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I'm strongly considering filing for bankruptcy, and I'm finding it tough to get true unbiased advice. I've talked with friends and family about it with mixed results, and of course others have a horse in the race one way or another. Credit counseling says no, and bankruptcy attorneys of course say yes. So here are the details.
I'm 28 years old, married with kids. I make $46k as a communications specialist for a large hospital system in Pittsburgh. My wife is a stay-at-home mom, and our oldest child has autism, and our youngest is 18 months, so her going back to work isn't a viable option right now. My job is stable and there is room for growth, but not in the near future.
Between the both of us, we have about $45,000 in unsecured debt -- roughly 38k on credit cards, and the rest on personal loans and LOCs. We own a very modest house, purchased for $128,500 three years ago, and owe around $120k. We have our family van, a 2002 Honda Odyssey worth around 6k, which we owe about $1,300 on. I drive a 99 Honda Civic that I own outright.
I knew this day would come, and now it has. I can no longer keep up with the minimum payments on my unsecured debt. I've never missed a payment on my mortgage and auto loan, but I have on a few of the cards. We've accumulated the debt gradually over the past 8 years, and I can't say there was one cataclysmic event that put us in this position. We aren't terrible spenders, but not money hawks either. Sloppy management, the carelessness perhaps. I did have a period of unemployment 2 years ago that put a dent into things. Haven't been on a real vacation ever, and no big ticket items to speak up.
Long story short, I'm paying about $1,200 a month JUST on unsecured debt. Each time I get paid, the money is gone basically the same day, which leaves me basically nothing for essentials like groceries and gas.
I know I should be making more than 46K to support a wife and four kids. I've changed jobs a couple of times, and I know if I would have stayed in one place, I probably would have risen through the ranks a bit faster. But hindsight being what it is, I'm not in the position to be making more at the moment. I have my eye out for internal positions I can apply for, but nothing on the horizon.
So fine people of City Date, what say ye? I don't see a way out of this mess. It's not about cutting expenses any more -- we've done all we can. Our debt obligations are eating up my paycheck at this point. I do freelance web design as well, but work has dried up and getting new business is tough with a full time job and being the father I need to be for my wonderful kids.
I've done a bunch of research, and I'm willing to take the negatives that come with filing for chapter 7. I just wonder if this is truly the only option I have. Also -- any stories from others who've gone through a similar situation would be helpful.
First of all, I don't know where you live but your income is quite low for the size of your family. To put it in perspective, I just checked the 2013 poverty guidelines and the poverty line for a family of 6 is $31,590, which means you are only making $14k than an impoverished family.
What strikes me is that you are in a $128k house on a $46k salary.. and if you owe $120k on it that means you put next to nothing down on it. To me this indicates that you are, as they say, "house poor". Your mortgage alone must be eating up a good portion of your income. Little wonder you have had to use credit cards and can't quite articulate for what... probably on everyday needs...
I think bankruptcy is an excellent option but you would still need to address why you are in this position to begin with... you are living beyond your means. I understand that you aren't making any big purchases but the house alone is nearly enough to sink your ship. When my husband got a job making $75k we bought a $150k home and had put $60k down payment... our mortgage was still near $1k a month, or roughly 25% of our monthly income. That was still uncomfortable for us. We also have an autistic child and have had to pay for therapy... having kids is expensive... autistic kids are more expensive...
If you can eliminate all your debt, than theoretically, you should be able to stay in your house using that 1:3 home to income ratio that you hear about. However you are really cutting it really close and with 4 kids, having the diligence to stay in budget is going to be more difficult. If I were in your position I would sell the house. Personally, we've only bought a home that was 2x our yearly income and with a substantial downpayment... others will disagree, but I think your lender was being irresponsible in granting the loan.
You should consider seeking advice from a good financial planner not a bankruptcy attorney or credit counseling.
You need to get on a solid budget and stick to it. Look into a program like "The Total Money Makeover" by Dave Ramsey or another similar program and follow it exactly.
