Negative net worth.

[b4freedom]

I was helping out a friend (and wife) figure out their financial situation. It was very bleak. To sum up, they have:

$70k+ in credit card debt (various rates)
$8k loan on a time-share @ 16.75% (You could buy the same timeshare for about $1500 at a discount websites).
$210k mortgage. They tried to get a third HELOC, or refinance, and the house only appraised at $180k. They have variable interest rate. I'm too embarrassed to tell you how high.
$10k car loan on a car that no longer runs, sits in driveway, needs new engine.
$8k car loan on a car that was totaled and is long gone
$15k on the car they drive now (I'm certain it's not worth $15k)

Basically, the own two things: 1) Debt 2) A house full of junk.

Here is the worst part: They just took a vacation to Disney world. Neither one has a “real” job. He is doing some “consulting” that pays erratically. They are rarely on time with their payments.

I have several questions:

1)Why do they still get credit from credit card companies?
2)What do you think they should do?

I wasn't sure what to tell them. Some guy tried to sell them some sketchy method of not paying debts, except mortgage, and then waiting for several years for the companies to get tired of harassing them. The guy wanted $1500 to show them how to do this without declaring bankruptcy. Totally sketchy. Hopefully I talked them out of that.

They asked about bankruptcy. But, they both have masters degrees. I think that if they both worked (no reason why they can't – kids are raised and out of the house) they could pay off the debts (except mortgage) in 5 to 7 years. They'd seriously have to work and get normal jobs.

Somehow, I don't think that'll happen.

[sweeps]

Play the lottery?

[creditcardfree]

Work. Work a lot.

Sell their stuff. Maybe all of it!!

Last I heard you really couldn't buy yourself out of debt.

I feel for you in trying to help your friends. I have a dear friend who just doesn't seem to get that all that debt is risky and impacts the future. I'd tell them not to file bankruptcy. I'm sure you are right about paying most of it off in 5-7 years. They just need to take it one step at a time and keep working.

The question is how tired are they of having all the debt and are they willing to work hard to turn it around?

[tabbycat31]

I think that they have to *WANT* to get out of debt before any advice could help them.

I would take all taht stuff and sell what they can, and have them both get back to work (easier said than done since I am out of work).

And have them read DAve Ramsey's "The Total Money MAkeover"

[TinyFish]

That's a sad story. How did they end up so upside down on the house? Just unlucky enough to be in an area that didn't get the real estate 'bubble'? Sounds like they need serious financial CPR. I guess whether or not to declare bankruptsy would depend on what kind of income they could possibly make in your area.

CCard companies probably figure they are making enough payments to make it worth the CCard company's money.

Sounds like they need financial CPR, or a wake up call. Are they in Florida? Maybe they could sign up for that Big Spender guy's show.

You are a good friend to help them out. I hope when you pointed out their situation they realized what they were doing wrong.

-TinyFish

[Bookie]

Your friends are living in a house of cards that probably isn't sustainable, judging from the information provided. My guess is that they will find themselves in bankruptcy court at some point.

They remain "credit worthy" because lenders would rather carry their accounts as assets than pull the plug and accept the loss. So long as they can manage to make the payments, late though these may be, the illusion of viability can be maintained. I've seen people string the process along for years before their debt-leveraged livestyle collapsed.

[yellow heel]

Wow, how did they get in that mess?

[PRICEPLUS]

The situation you described is a tradgedy in the making. The way it is going they may have no choice but to declare bankruptcy. The interest payments alone are a killer.

[autoxer]

Originally Posted by b4freedom

They asked about bankruptcy. But, they both have masters degrees.

It doesn't matter if they have doctorates, they are barely treading water. They can't really sell to downsize. They can't sell the house because they owe $30k more than it is worth and they can't even sell the car that still runs if they are under. The lein won't release the title until they get paid. Those debts are costing probably $4k in interest and late fees each month. They need to go see an accountant and an attorney to consider bankruptcy. If they ignored the problem for a long time, I don't think they can turn it around that quickly.

[Broken Arrow]

Wow. Thanks for making me feel better about MY negative net worth.

