  The past couple of years have been an extreme hardship on our finances.  We went from making very good money to taking a large hit on income.  I'm wondering if my only option is to file Chapter 13.

I've never had a missed payment or late payments but it's getting close.   We had a large amount of credit card debt I tried to consolidate thinking it would help get debt paid down and more manable.  My husband's income has dropped by at least $40,000 this year due to covid but prior to that we overspent and it has caught up hard to us.   He gets laid off every winter and doesn't unerstand we can't afford him now working for 3 months during the winter when we have so much debt.  It's a huge fight and going to drive us further apart and I'm not sure what my options are as far as trying not to sink.  I've had to borrow money to make the payments while he's laid off and it's just drowning me in debt.

I was reading about debt counseling, debt management programs but so many say do it on your own rather than pay any extra money towards those programs.  I'm going to be calling to see if I can get lowered interst rates due to hardship but just wanting thoughts if it's a lost battle at this point see it all listed.  

The majority of the debt is in my name as I had good credit.  The credit that is in his name is below mine.  The house loan is in my name only as I was the one that was able to borrow the money to build our home eight years ago.  I want to protect my home and not risk losing it.  We do have at least $60,000 in equity but because of my/our dti we cannot borrow a home equity loan to pay off the higher interest debt . 

I just can't stop worrying and not sure which way to turn, any advice is very much appreciated.  

[DebtStinks]

I'm not an attorney, but generic research of "Bankruptcy Means Test" should get you income caps for CH7 filing. I know when I filed my CH7, they mainly looked at our most recent 6 months of income and bank statements, but also asked for the last 2 years of tax returns in addition to a breakdown of all assets...this means equity in home, cars, clothes, jewelry, furniture, tools, etc) Keep in mind CH7 is referred to a "liquidation" so this means the BK Trustee will make sure you don't come out of the BK with a discharge and more assets than legally possible when filing.

If I were in your shoes, and I knew I was going to file knowing my spouse is going to be unemployed, I'd first start with finding out if I qualify to file CH7 now with income over the last 6 months. If it's low enough, just make the decision whether or not to file. If it's too high, I'd likely either only be able to file CH13 or wait until the last 6 months average income is at/below the cap for filing CH7. If you have to wait but know 100% that you're going to file, I'd personally stop paying all but the mortgage and/or car(s) being kept.

You can also enter into a debt management plan (DMP) or do debt settlement. In both scenarios, your accounts will be close at some point. DMP is typically a 24-60 month process and has less of a negative impact on your credit compared to debt settlement or BK...although still difficult to obtain credit for roughly 24 months. Debt settlement should save more money compared to DMP but could also come along with tax implications. I'd recommend consulting a CPA/Tax Attorney for advice there. Depending on finances and timeframe since delinquency, debt settlement (IMO) would range from 10-50% of the beginning delinquent balance.

If you have any questions specifically for me, just tag me in the post.

Best of luck and I'm sorry you're going through this right now. With the right plan of action and budgeting going forward, hopefully you'll come out on the other end and not face a situation like this ever again.

[Anonymous]

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@DebtStinks wrote:

I'm not an attorney, but generic research of "Bankruptcy Means Test" should get you income caps for CH7 filing. I know when I filed my CH7, they mainly looked at our most recent 6 months of income and bank statements, but also asked for the last 2 years of tax returns in addition to a breakdown of all assets...this means equity in home, cars, clothes, jewelry, furniture, tools, etc) Keep in mind CH7 is referred to a "liquidation" so this means the BK Trustee will make sure you don't come out of the BK with a discharge and more assets than legally possible when filing.

If I were in your shoes, and I knew I was going to file knowing my spouse is going to be unemployed, I'd first start with finding out if I qualify to file CH7 now with income over the last 6 months. If it's low enough, just make the decision whether or not to file. If it's too high, I'd likely either only be able to file CH13 or wait until the last 6 months average income is at/below the cap for filing CH7. If you have to wait but know 100% that you're going to file, I'd personally stop paying all but the mortgage and/or car(s) being kept.

You can also enter into a debt management plan (DMP) or do debt settlement. In both scenarios, your accounts will be close at some point. DMP is typically a 24-60 month process and has less of a negative impact on your credit compared to debt settlement or BK...although still difficult to obtain credit for roughly 24 months. Debt settlement should save more money compared to DMP but could also come along with tax implications. I'd recommend consulting a CPA/Tax Attorney for advice there. Depending on finances and timeframe since delinquency, debt settlement (IMO) would range from 10-50% of the beginning delinquent balance.

If you have any questions specifically for me, just tag me in the post.

Best of luck and I'm sorry you're going through this right now. With the right plan of action and budgeting going forward, hopefully you'll come out on the other end and not face a situation like this ever again.

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Hi DebtStinks,

Thank you for the response - Chapter 7 means you lose your home doesn't it?

If I filed, wouldn't I want Chapter 13 in order to keep our home and 10 acres of property?  Also, my car is paid off so I would want to keep it as well.  Sorry, I just don't know much about all of this.

