Of Credit, Creditors, Roth IRA & 401K ...

[FinancialRecovery]

I have a lot of questions and would gratefully appreciate any advise you kind folks can give us.

We are in foreclosure and according to state law, our loans are nonrecourse.

However, I am still paranoid and need some advise on all the above.

1. Since our credit is gonna tank ... And I mean TANK ... what are some proactive steps we can take ? Some friends advised buying a new car, but we cannot afford a dime more out of our budget at this moment in time. One of our cars is new (2 years old) but the other is 14 years old and has about a 180,000 miles logged. We use this car for local errands and we hope to keep this car at least for the next 2 years at which point we may need to replace it. What is your advise on how to best to go about doing this ?

What else should we be aware of and do before our credit crashes into nothingness for who knows how long ? We also expect our credit limits to crash. So, what should our first / immediate steps be, BEFORE the dings start to appear in our credit report ?

2. Although our loans are technically non recourse, we expect the lenders to make attempts to get $$$ out of us. My limited research shows that while 401K is protected by law from creditors, our ROTH IRAS are not. My husband changed jobs a few years ago and left his old 401K behind. His new employer would not let him roll his old one into the new plan. I am worried that we may be opening ourselves up to creditor claims by rolling his old 401K into a ROTH IRA, so told my husband to continue letting it stay with his old employer. Is this a good decision ? More than returns, I am worried about safety now.

3. What are simple steps to take to begin rebuilding our financial future, aside from saving more ? I am scared of the B-word and hope we never have to go there. Since we are middle aged, we are really worried about our futures, especially retirement and our children's college. We live paycheck to paycheck every month after contributing to the 401K and the ROTH IRAS. I see Suze Orman calling Roth IRAs a form of "emergency funds" but I think that not treating the ROTH as retirement asset, and a nest egg to provide for us when we no longer get a paycheck every month, is very foolish. I am really worried about using that money for current expenses.

Please, any help you can give me would be much appreciated.

Thanks.

[Retired To Win]

You should expect none of your credit cards to renew. You may also find that the credit card companies will get computer-alerted to your foreclosure when it becomes public record and will at once cancel your future charge privileges (and/or cancel your cards).

Whoever is advising you to buy a new car on credit is giving you bad advice. Does the word "reposession" ring a bell? All car loans are secured by the vehicle; it will be reposessed if you fail to make payments. And it is rather obvious that you are not in a position to take on the additional burden of a new-car payment.

Nonrecourse or not, you can expect to be put through the whole collections wringer by any lenders that you default on. And I would doouble check how that nonrecourse works because it does not sound tenable to me in the real world.

That's all just for starters. There's lots more.

Good luck!

[FinancialRecovery]

You should expect none of your credit cards to renew. You may also find that the credit card companies will get computer-alerted to your foreclosure when it becomes public record and will at once cancel your future charge privileges (and/or cancel your cards).

Whoever is advising you to buy a new car on credit is giving you bad advice. Does the word "reposession" ring a bell? All car loans are secured by the vehicle; it will be reposessed if you fail to make payments. And it is rather obvious that you are not in a position to take on the additional burden of a new-car payment.

Nonrecourse or not, you can expect to be put through the whole collections wringer by any lenders that you default on. And I would doouble check how that nonrecourse works because it does not sound tenable to me in the real world.

That's all just for starters. There's lots more.

Good luck!

Are you an attorney ? I ask because we consulted a real estate attorney prior to letting our house go and her feedback was different than yours.

What else is there, aside from the "starters" ? Aside from losing access to all credit cards and never bein able to afford a car again ?

Your response is the most negative I have ever read !!! What should I do ? Roll over and die because I have a foreclosure on my record ?

[FinancialRecovery]

ANYONE have ANY advise for me ? I thought this was a support forum, not kick-her-when-she's-down forum.

[parafly]

ANYONE have ANY advise for me ? I thought this was a support forum, not kick-her-when-she's-down forum.

It's not a support forum, it's an advice forum. People who rant, are impatient, and can't take constructive criticism without overreacting typically don't get the best service/advice on most online forums.

You mentioned that you have received legal advice from a real estate attorney. Since many states have different laws surrounding foreclosure and bankruptcy, it's probably your best bet to follow the legal advice of someone with expertise in your area.

In terms of financing a vehicle before your credit score takes a hit, it's probably best to think long and hard before taking on new debt or you may end up in exactly the same situation you find yourself in right now. You didn't post any of your finance details so it's impossible to say whether you can or cannot truly afford it. If possible, continue driving your older vehicle for as long as possible, and in the mean time, save up some funds so you can buy a used car for cash down the road.