Originally Posted by Sweepsplayer

Play the lottery?

Now that's funny, right there!

[disneysteve]

Originally Posted by b4freedom

$70k+ in credit card debt (various rates)
$8k loan on a time-share @ 16.75% (You could buy the same timeshare for about $1500 at a discount websites).
$210k mortgage. They tried to get a third HELOC, or refinance, and the house only appraised at $180k. They have variable interest rate. I'm too embarrassed to tell you how high.
$10k car loan on a car that no longer runs, sits in driveway, needs new engine.
$8k car loan on a car that was totaled and is long gone
$15k on the car they drive now (I'm certain it's not worth $15k).

I'm not so sure they can get out of this hole without filing for bankruptcy, but here's what I would suggest in the short term.

1. Destroy the credit cards and don't ever use them again. Call each card company and request a lower interest rate.
2. Sell the time share. Even if they only get $1,500 for it, it would reduce their debt by $1,500. Every little bit helps.
3. Get rid of the variable rate mortgage and lock in a fixed rate if possible to at least stem the bleeding there.
4. Sell the car that doesn't run. A friend of mine just got $2,200 for her car that needed the engine replaced and hers wasn't worth anywhere near 10K. The car is worse than worthless to them now so whatever they get for it would help lessen their debt.
5. I'm curious about the 8K car loan. Were they uninsured when they totaled it? Why didn't insurance take care of that one?

Most importantly, they both need to get jobs! With no regular income, there is no way they can possibly hope to repay all that debt.

[LuxLiving]

Sweepsplayer - you are a hoot!!

But, I have to disagree w/the bankruptcy thing Autoexer. It says that they aren't working up to their potential...so because in some capacity they are lazy then the creditor should suffer a loss??? I don't think that is morally right!

They dug their hole, now they should dig themselves out of it. Stop vacationing, sell the junk, get regularly paying jobs, batten down the hatches, tighten the old belt a notch or two, cancel the cable, stop eating out, QUIT DEBTING and do the right thing and pay their creditors what they owe them. No one held a gun to their heads and made them take on these bills! Get that house and car rightside up and then sell the suckers! Or see if they can sign the house back over to the lender w/a Deed In Lieu of Foreclosure.

GRRRRRRRRR - Sorry if I'm offending some of you but my parents took a major hit on their property that they were counting on for their retirement when they held the note on the sale of 900 acres. The deadbeats made ONE payment and were able to hang on for over a year before folks could get them out and then they filed bankruptcy and it stopped the foreclosure proceedings for over another year - meanwhile my folks were w/o that income for two years. YES - they checked their credit before they sold. Good debtors gone bad. Took years off my parents life - saw them stressing and aging about it daily!! Finally one good lawyer and a decent judge later they got their property back and resold it and are now enjoying a nice retirement. Not as healthy because Dad had a stroke and a heart attack in those two years. Who is to say what caused it, but I do strongly believe those deadbeats contributed mightily to the decline in his health!

I also was a collections specialist for years so I'm also geared that way. BUT shoot fire those friends of his are doing nut'in but leeching at this point. Bankruptcy - NO WAY! Shoot, get out there and work two jobs a piece, pick up cans, do whatever it takes - start bailing the water and turn that sinking ship around and head back to shore!!! OMGosh - I am so intense about this subject. Sorry! But my motto is "Debts you made 'em - Debts You Pay 'em!"

You made my blood pressure go up just thru the roof by merely suggesting bankruptcy for these people! Good grief, it is there for people who have medical emergencies that wipe them out - not some layabout nogood!!! You wouldn't suggest it if you had watched your Dad with a feeding tube down his throat in ICU because some scank won't pay what they AGREED TO PAY. You just wouldn't suggest it! R.E.A.L.L.Y. - you wouldn't!!

[sakigt]

I agree LuxLiving. My mom worked VERY hard to repay all of her debts without filing for bankruptcy. When lenders would call to harass her about how late everything was she would always say: "At least Im not filing for bankruptcy...be patient, I WILL pay you back."

And she did.

If one consultant is more successful than the other Id suggest one of them get a "real" job with a consistent income. What a terrible situation to be in.