[Anonymous]

I checked out the means test and we make too much money to file Chapter 7.

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@DebtStinks wrote:

I'm not an attorney, but generic research of "Bankruptcy Means Test" should get you income caps for CH7 filing. I know when I filed my CH7, they mainly looked at our most recent 6 months of income and bank statements, but also asked for the last 2 years of tax returns in addition to a breakdown of all assets...this means equity in home, cars, clothes, jewelry, furniture, tools, etc) Keep in mind CH7 is referred to a "liquidation" so this means the BK Trustee will make sure you don't come out of the BK with a discharge and more assets than legally possible when filing.

If I were in your shoes, and I knew I was going to file knowing my spouse is going to be unemployed, I'd first start with finding out if I qualify to file CH7 now with income over the last 6 months. If it's low enough, just make the decision whether or not to file. If it's too high, I'd likely either only be able to file CH13 or wait until the last 6 months average income is at/below the cap for filing CH7. If you have to wait but know 100% that you're going to file, I'd personally stop paying all but the mortgage and/or car(s) being kept.

You can also enter into a debt management plan (DMP) or do debt settlement. In both scenarios, your accounts will be close at some point. DMP is typically a 24-60 month process and has less of a negative impact on your credit compared to debt settlement or BK...although still difficult to obtain credit for roughly 24 months. Debt settlement should save more money compared to DMP but could also come along with tax implications. I'd recommend consulting a CPA/Tax Attorney for advice there. Depending on finances and timeframe since delinquency, debt settlement (IMO) would range from 10-50% of the beginning delinquent balance.

If you have any questions specifically for me, just tag me in the post.

Best of luck and I'm sorry you're going through this right now. With the right plan of action and budgeting going forward, hopefully you'll come out on the other end and not face a situation like this ever again.

---

[jmw1]

What state do you live in?  The state makes a huge difference as to whether you will lose your house or not in bankruptcy.  You need to look at your state's bankruptcy exemptions and whether you are allowed to choose the federal bankruptcy exemptions in your state. 

[DebtStinks]

I'd recommend sitting down to speak with a BK attorney. The first consultation is typically free. This should give you a really good idea where you stand as far as your options on a 13...or even a 7.

If you elect to NOT file BK, research options for a DMP. This can also be done directly with each credit card company and most other lenders via their "hardship" programs, should you qualify internally.

If you go the settlement route, I'd recommend going that route yourself as most settlement companies charge an arm and a leg for work you can do alone with the right knowledge and negotiation.

[Anonymous]

@jmw1   I'm in Ohio.  I'd rather put my house up for sale and make money on it to pay the bills than lose it in bankruptcy.  Was just trying to look for another option.  The more I hear about bankruptcy that may not be the best way for me to go.  

[Anonymous]

@DebtStinks   that may be the best possible action.  This sounds quite compliated to me and even when I'm trying to read up on it.  It's still confusing.  Thank you for your information !

[DebtStinks]

Feel free to PM me and we can, if you wish, discuss more details on your options.

[jmw1]

In Ohio, your house is quite safe due to Ohio's homestead exemption. 

First, I think you should get a couple of consultations with GOOD bankruptcy attorneys to see if you can squeeze into a 7 or make your 13 much more comfortable. Obviously do a 7 if you can unless you are behind on the mortgage or taxes. You don't want the cheapest law firm, you want a good attorney who will spend time on your case. You are a good candidate for either a 7 or 13. Unless you are paying 100%, the interest in a chapter 13 repayment plan is going to be zero which is not the case with the debt management programs. You might end up paying less than 100% of your unsecured depending on your income, priority arrearages and secured payments.

If you decide to do bankruptcy in the next year, you should pull the trigger ASAP and stop making payments on your credit cards. Use the money to pay deferred maintenance on your health, house, pets, cars, charitable contributions, elder care, 401k retirement contributions, and your BK lawyer down payment. Some of the redistributed money may help you with the chapter 13 budget depending on your trustee. 

I notice you guys bought a new Honda which is not the best decision while broke vs. buying a $5k junker with cash. However, you will need a reliable car with a new car warranty to survive a five-year chapter 13 so definitely keep the new car if you are doing a 13. The new car payment also reduces the unsecured dividend in a 13 or look at it another way - your unseucred creditors are paying for your new car.

The only bright side of the chapter 13 is that you will be forced to learn how to budget properly going forward. There is no room in a 13 for extras or luxuries such as a new car. The chapter 13 budget is super tight even with your lawyer's considerable involvement.  If you do a 7, nothing there will teach you how to budget and you will be in the same mess again in a few years unless you totally convert to a Dave Ramsey-like mindset of avoiding all debt other than a purchase or no-cashout refi mortgage. In the long run, you want to avoid at all costs anything that causes monthly payments other than the mortgage.  

If you do a 13, you should make it your family's "Come to Jesus" moment and you can do a complete 180 with spending and your relationship. In exchange for all the sacrifices you guys will make during the next 5 years, you will get a discharge of all your unsecured debt. I think it's a pretty good deal.