[snafu]

I'm sympathetic to the emotional state you're in but at the same time I'm bewildered. I recall reading 'we have multiple loans on the property. We truly could not afford the home but bought it anyway, to get a piece of the American Dream. 8 years later, we are broken, beaten and busted.' [3/18] Your government has intervened in the housing market with different programs after the debacle of the housing crash 2008 - 2011. Was there not one of the many programs that you qualified? Why were each denied?

I hope DH is in a more positive frame of mind because your attitude is not healthy for you or your children. You aren't required to have some visible sign attached to your clothing identifying you as an individual who has made poor financial choices. Take heart in knowing we've all screwed up but on this site at least, we work hard to get past old problems and get careful with money. They don't use pejorative labels on kids anymore and researchers all over the world are working hard on finding help for autistic children. Have you joined any on of the on-line forums for support from other moms?

I wish I had the words to tell you as kindly as possible that the time to stress and protest is past and spare moments are better used to find less expensive, frugal, more effective ways to manage day-to-day living. Have you heard of Amy Dacyczyn who voluntarily self published her Tightwad Gazette to teach the art of frugal living? I was intrigued by a video on You Tube about making detergent. I copied the process and now make different detergents myself primarily because they do such a good job and incidentally costs less than 0.04 cents a load.

Happy to help push your forward

[FinancialRecovery]

It's not a support forum, it's an advice forum. People who rant, are impatient, and can't take constructive criticism without overreacting typically don't get the best service/advice on most online forums.

Wait a minute ...The post above offers constructive advise and I am overreacting ? Wow !

Telling me that all my credit cards will be cancelled and my charge privileges revoked qualifies as "constructive" advise ? Not only is that factually incorrect but uncalled for. Most people do have their credit limits reduced -- SOMETIMES SIGNIFICANTLY -- but cancelled ? And, even if that did happen by any chance (even people in bankruptcy sometimes have a credit card left open), there is still something called "secured credit cards" and its cousin, "the debit card".

Telling me that there is no such thing as a non-recourse loan when state laws clearly specifies & defines these qualifies as MORE constructive advise ? When I had already mentioned that we had talked to a licensed and qualified real estate attorney who confirmed this to us ? You state that we should be following the advise of a legal expert in my state. Well, as I mentioned, that is EXACTLY what we did. I did not even ask for validation of that advise on this forum, just stated that I had been told this by an attorney, while admitting that the lenders would still try to collect on their debt. But this guy comes in, and professes an opinion completely contradicting the lawyer's advise, and states that the licensed attorney's feedback was probably untenable in the "real world" ! But, that is constructive advise ?

You claim that people who rant do not get good advise on forums. Well, I think it is better to receive NO advise than misleading, judgmental feedback. Did I start my post, stark raving mad ? Do you notice the tone of my original posting & its contents ? I asked for advise on next steps, before the credit dings start to happen. I also asked questions about my 401Ks and ROTHs. Instead, this person comes in, does not answer any of my questions, but proceeds to respond negatively, telling me that this is the end of my financial life. It may be the end of my financial life as it used to be, but it is a fresh start. There is always a second chance for those who fess up and step up, isn't there ?

But not, according to the post above. Notice the "and that's all just for starters" comment ?? Well, gee, what else is there, aside from losing access to all credit cards, losing my car, getting put through the wringer by bill collectors ? Can it actually get any worse ? Maybe I forgot about the possibility of being sentenced to debtor's prison and having my kids placed in foster care, because I screwed up and made a dumb financial mistake like a million others during the bust of 2008 ?

But, per you, all of fhe above is CONSTRUCTIVE CRITICISM and I am the impatient one who cannot take "constructive advise" ? Ok, sir, whatever you say !!

[FinancialRecovery]

I'm sympathetic to the emotional state you're in but at the same time I'm bewildered. I recall reading 'we have multiple loans on the property. We truly could not afford the home but bought it anyway, to get a piece of the American Dream. 8 years later, we are broken, beaten and busted.' [3/18] Your government has intervened in the housing market with different programs after the debacle of the housing crash 2008 - 2011. Was there not one of the many programs that you qualified? Why were each denied?

I hope DH is in a more positive frame of mind because your attitude is not healthy for you or your children. You aren't required to have some visible sign attached to your clothing identifying you as an individual who has made poor financial choices. Take heart in knowing we've all screwed up but on this site at least, we work hard to get past old problems and get careful with money. They don't use pejorative labels on kids anymore and researchers all over the world are working hard on finding help for autistic children. Have you joined any on of the on-line forums for support from other moms?