[Fern]

Many people declare bankruptcy with MUCH less $$ in debt. I am the first one to say take responsibility for your actions, but with that kind of debt it nearly seems a lost cause unless they take drastic action with a debt counselor immediately.

[Ima saver]

I have to agree with you Lux. Those people have master's degrees, they should both be out working as hard as they can and quit going on vacation, charging, etc.

[autoxer]

Originally Posted by LuxLiving

But, I have to disagree w/the bankruptcy thing Autoexer. It says that they aren't working up to their potential...so because in some capacity they are lazy then the creditor should suffer a loss??? I don't think that is morally right!

I agree with you. I don't think that it is morally right either. I know they have made quite a few mistakes, but there is some degree of predatory lending in there which I also think is morally wrong.

Originally Posted by b4freedom

1)Why do they still get credit from credit card companies?

If somebody has way too many credit cards and a bank reviews their credit report, they calculate their odds of turning a profit. They've realized their odds of profiting are still pretty good with those ridiculous interest rates, even if the debtor defaults. Then after the default they sell the rights to collect that debt to a collection agency. The credit cards & subprime mortgage lenders aren't really suffering or they would tighten up their lending practices.

[b4freedom]

After thinking about it last night, I think they are just lazy and living in denial.

The house is worth less because it’s not taken care of. For example, a window “fell” out. I’m not sure how it “fell” out, but I looked at it and it only needs 2 screws and a little calking to put it back in and it would be as good as new. I can help them with that. It fell out over a year ago and they just taped a plastic sheet over the window opening and closed that room. They said that in the winter it would get freezing cold in that room.

They are both in a high paying areas and capable of earning at least $60k each. Both of them used to earn over $80k+ each before they both quit a few years back. But neither one really works now. She tries to do some MLM gimmick that waste times and losses tons of money. He does some consulting, which means that he gets a pay check every three to four months for $5 to $15k (he has to pay his own taxes, which he doesn’t). It doesn’t take him a lot of actual time; he can do that in the evenings or weekends.

They took a vacation to get away from the stress; the stress of the mess that they created for themselves.

They don’t work! Both of them can work! I’m sorry, but this part really gets me.

At one point, I asked them, “What do you do all day?” They sort of gave me a blank look and talked about church, MLM, errands, cleaning, blah, blah, blah. Well, they don’t clean because the house is gross. I think they just putts around all day.

The cars: The one in the driveway needs a new engine because they never changed the oil. They said that they didn’t have the money to change the oil. It’s ironic how they had the money to go on vacation. The other one was totaled in a car accident, the insurance covered the value of the car which was less then what they owed on the car. They were pissed and stop paying so all the fees keep adding to the balance.

I think that if they could each get a job and collectively earn $100,000 between the both of them; they could seriously bang out their debts in about 5 years. But, I seriously doubt they’ll do it.

Anyhow, the more I think about it, the more I grow angry and disgusted. Now, I’m not sure why they asked me for help. I think that they think I have a ton of money and could provide them with an easy solution. They couldn’t be more wrong. I just don’t waste my money; I save it for when I really need it. I’m afraid my solution isn’t easy: work hard and spend less then you earn.

[disneysteve]

I think this couple needs psychiatric care. Seriously, there are some major things going on there. Two well-educated folks who gave up high paying jobs and now do basically nothing. That just isn't normal behavior.

[greedy4chips]

I think you hit the nail on the head...they are too lazy!!!!!!!!!

Basically it's just the two of them in the house and they have a responsibility problem. Can't maintain the cars, house, jobs, etc.

All that can happen here is you will no longer be their friend if you choose to be honest and tell them what they need to here, grow up and get some jobs and pay off the debts!

Are they addicts of some sort? Or depression has taken them both! I say that because I went through and still have periods of time in my life that I can honestly say I am worthless and useless. This isn't the depression, but the realization after it has passed.

Bankrupcy won't cure their future debts, and will most likely increase them!

[sweeps]

But if this couple does need psychiatric help, then that would classify as a medical condition, right? Therefore would that make it ethically acceptable for them to declare bankruptcy?