Some don't like Dave Ramsey, others do. My husband and I followed the program by Dave Ramsey and it helped us tremendously. We paid off all of our debt and learned how to control our money instead of our money controlling us.
If you can sell your home do so and sell everything you can and look into a part time job such as delivering pizza or something. I know you want to be home for your children however, you also need to do what you have to and get this debt paid down so you can make things better for your children in the future.
Its tough when the Note Holder (acts like a Lender), is only suppose to hold the homeowners note until he works to create then make payments.
But instead, they use the homeowners promissory note as an negotiable instrument to have the fiat currency printed "out of thin air', attach usage fees (interest), then loan it back to the homeowner. They do not give a loan, they give an illusion.
The homeowners Promissory Note is the homeowners asset, but the "bank" deposits the Note as the banks asset. It makes the illusion more convincing.
Homeowners credit has no value. It only represents the amount homeowner is able to work and create.
But they are taking that valueless credit number, turning it into valueless fiat currency....with interest attached .
What happens? The credit number is valueless. The fiat currency is valueless. They attach interest, now it becomes negative value (debt). The homeowner finances debt, not money. When they collect this debt from homeowners account, they collect it back with value added by homeowner's energy and labor. Homeowner gives the fiat currency *buying* power.
Concerning bankruptcy, my mother filed on her own, chapter 13. This allows you more time to make payments adjustments if you still choose to keep your house. My mother filed on her own, acting 'pro se' without a lawyer. This was to her benefit because when she made mistakes filling out the documents, they gave her more time to correct those mistakes.
Thanks for the replies. I don't have the energy/time to quote each response and reply back, so consider this a complete response to the three posts thus far
Yes, my income is low for my family size. I live with that guilt and wish I could change it, believe me. Looking back, I chose a field that is lower on the payscale -- communications and marketing. My first job out of college paid 35K in Ohio, and that was 7 years ago. As I mentioned, it's my mistake that I didn't have the foresight to build some job stability and work my way up the salary ladder. I live in Pittsburgh, which is on the lower side for salaries, but the cost of living is also low. I figure that my ideal salary is about 60k. But the jobs just aren't there right now. The next level up at my workplace is Communications Manager, and they start at 57k. So I'm keeping my eyes out for a job posting, but nothing yet.
I think that we were being modest and prudent when we bought a 128k house three years ago. With city, school and county taxes, my mortgage is 1,020 per month. Yes, a bit high for my income. But at the time it worked great, back when my credit card burden and payments were MUCH lower. Do I regret it? Absolutely not. It's a 1,600 sq. foot brick cape cod that's worth more than I paid for it -- probably 140k based on comps and anecdotes. If I sold, where would we go -- an apartment? With four kids that nearly impossible in this area. Renting a house would cost me more than that, since we need three bed rooms (what we have now). I could easily rent this house out for 1,300 a month. Even if I sold this for a small profit, and somehow found a rental for 1,000, that still wouldn't give me that much more help. A temporary relief for maybe 6 months to a year, but the problem would still be there.
I wish budgeting and management was the issue here. But when I pay all my obligations each paycheck, and what's left is maybe 150 bucks, what good is a budget at that point? I'm forced to use cards to pay for everyday needs. We cut coupons, look at the circulars, and buy generic. But budgeting will do nothing when there's nothing there to budget.
Looking at purely the math, even if I took a second job, sold my house and lived in a cheaper rental, that would do one thing -- perhaps allow me to break even every month and use cash for everything. But it wouldn't allow me to get ahead or pay down the debt -- which as I mentioned eats up 1,200 a month just for minimum payments.
Taking away the unsecured debt, I've worked out a manageable budget with my income. It would still be tight, but I'm committed to making it work. That's why I'm considering bankruptcy -- if my debts were gone, it would free up the money I've been needing to pay for necessities with cash.
