Is Bankruptcy the only answer for me?

[Gailete]

Your credit will take a hit in the short term

No matter what she does her credit score is taking a huge hit and probably falling like a boulder in water. That would be the least of my concerns.

Until you get another job to help out, lots of blogs out there that you can read about other's crawling out from under that same burden. Also you might want to sell what you can on-line and I'm not recommending eBay which is very problematic for many of the sellers there now, but on Amazon you can resell all sorts of things and I sell on ecrater which you can list on for free and you might have to pay a .29% selling fee, but it is an easy place to list on and you will need to promote your store, but if you got a blog going and flogged your stuff there with a link to its listing on ecrater you might be able to sell things that you never knew you could. In other words do a write with pictures about whatever you listed that day to help get you out of the dog house financially and the direct link. Just some suggestions for making some money without basically leaving the house.

[hamchan]

Mine went down a whole 40 points. By one year after my discharge I had it rebuilt to a higher score than I had before filing, and have added another 50 points in the last year since. I have found that the effect on your credit is vastly overstated, usually by people who do not have any personal experience with bankruptcy. If you already have a lot of late payments and accounts in collections you will rebuild your credit faster with a bankruptcy than without one. And regardless of what Ramsey says, your credit score does matter. Even if you do not plan on opening any new accounts. I was also able to get unsecured credit less than a month from my discharge, and that is pretty common these days.

[AnotherReader]

Too Complicated for a Forum

soapgal04:

It's possible bankruptcy is your best option, but your situation is very complicated and the advice being given here is not necessarily appropriate for your specific situation. Some of it is just plain wrong.

First, you need to consult with an experienced, competent bankruptcy attorney. You want some one that knows whether you need to file in your particular circumstances, not someone whose only goal is to get you to file. A good one will help you fend off creditors while you and s/he sort through the issues.

Second, there are two types of bankruptcy, Chapter 7 and Chapter 13. Chapter 7 will allow you to wipe out most of the debt. Chapter 13 requires a payment plan. You would prefer to avoid a Chapter 13 if possible. In fact, you would prefer to avoid filing altogether, and you may be able to do that through settlement and other techniques. This is why you need a competent, experienced attorney.

Third, you are a party to a divorce settlement. You may have obligations under the settlement. It is important that you review the divorce settlement with the bankruptcy attorney. You don't want your ex hauling you back into divorce court for non-performance.

Fourth, you have no equity in the house and it's costing you too high a percentage of your income. Is your ex-husband on title? Is he on the loan? Was the house made a part of the divorce settlement? If the house and the loan are in your name only, a short sale may be the best option. Again, if this is the case, how to time the sale should be based on your attorney's advice. If your husband is still on title and/or on the loan, and the house is specifically addressed in the settlement, a short sale could be much more difficult. The attorney will suggest options in this case.

Fifth, once you retain a bankruptcy attorney, you no longer talk to your creditors. The only thing you say is I have retained an attorney to handle this, and his/her telephone number is X. Unsecured creditors will stop calling and writing you after they learn you have retained a bankruptcy attorney. Generally, they will not sue you, because they know if they get a judgement, that will trigger the bankruptcy petition and their efforts will have been wasted.

Sixth, talk to the IRS about setting up a payment plan. If the ex did not handle the taxes correctly and you were unaware of his misdeeds, you can try for penalty relief as an "innocent spouse." This is complicated, and the bankruptcy attorney can probably refer you to an accountant or tax attorney if a lot of money is involved.

I have watched a number of people go through this after the recession. One in particular is relevant to your situation. He retained a bankruptcy attorney over six years ago and still has not filed. In the interim, he paid off or settled his wife's medical bills for over $100k of uninsured cancer treatment. He paid off or got rid of the cars. Because the credit card companies never sued, the statute of limitations expired and they are barred from collecting. He is now working on settling the second on the house.

So yes, it's possible to avoid bankruptcy or get through it with less damage than most folks by getting a good attorney that understands the process and is committed to helping you. I urge you to find one immediately and get started on solving your problems.

