Hi everyone - I have searched through and read countless posts on this forum and want to say thank you to everyone who contributes. I've tried to find a situation close to mine so that I wouldn’t be repetitive but wasn’t able to find something representative. I would really appreciate all opinions on how to be strategic about the current mess I find myself in. I know I made some silly mistakes, and believe me, I have learned from these lessons, but I am trying to be solution-oriented going forward. I've listed my circumstance below as well as the potential options and routes to take. Can anyone please offer me their opinion on how they'd tackle this?
To paint the picture, I will jump back to my credit profile on March 1, 2021:
Scores 750+ across all three agencies
Credit limits: 130k+
Credit Utilization: 30k
Student loans: 40k
401k: 110k
Income: 170k/yr
At the end of that month, I purchased a multi-family home for 370k. There was a tenant acquired with the property who had 12 months prior rent roll with no late payments. The other unit was empty and I lived in the top unit. I also took personal loans of 120k to fund medical procedure for a wealthy family member overseas. They promised to pay back the loan and all indications of their lifestyle and honor gave me no indication they would defect. They paid for the first 6 months. Lesson learned.
In July 2021, I left my job to attend graduate school full-time. I was on a 90% scholarship, so I did not have to incur any debt.
August 2021, my tenant on the second floor stopped paying their rent. We are in a tenant friendly state that had eviction moratoriums and court closures, which they weaponized. I was unable to evict this tenant until March 2023, and they did about 20k in damage over this time. I did not receive a penny of rent in that time frame and because they are on state programs, I cannot recoup any of my losses.
October 2021, the first-floor tenant also stopped paying their rent. The state made me whole, albeit 7 months later, so I used my credit-cards and took student loans to help me cover the gaps. This tenant is now not paying their rent and I am in the eviction process with them.
The house has appreciated almost 200k since purchase and is in an area that is seeing an increase in gentrification and massive development. I am confident it will be worth another 300k in the next 5 years.
The job offer I was guaranteed upon finishing graduate school needed to push back their start date until December 2023 instead of the agreed upon June 2023, due to the economy. Not knowing the benefits of chapter 13 nor anyone who could properly advise me, I emptied my 401k over the two years to help me stay above water thinking in June 2023 I could earn an income and fight back through everything. I'm first generation in almost everything so I didnt have someone to lean on and learn from. I've now exhausted the entirety of it and have multiple 90d lates or charge-offs pending. I made some dumb mistakes and I recognize that - I would just like to figure out a path forward that doesn’t massively hamper my life whilst giving me a fighting chance to fix things.
Fast forward to today, I now have the following profile:
Credit Score: 400
Unsecured credit-card debt: 125k (Chase 40k, Amex 33k, BoA 25k, Discover 4k, Cap1 10k, Misc Cards 13k)
Unsecured personal loans: 100k (SoFi 60k, LightStrm 40k)
Mortgage: 328k (Monthly: 2500 - Currently behind but processing partial claim with payments to resume in March)
Home Equity: 200k
New Job as of December 2023: 190k salary (8k net monthly)
One personal loan charged off yesterday - The amount owed is 60k. I called them and they notified me to give it 30-60 days in the mail to know who bought the debt. The other personal loan will charge off EOM. My minimum payments were about 5200 if I included the personal loans prior to charge off.
The other credit cards charge off between 1/31/24 and 3/31/24. My understanding is I have four options. I would appreciate opinions on how to tackle this given the high-salary that I can use to help reposition myself and fix my life. I do not have kids nor a wife currently but may be marrying in the next two years which is why I want to avoid bankruptcy. With the equity in the home, I cannot file Chapter 7.
Option 1: File Chapter 13. Wipe the entire slate and start clean. Expect payments between 3000-4500 per month as per feedback from bk lawyers. My understanding here is my credit will rebound in 2 years and be fully back to normal in 7. 4500+2500 in mortgage (assuming worst case scenario with tenants) will put me in quite the crunch as I work in a high-turnover industry).
Option 2: Debt Management Plan & side settlements - Anywhere from 2700-3000 per month. Pay SoFI and Lightstream outside of plan. I can pursue settlements with creditors on my own. For example, Lightstream will allow me to do a 40% settlement and then break the payment into 6 payments. I can get ahead with them, pay it off, and pursue similar with SoFi (or the new owner). I do not understand how "settled for less" whilst having multiple 90d lates or charge-offs on my credit will impact my rebound in 2-3 years time. I have some lump sum cash now that I started working and am not paying the credit card minimums anymore.
Option 3: Continue to let things head towards charge-off across the board. Save cash - pursue settlement and pay off larger balances & fight lawsuits where possible. Once settlement or settlement payoffs are complete, file Chapter 13 and have a lesser payment that allows me free cash to operate.
I’ve seen arguments for all three options in various different areas of the website. Curious your thoughts. Thank you so much in advance.
