@financialresearch22 wrote:Hello, and thanks in advance for any help. If more info is needed for any of my questions/situation, I'll see what I can do to clarify.
I'm married with 5 kids and under a mountain of debt. The financial issues are to the point where we need to make a decision about which (likely drastic) way to go. We've tried other things like debt consolidation loans, 401k loans, 0% balance transfers, 0% payment plans with some creditors that went for it (while closing the accounts), increasing income with extra side jobs and travel jobs, but things have just continued to pile up, and I want to find a way to get our financial (and general) lives back. My wife filed chapter 7 a little over a year ago for herself which helped, but we are struggling again as she ended up being out of work for a few months recently due to reasons beyond her control.
Options we are looking into at a high level (and feel free to add other options if there are any):-Chapter 13 for me
-withdraw all (or most) of 401k to pay off debt
-withdraw all (or most) of 401k, but try to settle with creditors
As I think through all the details there are several pros and cons, and also questions, so I'm coming here in hopes of either getting answers to some of the questions that can help me with the decision or to come up with additional ideas/considerations/etc. Also, I know the state can make a difference, which is Illinois in this case. I have recently talked to a BK lawyer for a consultation and got some answers, but have more questions still. I may talk to another BK lawyer, but wanted to come here first (also in case this triggers any other questions I can ask the lawyers).
Summary of rough debt #'s:Mortgage debt: around 150k (prop value around 200k)
Vehicles(5):
Mine: 750/mo (45k bal)
Wife $1k/mo (55k bal)
Teen: 350/mo (20k bal) - teen paying the payment
Mine (paid off): 2 vehicles, 1 valued at maybe 8-10 k (possibly less now with the used car market), 1 probably around 1-2k (older but sentimental value)
Personal unsecured debt (mainly credit cards, and some personal loans): 275k401k loans (2 with a total of around 15k)
Public student loans (not sure how these would be handled in ch 13 given all the changes/uncertainty now) - but would still have a balance if partially forgiven
Income and retirement savings:Mine: around 100-110k depending on bonuses
Wife: this gets tricky as she is doing travel nursing (treated as a W2 employee through agency, but works contracts which can vary) to help pay off debt, but ideally would prefer to do local full-time. There is of course an hourly taxed waged with the travel nursing, however part of the money coming in is through tax-free stipends for lodging, meals, etc based on GSA (U.S. General Services Administration) per diem rates. I am not sure how/if the stipend would get factored into the Ch. 13 calculations as she is duplicating her living expenses (you have to in order to get the stipend). Would it count as a marital adjustment subtraction? Would it be another type of expense/subtraction? Or would it all be included as income even though she has to duplicate living expenses and it's a per diem stipend? Or would it not be treated as income at all? If they exclude any of it, would it be for the full GSA published rates? Or only for the actual expenses incurred? Given that the stipend is a big chunk of the overall package (but also goes towards those duplicated expenses), the answers to this could make a big difference. Another factor is that for almost half of the previous 6 months she was out of work due to the reasons beyond her control - potentially this helps lower the calculation of income based on the last 6 months that I believe they look at, but before that, the first half of the year was better, so when we go to file taxes in a few months and show more income over the whole year will that cause any issues with the trustee at that time, even though it would be higher based on older income?
401k balance (related to the options to use it to help pay off debt): around 180k - however after taxes and the tax penatly there would be quite a bit less left over to pay bills. And the obvious issue that it then decimates the retirement savings - but potentially worth it if ch 13 isn't an option (or if it isn't a good option for one reason or another described below)
401k option
If I were to go down that path, I believe the tax hit would be 22-24% depending on the federal tax bracket (but most of it taxed at 24% since it would be adding on top of our income) + 10% federal penalty + 0% IL withholding (I believe IL doesn't tax retirement early withdrawals) so a total of close to 34% total tax which would leave me with around 119k. That would definitely help to pay off debt - however, if my wife goes back to a staff job making less but being home more (which is what our goal would be in any case) then we would likely still have enough debt left that things would be very tight.One potential option is to only withhold 20% tax now and have the remaining amount come due at tax time, then setup a payment plan (I haven't looked into this much, but it sounded like a possible option). The reason to do this is because the additional 14% (~25k) not going to tax for about a year could be used to pay off debt and save approximately 625/mo (7500/yr) in payments, not to mention interest savings. So that could help get us a little farther along.
