What should I pay off/pay on first before applying?

[Anonymous]

I've posted this elsewhere but no feedback, (I think it was in the wrong forum) so I'm trying here.

Without getting into all the personal details (very short version - divorce, job loss twice in one year, moved),

I wrecked my credit.

My husband and I have been offered to buy a family member's home (which we are currently renting, rent is on time, since Summer 2016), for $150k (less than current market value - since we won't need to use a realtor). Houses in the area (PA) for this same type of house run $160k - $200k. So I don't think we'd have an issue with appraisal.

My husband has an auto loan in good standing with Wells Fargo (current balance $5900), and 4 credit cards, all never late but at about 90% utilization (he's working overtime as soon as the weather gets better to put that money towards paying those down). No other debt, no lates, charge offs, etc but his score is about 530-540 - I'm assuming because of the maxed out cards (totalling about $5k). He makes about $42k per year.

Me? I'm a different story (hot mess express....ugh)

Here is where I stand right now:

Laid off twice in 2014 and 2015. 2016 found a job making about $30k per year (part time that went to full time).

Found new job in Fall 2017 making $40k per year and this is a guaranteed job for at least 4 years.

 Credit score about 500-520.

- About 5 credit card accounts, all charged off, totaling about $2500 - $3k, all 3 - 4 years charged off.

(Cap one, Credit One (sold to Midland who tried to sue me and it was dismissed. never heard back from them and Midland isn't reporting, just Credit One showing sold account), Barclays and Synchrony)

- One credit card account, about $5k, charged off, only about 2 years charged off, had made some payments

about a year and a half ago. They stopped pursuing payment after sending a few lump sum settlement offers

and some weird refund checks from some sort of settlement (about $300 worth). This was NFCU.

- Two judgments. One I am currently paying on (judgment #1), as it was a consent judgment. It's been on time (court date last year).

The other (judgment #2), they stopped pursuing wage garnishments after going after old work addresses pulled from my credit report. Judgment about 3 1/2 years ago.

Neither judgment showing on my credit report, however the original creditor's trade line shows charged off.

I have student loans, however never shows late/is in forebearance or grace, as I'm back in school to finish my bachelors (which I will then make probably about $15k - $25k per year more if I stay where I am) and that will be another 2- 3 years to complete part time.

Our rent is reasonable (is about what our mortgage would be with property taxes if we were able to buy it) and we pay on time. ($850 per month)

Assets - about $20k in 401k combined. No real savings and checking.

I've done tons of reading, met with credit counselors, my bank (Wells Fargo) and my bank's mortgage person, read other forums, talked to BK attorneys (of course all say oh yeah go ahead and file! It runs about $2k in my area).

I don't want to file BK if I can help it. I got myself into this mess and not sure I can just pay one fee and let it just go away.

Here is the advice I've been given:

1. I've been told to try and settle those charged off cards - all of them.

2.I've been told not to settle the cards that are charged off more than 3 years because it will tank my credit due to showing a current charge off, unless I can get a pay for delete.

3. I've been told to keep paying on the one judgment I have been, and then try and contact the other judgment's lawyer to try and settle for making payments for "today's balance" and not accrue more interest and in exchange they don't immediately attach my bank account or garnish my wages.

4. I've been told to file BK Ch 7 and be done with it all, then wait two years to purchase the home.

5. I've been told to file BK Ch 13 if I felt I had to pay something - and then after a year I could ask the court to purchase the home.

6. I've been told #5 is wrong because no court would allow me to do that.

7. I've been told to keep paying on the first judgment, enter into a payment arrangment for the second judgment, show payments on time for a year; forget paying or settlement on anything charged off over 2 years - the one that is more recent try and do a lump sum settlement (the last offer was $1800 that they sent). That the mortgage companies *could* possibly make me settle/pay the old charged off in underwriting but likely won't. After a year of paying on both judgments (and proving the payments), showing the settlement on the one credit card, the mortgage company likely will work with me on a mortgage.

8. I've been told I'm screwed and will never own a home, and I need to forget about all of it, wait 7 years for it all to fall off, hope the one judgment goes away after ten years, and keep paying on that one judgment to keep from getting garnished, and just let my husband get the mortgage.