Yes, there are programs, but that doesn't mean that distressd homeowners actually got help. If you want to verify the truth of my statement, you may want to google and read other forums, especially foreclosure forums, to see exactly what happened, despite the "programs". It wasn't as easy as it sounds, plus there were a million obstacles and hurdles along the way. But it was, at the end of the day, our fault, too. We were DUMB and took on debts that we couldn't afford. No point blaming the government or the banks. I will just chalk it up to experience and never repeat this mistake again.

I also ask that no one please bring up the topic of why we are in foreclosure again. It is done. Gone. Kaput. I want advise on how to start over.

And, as an aside, I bolded your statements above to say that that isn't the vibe I got above. Unfortunately.

I just hope it was just a rough start and it gets easier with more time on the site.

[doingitallwrong]

I have to say that you do, from the outside looking in, seem to [still] be taking that response much too personally and reading a far more negative tone into it than I think was intended. Especially since the author of it has apologized to you on your blog rant. We all have different pools of knowledge from which to draw, and no doubt that person was posting based on their own experience. I don't see any judgement of you, though there is a bit about the person who told you to get a car loan. (And to be fair, you did say that you could not afford another dime out of your budget, which means a new car loan would be extremely difficult for you to repay.)

I haven't gone through a foreclosure or know anyone who has, so this is just based on general reading I've done, but perhaps some of it will be useful.

As far as your credit cards, it is possible they'll be cancelled and as you know your credit score will take a hit. Why not apply now for a secured card that you can use and pay off every month (or week, or the minute you use it, whatever)? It will help you to re-establish your credit after the foreclosure and having it now will add a little bit of history to the card (which may or may not matter in this case, but can't hurt!).

Meanwhile save as much as you can for a new (used) car, so that when your older one does finally give up the ghost you can pay cash, or at least have a substantial down payment. I have read that after a foreclosure, credit starts to rebound after about two years, so you might be able to get a car loan at that point, but I'm guessing the interest rate would still be very high. Read some of the forum posts and blogs about ways to make some extra income, snowflakes, etc. -- there are lots of good suggestions and novel ideas.

You can also post your budget here, people are very good at finding areas where you can cut your spending. (Just don't insert any 'tone' into the responses -- you might get a reply that some amount is 'excessive' or even 'ridiculous' or similar, but it's not a judgement of you personally.)

If you're confident that your loans are non-recourse, then there's no need to worry about the creditors coming after your other assets. If they do (and it's probably illegal for them to), just tell them to contact your attorney. That said, if you convert your husband's 401(k) to a Roth IRA, it is a taxable event; you'd owe taxes on the entire amount and possible an early withdrawal penalty as well. You can roll it over to a traditional (rollover) IRA without any tax consequences -- the best way is to set up a direct rollover so the money goes straight from the 401(k) custodian to the new IRA custodian. Lots of people here like Vanguard or Fidelity since they have relatively low fees (I think Vanguard is lower) and they offer a variety of no-load mutual funds.

I agree with not using a Roth for day-to-day living expenses, but when it comes down to it, if it's a choice between having a retirement account or being able to eat for the next month, I'd opt for the food. Keep in mind that while you can withdraw your Roth contributions at any time, the account must be open for five years before you can withdraw earnings without tax consequences.

[autoxer]

3. What are simple steps to take to begin rebuilding our financial future, aside from saving more ? I am scared of the B-word and hope we never have to go there. Since we are middle aged, we are really worried about our futures, especially retirement and our children's college. We live paycheck to paycheck every month after contributing to the 401K and the ROTH IRAS. I see Suze Orman calling Roth IRAs a form of "emergency funds" but I think that not treating the ROTH as retirement asset, and a nest egg to provide for us when we no longer get a paycheck every month, is very foolish. I am really worried about using that money for current expenses.

Please, any help you can give me would be much appreciated.

Thanks.

I don't have any advice about how to protect your retirement accounts, because that will need to come from your lawyer.

Regarding the car, buying a new car just because you can get a low interest rate is terrible advice. If you are living paycheck to paycheck, then the last thing you need is another monthly payment to worry about. The best thing you can do for your financial future is to cut costs and save more money, so that you don't have to rely on a bank loan. Treat your savings account like it is an auto loan. Put $300 in there every month for the next two years and you'll have $7,200 saved up to buy a replacement car.