Ch13 option/questions
If I were to go down this path, it seems like a lot of people recommend it as a good chance at a restart, however, also a long 5 years with other effects, too. Some potential questions I have about that which could influence the decision:
Probably the biggest thing is: while I would be filing by myself - my wife currently has a lawsuit open (she along with some of her relatives are suing another party for wrongful death of a close relative) - would that have any effect on things? or would my ch 13 have any effect on the lawsuit? Would the trustee be able to go after any of that (my wife is the executive of the estate)?
Another big question is around how my wife's job's stipend would be treated (as described above in the part about her income). And about how her current contracts can be inconsistent are aren't really a good long term option - so if/when she goes back to a staff job how would that be treated (Note: if the staff job's rate was approximately the same as the taxable rate of her travel job, just without the stipend, and if the stipend isn't counted against us, then the numbers might be about the same).
I'm also wondering, in general, how doable the leftover money in a chapter 13 we would have will be? I understand that a lot of money can and should go to creditors, but if we end up in a place where for 5 years we can't take our kids on vacation, then that could be a reason to start looking at other options (ie. 401k) - yeah I don't want to have to restart my retirement savings, but I also don't want my kids to miss out on some of the things I'd like to do with them. Is this something I could try to fill out the calculation forms myself on the side and estimate the plan income (of course #'s could change based on details and if I don't fill something out correctly it could throw my estimate off)? And I do want to at least try, but just wondering for a general "feel" of what's left over - is it normally a reasonable amount to live on or is it really tight?
For the vehicles - I believe you're allowed to deduct 2 vehicles (one for me and one for my wife). For the teen's car, which they are paying - how would that be treated? As well as my 2 other vehicles? Would any of that prevent our case from being approved altogether? Would we be forced to sell any (but I thought a ch 13 lets you keep assets)? Or as long as we are paying more than the creditors would get in a chapter 7 (I would think we would) does it not matter about the equity? For the teen's car, there's likely not much if any equity - would their payment be treated as "income" for me even though it's not a car I'm using (but in my name because they are a minor). And if so, would I not get a deduction of any sort because of the other 2 vehicles? Or could it be excluded altogether (income and expense) since I'm not paying for it?
Some other vehicle questions around timing - I believe there can be look backs of up to 2 years on transfer of assets. Both me and my wife got our vehicles through trade-ins around a year ago - would that cause any issues? I also had another vehicle I sold around 1 year and 4 months ago - I used the proceeds (10k) to primarily pay off bills, but I think some to help pay for Christmas presents (I kept the funds in a separate account at first to keep it separate but then did transfer some to my primary account for bills and Christmas presents). Do I need to just explain this, or wait until it's been 2 years?
I believe it's common for people (including myself) to be worried about public availability of the information/knowledge. I think in general it's not as much of a concern (based on what I've read) - however would my manager find out? or most likely just limited to HR (if I have to report it)? Also, I believe the case would be visible in PACER, but does that include all supporting documents (for example bank statements, credit card bills, cell phone bills, etc.) or just the official bk documents?
Are courts still doing virtual meetings or are they back to in-person for bk's?
Are there any other options altogether I should look into? Or any slightly different ways/angles I should approach things? Any other advice?
Thanks in advance.
I don't know if this is the right approach or not, but if it were me I would take out $10k-15k from the 401k, and use it to take some of the pressure off. I'd see how far that goes, and if it doesn't really help I would wait until next year and then take out another $10-15k. Meanwhile I'd start snowballing all of the revolving credit.
bk or not, what is your plan to limit your spending going forward? what is your bare essentials budget, like really bare bones? pausing discretionary spending, pausing retirement contributions, have a "staycation" or two instead of a traveling, etc...
if wife's income is even half yours, 150k+ household income is definitely a healthier income than most. if wife already filed bk and you're on the verge of, something seems amiss with spending.