Thoughts? Suggestions? Are any of these correct?? Are all these wrong??

Should I just forget about it for myself, work on getting my husband's vehicle and credit cards paid down and just have him apply?

Should we both apply? Are we insane for even thinking we can do this?

My goal of course is to somehow be able to buy this house within the next 2 years. I've already disputed any obsolete,incorrect, etc tradelines, so this is what I'm left with. I know we need to get our scores up, so I don't want to do anything to jeopardize making the scores worse. I appreciate any feedback as to what direction we should proceed. Thank you.

[Anonymous]

@Anonymous I don’t think it’s impossible for you to own a home, but you have a long road ahead of you. There isn’t going to be a quick fix here, you must be diligent and planful. 

I would start with the judgements (get those paid off ASAP). 

BK could be an option for you if you choose. If you decide to go this route, there should be a solid financial plan to avoid default in the future (savings and frugal budget). 

[VALoanMaster]

I've done tons of reading, met with credit counselors, my bank (Wells Fargo) and my bank's mortgage person, read other forums, talked to BK attorneys (of course all say oh yeah go ahead and file! It runs about $2k in my area).

I don't want to file BK if I can help it. I got myself into this mess and not sure I can just pay one fee and let it just go away.

Here is the advice I've been given:

1. I've been told to try and settle those charged off cards - all of them. - This is a good option for 2 reasons. 1) "Charge off" is the status of an account & it happens to be a derogatory one so if you change the status from negative to positive (paid, zero balance) it will increase your scores. 2) As you've already found out, the creditor can sell your account to a collection agency (CA) even though it's been charged off. This ends up double dinging your scores once the CA starts reporting & you now have two trade lines to fix. Get the settled before they are sold & become a bigger problem. 

2.I've been told not to settle the cards that are charged off more than 3 years because it will tank my credit due to showing a current charge off, unless I can get a pay for delete. - See above. This advice would be more appropriate for collection accounts.

3. I've been told to keep paying on the one judgment I have been, and then try and contact the other judgment's lawyer to try and settle for making payments for "today's balance" and not accrue more interest and in exchange they don't immediately attach my bank account or garnish my wages. - I'm really not sure what the best course of action is when it comes to judgments but do you really want to worry about them seizing your bank accounts or garnishing your wages? This one be one of the primary reasons why I would strongly consider BK if I were you.

4. I've been told to file BK Ch 7 and be done with it all, then wait two years to purchase the home. - I would seriously consider this option. Look at this way. You can file BK & be done with all of this in 3 months, give or take. That gives you the next 21 months to re-establish/build your credit so you'll be ready to buy your home once your BK has been discharged for 24 months. Here's another reason this option makes sense. It's almost impossible to increase your scores when you have derogatory accounts reporting every month. Sure you might see some improvement but overall it will take until all of the derogatory accounts have been resolved & stop reporting before you see significant improvement.

5. I've been told to file BK Ch 13 if I felt I had to pay something - and then after a year I could ask the court to purchase the home. - This is also an option.

6. I've been told #5 is wrong because no court would allow me to do that. - Not true. As long as it makes sense trustees will approve it.

7. I've been told to keep paying on the first judgment, enter into a payment arrangement for the second judgment, show payments on time for a year; forget paying or settlement on anything charged off over 2 years - the one that is more recent try and do a lump sum settlement (the last offer was $1800 that they sent). That the mortgage companies *could* possibly make me settle/pay the old charged off in underwriting but likely won't. After a year of paying on both judgments (and proving the payments), showing the settlement on the one credit card, the mortgage company likely will work with me on a mortgage. 

8. I've been told I'm screwed and will never own a home, and I need to forget about all of it, wait 7 years for it all to fall off, hope the one judgment goes away after ten years, and keep paying on that one judgment to keep from getting garnished, and just let my husband get the mortgage. - See #4 above.

[CreditCuriosity]

I highly doubt BK7 is even an option with what you two make so BK13 would be the only option.  With what you to make based on debt I doubt the courts would allow a BK7.

If I understand Husband 42k salary 5k debt and OP at 40k salary at 15K Charge off/CA debt?  So 82k between both of you and 20k in debt.. BK7 IMO isn't an option if I read the numbers correctly and BK will not get you out of student loans.  Also have no clue whether BK gets you out of judgements which I assume is above the 15k in CO/CA's.