[dczech09]

soapgal04:

It's possible bankruptcy is your best option, but your situation is very complicated and the advice being given here is not appropriate for your specific situation. Some of it is just plain wrong.

We have given soapgal04 GENERAL advice based on the information that was shared. If you have a problem with anything that any of us said, then let's hear it. This is public forum for educational purposes, so if anything that we have advised was just "plain wrong," then please elaborate and explain. But please do not call anything we said wrong without supporting yourself. It is rude and not very helpful as we are trying to help this person.

Of course it is recommended that she ADDITIONALLY seeks the services of a competent bankruptcy attorney. That goes without saying on a public forum.

Thank you!

[AnotherReader]

The issues are numerous. Some suggestions, as rotating payment of creditors, are egregious.

Your financial advice generally makes sense, except I'm confused by your inclusion of $1,000 for the payment of personal loans in the proposed post-BK budget. My experience is that personal loans are usually discharged in bankruptcy (leading to a lot of broken relationships with family and friends...). Am I missing something?

My concern is she needs advice beyond this, advice that's tailored to her specific situation, especially with regard to the bankruptcy. She's already made at least one unfortunate choice to pull money from her 401k to try to keep up with the payments. The divorce settlement may complicate the bankruptcy filing, and there may be joint accounts with the ex, it's not clear. The help she needs is beyond what a forum can provide. The best advice I can give is to get competent, professional help, and to do it now.

[dczech09]

The issues are numerous. Some suggestions, as rotating payment of creditors, are egregious.

I gotcha. Yes, I do disagree with that item in general. However, that is how you manage these types of expenses in crisis. If you cannot possibly pay all of them, then pay the ones that you can. So in spirit of the post, I know what the poster was getting at.

Your financial advice generally makes sense, except I'm confused by your inclusion of $1,000 for the payment of personal loans in the proposed post-BK budget. My experience is that personal loans are usually discharged in bankruptcy (leading to a lot of broken relationships with family and friends...). Am I missing something?

That was a mistake. I apologize. Yes, that should be a dischargeable item. So that would free up $1,000 more in her budget.

My concern is she needs advice beyond this, advice that's tailored to her specific situation, especially with regard to the bankruptcy. She's already made at least one unfortunate choice to pull money from her 401k to try to keep up with the payments. The divorce settlement may complicate the bankruptcy filing, and there may be joint accounts with the ex, it's not clear. The help she needs is beyond what a forum can provide. The best advice I can give is to get competent, professional help, and to do it now.

I agree with this in general. Bankruptcy is definitely a very complex topic that requires specific advice and I do recommend that she seeks out that advice. However, she came to the forum as a "first stop" before she goes any further, so we provided her advice that she asked.

And I don't think anyone here would argue that the 401k withdraw was an unfortunate decision. But what is done is done.

[AnotherReader]

I changed the wording to "not necessarily appropriate..." Not trying to say everything said is not appropriate. Just that the OP needs professional assistance and she needs it ASAP.

[Gailete]

The OP needs more help than just a good bankruptcy lawyer. She needs help in learning to live on less than her income, how to NOT make the same mistakes that got her in trouble in the first place. The divorce sounds as if it took place recently and I would assume with a lawyer but I would question their competency if her finances are this messed up post divorce as many of these issues should have been addressed during the divorce proceedings themselves, most especially the house. No way in the world can anyone make ends meet if their house payment alone is almost half their income. thus my recommendation to live as cheaply as possible as soon as she can get rid of the house. git rid of everything possible that she can sell, even if she does it at yard sale prices (generally about 10-20% of retail). As part of this bankruptcy she needs to learn to live within her means and to live far below as much as possible until every bill is paid off and then she can start saving and having a few 'little' luxuries.

A bankruptcy is only a bandage placed over a wound. It isn't a cure by any means. Infection can still get under it and cause more chaos. Sticking with a group that can coach her on the things the lawyer isn't going help with will help her stick on that straight and narrow.

[hamchan]

Financial counseling, which includes creating a workable budget, is a requirement for anyone filing for bankruptcy for several years now. Granted nobody is going to force you to apply this knowledge after your discharge, but I felt like the financial counseling was pretty comprehensive and easy to understand.