~300k in credit card and loans seems like a lot of unchecked spending. 100k auto loans (2k monthly!) seems excessive given that.
and I say all this respectfully. relative to my income, I had my own mountain of debt I had to knock down,
but I was able to budget/income out of it in just over two years. I had to make some uncomfortable lifestyle changes, but it wasn't forever.
if for some reason you think public knowledge of bk will affect your employment, I would probably just raid the 401k, go scorched earth budget for another year or two to finish off the debt.
@financialresearch22 wrote:
@SouthJamaica wrote:I don't know if this is the right approach or not, but if it were me I would take out $10k-15k from the 401k, and use it to take some of the pressure off. I'd see how far that goes, and if it doesn't really help I would wait until next year and then take out another $10-15k. Meanwhile I'd start snowballing all of the revolving credit.
Thanks for the suggestion. I had actually been thinking about that some, too. Not sure if it will be enough yet or not, though. But it's something I may consider. I wonder if I did that, but then later ended up having to file bk if there would be any issues about the transfer of assets, or maybe not if I can show it went to bills. I'd be trying to avoid bk though.
That's not an issue. Paying bills is fine. The problem transfers are gifts -- i.e. a transfer without getting something in return. When you pay a bill you're getting a reduction of your debt by the amount you paid.
@financialresearch22 wrote:Hello, and thanks in advance for any help. If more info is needed for any of my questions/situation, I'll see what I can do to clarify.
I'm married with 5 kids and under a mountain of debt. The financial issues are to the point where we need to make a decision about which (likely drastic) way to go. We've tried other things like debt consolidation loans, 401k loans, 0% balance transfers, 0% payment plans with some creditors that went for it (while closing the accounts), increasing income with extra side jobs and travel jobs, but things have just continued to pile up, and I want to find a way to get our financial (and general) lives back. My wife filed chapter 7 a little over a year ago for herself which helped, but we are struggling again as she ended up being out of work for a few months recently due to reasons beyond her control.
Options we are looking into at a high level (and feel free to add other options if there are any):-Chapter 13 for me
-withdraw all (or most) of 401k to pay off debt
-withdraw all (or most) of 401k, but try to settle with creditors
As I think through all the details there are several pros and cons, and also questions, so I'm coming here in hopes of either getting answers to some of the questions that can help me with the decision or to come up with additional ideas/considerations/etc. Also, I know the state can make a difference, which is Illinois in this case. I have recently talked to a BK lawyer for a consultation and got some answers, but have more questions still. I may talk to another BK lawyer, but wanted to come here first (also in case this triggers any other questions I can ask the lawyers).
Summary of rough debt #'s:Mortgage debt: around 150k (prop value around 200k)
Vehicles(5):
Mine: 750/mo (45k bal)
Wife $1k/mo (55k bal)
Teen: 350/mo (20k bal) - teen paying the payment
Mine (paid off): 2 vehicles, 1 valued at maybe 8-10 k (possibly less now with the used car market), 1 probably around 1-2k (older but sentimental value)
Personal unsecured debt (mainly credit cards, and some personal loans): 275k401k loans (2 with a total of around 15k)
Public student loans (not sure how these would be handled in ch 13 given all the changes/uncertainty now) - but would still have a balance if partially forgiven
Income and retirement savings:Mine: around 100-110k depending on bonuses
Wife: this gets tricky as she is doing travel nursing (treated as a W2 employee through agency, but works contracts which can vary) to help pay off debt, but ideally would prefer to do local full-time. There is of course an hourly taxed waged with the travel nursing, however part of the money coming in is through tax-free stipends for lodging, meals, etc based on GSA (U.S. General Services Administration) per diem rates. I am not sure how/if the stipend would get factored into the Ch. 13 calculations as she is duplicating her living expenses (you have to in order to get the stipend). Would it count as a marital adjustment subtraction? Would it be another type of expense/subtraction? Or would it all be included as income even though she has to duplicate living expenses and it's a per diem stipend? Or would it not be treated as income at all? If they exclude any of it, would it be for the full GSA published rates? Or only for the actual expenses incurred? Given that the stipend is a big chunk of the overall package (but also goes towards those duplicated expenses), the answers to this could make a big difference. Another factor is that for almost half of the previous 6 months she was out of work due to the reasons beyond her control - potentially this helps lower the calculation of income based on the last 6 months that I believe they look at, but before that, the first half of the year was better, so when we go to file taxes in a few months and show more income over the whole year will that cause any issues with the trustee at that time, even though it would be higher based on older income?