[Kree]

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@Anonymouswrote:

My goal of course is to somehow be able to buy this house within the next 2 years. I've already disputed any obsolete,incorrect, etc tradelines, so this is what I'm left with. I know we need to get our scores up, so I don't want to do anything to jeopardize making the scores worse. I appreciate any feedback as to what direction we should proceed. Thank you.

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Two years is plenty of time to get your scores up.

As for the bankruptcy talk, I tried reading all of your post twice, but there is a lot of information there. So I appologize in advance if I misread it.  But from what I gather, between you and your husband, there is only about 15,000 owed, (not including cars or student loans). Is this correct?  

Also, you make about 80k a year combined correct?  Could you let us know of any other monthly expenses other than the car, the rent, and whatever your credit card payments are?

Thanks for clarifying those three points.

[jlitnns]

I'm in the same boat with others...there really doesn't seem to be a lot of debt involved to even consider BK. You have pretty strong income and should be able to knock that out quickly. Especially with the charge offs, you should get those settled and move on. You can easily pay off $15-20k in debt in a year or less depending on other expenses of course.

I just don't see a reason for BK with that debt load and income. Keep your head up.

[Anonymous]

Thanks for all of the replies.

To clarify/give more detail:

The salary amounts are what I would expect us to hit by year end. Just looked over last years taxes, and we were at 73k combined. My husband's salary can fluctuate, depending on weather (he's in construction). For instance, he lost about 4 days during the last snow storm. so bad weather can knock out a week's pay fast.

My husband will not (and refuses to consider) do BK. It would just be me. I know they consider spouse income though.

Our rent is $850 per month, but utilities (electric, water/sewer) runs about $300 per month. (and we're actually really frugal about it - whole house has baseboard heat ugh).

Other debt: husband's truck: $6500 balance off the top of my head. He also has a bought and paid for truck.

I have an SUV that has a lien on it (that's the judgment I'm paying on currently) - I asked the finance company to repo it back when things were really not good (job loss, etc) but they refused. I finally stopped paying (hence the judgment) and they still wouldn't get it. I spoke with several BK attorneys, all who gave me different advice if I file BK7 and what to do with the vehicle. (I have no emotional attachment on it).

Car insurance - about $250 per month (2 of the 3 vehicles have to have full coverage due to the loans).

Daycare (before/after school during school year - $125 per week, during summer $200 per week)

Student loans (I know they are not dischargable, but not sure if the court would consider them) are about $65k.

Most of the BK attorneys I spoke with told me I could likely skate by on Ch7. None suggested Ch 13 unless I wanted to keep the SUV or had a strong conviction to pay everything back. But I'm guessing with the change in job that will probably change. I do have two more local BK attorneys I'd like to speak to, so that's probably the best thing to do when/if I consider BK.

I appreciate the feedback.

[Anonymous]

(duplicate sorry)

[Anonymous]

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@jlitnnswrote:

I'm in the same boat with others...there really doesn't seem to be a lot of debt involved to even consider BK. You have pretty strong income and should be able to knock that out quickly. Especially with the charge offs, you should get those settled and move on. You can easily pay off $15-20k in debt in a year or less depending on other expenses of course.

I just don't see a reason for BK with that debt load and income. Keep your head up.

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Thank you, it looks to be more like $23k but I'm thinking *if* ( a big if) I could settle some of the charge offs for very cheap (25%), it might not be "as bad".

It's the judgments that scare the beejezus out of me. I live in a no-garnishment state, but they can find my bank account and freeze it. I guess I could just find another bank but still.

The one judgment I'm paying on - it's linked to my one vehicle, but I would have to pay it off to even get rid of it. If I BK Ch 7, I'd be done with it.

I have another vehicle paid for (not in my name) to use. I've been paying that on time, and it would be almost paid off within 2 years (possibly paid off before 2 years if I pay more on it) so I could show that to any lender.

The second judgment, I have tried to settle it, start paying on it (without them trying to lien my account), and either they won't respond or not interested. They want all the money, or if I start paying, they'll just pursue garnishment of accounts immediately. I don't know how to possibly deal with them, unless I hired an attorney to do it for me (which would then cost more money).