401k balance (related to the options to use it to help pay off debt): around 180k - however after taxes and the tax penatly there would be quite a bit less left over to pay bills. And the obvious issue that it then decimates the retirement savings - but potentially worth it if ch 13 isn't an option (or if it isn't a good option for one reason or another described below)
401k option
If I were to go down that path, I believe the tax hit would be 22-24% depending on the federal tax bracket (but most of it taxed at 24% since it would be adding on top of our income) + 10% federal penalty + 0% IL withholding (I believe IL doesn't tax retirement early withdrawals) so a total of close to 34% total tax which would leave me with around 119k. That would definitely help to pay off debt - however, if my wife goes back to a staff job making less but being home more (which is what our goal would be in any case) then we would likely still have enough debt left that things would be very tight.One potential option is to only withhold 20% tax now and have the remaining amount come due at tax time, then setup a payment plan (I haven't looked into this much, but it sounded like a possible option). The reason to do this is because the additional 14% (~25k) not going to tax for about a year could be used to pay off debt and save approximately 625/mo (7500/yr) in payments, not to mention interest savings. So that could help get us a little farther along.
Ch13 option/questions
If I were to go down this path, it seems like a lot of people recommend it as a good chance at a restart, however, also a long 5 years with other effects, too. Some potential questions I have about that which could influence the decision:
Probably the biggest thing is: while I would be filing by myself - my wife currently has a lawsuit open (she along with some of her relatives are suing another party for wrongful death of a close relative) - would that have any effect on things? or would my ch 13 have any effect on the lawsuit? Would the trustee be able to go after any of that (my wife is the executive of the estate)?
Another big question is around how my wife's job's stipend would be treated (as described above in the part about her income). And about how her current contracts can be inconsistent are aren't really a good long term option - so if/when she goes back to a staff job how would that be treated (Note: if the staff job's rate was approximately the same as the taxable rate of her travel job, just without the stipend, and if the stipend isn't counted against us, then the numbers might be about the same).
I'm also wondering, in general, how doable the leftover money in a chapter 13 we would have will be? I understand that a lot of money can and should go to creditors, but if we end up in a place where for 5 years we can't take our kids on vacation, then that could be a reason to start looking at other options (ie. 401k) - yeah I don't want to have to restart my retirement savings, but I also don't want my kids to miss out on some of the things I'd like to do with them. Is this something I could try to fill out the calculation forms myself on the side and estimate the plan income (of course #'s could change based on details and if I don't fill something out correctly it could throw my estimate off)? And I do want to at least try, but just wondering for a general "feel" of what's left over - is it normally a reasonable amount to live on or is it really tight?
For the vehicles - I believe you're allowed to deduct 2 vehicles (one for me and one for my wife). For the teen's car, which they are paying - how would that be treated? As well as my 2 other vehicles? Would any of that prevent our case from being approved altogether? Would we be forced to sell any (but I thought a ch 13 lets you keep assets)? Or as long as we are paying more than the creditors would get in a chapter 7 (I would think we would) does it not matter about the equity? For the teen's car, there's likely not much if any equity - would their payment be treated as "income" for me even though it's not a car I'm using (but in my name because they are a minor). And if so, would I not get a deduction of any sort because of the other 2 vehicles? Or could it be excluded altogether (income and expense) since I'm not paying for it?
Some other vehicle questions around timing - I believe there can be look backs of up to 2 years on transfer of assets. Both me and my wife got our vehicles through trade-ins around a year ago - would that cause any issues? I also had another vehicle I sold around 1 year and 4 months ago - I used the proceeds (10k) to primarily pay off bills, but I think some to help pay for Christmas presents (I kept the funds in a separate account at first to keep it separate but then did transfer some to my primary account for bills and Christmas presents). Do I need to just explain this, or wait until it's been 2 years?
I believe it's common for people (including myself) to be worried about public availability of the information/knowledge. I think in general it's not as much of a concern (based on what I've read) - however would my manager find out? or most likely just limited to HR (if I have to report it)? Also, I believe the case would be visible in PACER, but does that include all supporting documents (for example bank statements, credit card bills, cell phone bills, etc.) or just the official bk documents?
Are courts still doing virtual meetings or are they back to in-person for bk's?
Are there any other options altogether I should look into? Or any slightly different ways/angles I should approach things? Any other advice?
Thanks in advance.
I agree with the others here. I would definately just take some out of the 401K and snowball. Put ALL cards into a safety deposit box and DO NOT USE. You have 5 (did I read that right?) cars. Can you sell the ones you do not use? Use the proceeds for debt. I'd say that you should absolutely snowball your debt. Finally, and don't take this wrong, how did it get this bad? Were you overspending? What can you do to not have that happen again? We have all been there, done it. Absolutely bare bones. Absolutely do what you can to generate income. Sell assets/cars/etc and put towards debt. Finally, call each creditor and get on a plan. They'd rather have $$ coming in- some will even modify and you could alternate which ones you could stave off payments while paying some others.
12/22 : 
I really don't like the snowball method, with the amount of debt OP has I really don't like it in favor of avalanche.
blending the aprs and applying it to just the credit cards and loans, OP is hemorrhaging money in interest alone. I suspect it is probably closer to 20% than it is 10%.
| blended apr % | balance (k) | monthly int $ |
| 20 | 275 | 4583 |
| 19 | 275 | 4354 |
| 18 | 275 | 4125 |
| 17 | 275 | 3896 |
| 16 | 275 | 3667 |
| 15 | 275 | 3438 |
| 14 | 275 | 3208 |
| 13 | 275 | 2979 |
| 12 | 275 | 2750 |
| 11 | 275 | 2521 |
| 10 | 275 | 2292 |
I would be really interested to see a spreadsheet with the debts excluding mortgage, just to see an accurate scale of it. something in the form of this might allow for some more specific suggestions:
| limit | balance | apr | min pmt | |
| auto loan 1 | 45000 | ?? | 750 | |
| auto loan 2 | 55000 | ?? | 1000 | |
| auto loan 3 | 20000 | ?? | -- | |
| loan 1 | ?? | ?? | ?? | |
| loan N | ?? | ?? | ?? | |
| credit card 1 | ?? | ?? | ?? | |
| credit card N | ?? | ?? | ?? |
even if OP yields 120k after raiding the 401k, clearly that's only approximately 1/4 of the debt excluding mortgage and student loans.
I am unfamiliar with the details of bk 7 vs 13, but if ever there was a argument for total discharge, this might be it if OP chooses to go that route.
whether the journey to this point was overspending or "no fault" of their own, there is likely a lifestyle change coming for OP.
Many of the RN's left the ER where I work PT for 5000 to 7500 a week contract jobs. NICU/ICU mostly around the country. $200+ an hr most places. 6 month contracts. If she could get in the right place. Money! Here Trauma RN's at the trauma center work thier day off with shortages. $1000 for the 12 hr shift bonus. Its out there. Just have to find the right place. 275k debt. The 10-15k 401k thing wont go far. JMO. DW can bring home 10g's a month or more. That will change things. Have a campfire out in the back yard and make some Smores. Nice family time. Then. Burn your cards while your at it. Doesnt cost anything. Talk to a lawyer about a 13. Weigh your options. Good Luck!