I didn't mention this before, but I'm going to sell my car. I take the "T" to work every day, which is a light rail trolley here in Pittsburgh. I can walk to a stop from my house, and the 2nd car can fetch maybe 2k if I sell it. But again, a temporary injection of money that doesn't fix the problem. It sounds altruistic but what I need is a consistently higher income, to the tune of 60k is what I've come down to every time. I've been at my job for a year and 4 months, and I have my sights set on 2 years of service before I look at another job externally. It's just not a wise career move for me to change jobs again.
I realize I probably sound too defensive about selling the house. But if I sell everything I own and live on a barebones budget, again that would only serve to help me get by, and not pay down the debt. That's why chapter 7 is appealing to me.
If you really want to fix this solution, you can do it without bankruptcy. It will require you to take a second job though, working about 30 hours or so. Your wife will also have to step up and take care of the kids more. Your debt and house are eating you up. I suggest doing Dave Ramsey's baby steps. Build your small emergency fund of $1000. Then list the debts smallest to largest. Right now it seems your minimum payments on your debts are too much to handle. Talk to the creditors and ask if you can lower the minimums temporarily. Then focus on your smallest debt. Once it's eliminated, move on to the next one. Eventually your minimum payments will become manageable, and you will have momentum paying off debt.
I wish I could agree here and say that budgeting wasn't a problem. But the fact that you have $38k in credit card debt says exactly the opposite. You do have a budgeting problem, and the big red flag is that you fail to recognize it and don't even know where the money went. If you lived within your means, you wouldn't have the massive credit card debt choking you right now. This is why I think bankruptcy is only a bandage on your problem. Not being able to stretch your budget is the result of bad financial decisions in your past, so you will have to work twice as hard to correct those decisions.
If I were you, I would make it a goal to clean this up yourselves, as an example for your children, and for their future also. Based on your posts, I feel like you are capable of it. Whatever you choose to do, good luck.
You say if you could get rid of the debt you'd be tight but OK...well before you had the debt you were tight but OK -- and GOT INTO credit card debt.
So I'd honestly take a look at your spending. Is this unsecured debt MEDICAL bills for your autistic child, or groceries and clothing? What's to keep you from getting back into debt, for the same reasons you go into it in the first place?
Is your life style as barebones as you think? Can you cut a phone, a TV service? Do you all NEVER eat out? Does your wife cook EVERYthing from scratch....and I mean ORIGINAL scratch when a cake, cookies and biscuits were made with ingredients like flour and eggs, not out of a boxed mix. Does she buy WHILE chicken instead of already cut up. Most coupons are for PROCESSED boxed food and junk foods which are more expensive than buying INGREDIENTS. Does she clean with store bought cleaner or use CHEAP old fashioned home tips like vinegar and baking soda. I take it you're ONLY shopping at thrift stores, and don't buy gifts. Do you bag your lunch? Have you cut out all snacking at the work snack machine?
SQUEEZE those nickels!
As for bankruptcy I'd try to avoid it. But I'm not living with your mental pressures.
You already know a bigger income would help. How about a part time job -- just for six months. If you go into it KNOWING it's temporary it can be easier to take being tired, not getting as much sleep, etc. because you already know there's light at the end of the tunnel and you're only doing it for X amount of time.
I filed for chapter 11 BK around 7 or 8 years ago and pay for it today. I found that after BK, obtaining credit years later was even more difficult than applying for credit when I was 18. lenders view you as too high of a risk. They say that lenders rarely consider your previous BK when considering lending, but I have seen the truth and can say that yes, yes they do. I made a decent income, zero debt, never ever had I been late on not one bill in the 7-8 years since filing BK and it doesn't matter. But, its not impossible to raise your credit score, just difficult. But other people have had no difficulty obtaining credit one year after their BK. In your situation, I would file for BK. But that's just me.
I acknowledge that we have lived beyond our means, and that's what got us into this mess. It doesn't matter now, but I've never charged a single item over, say, 500 bucks. Never been on vacation, hell my wife doesn't even have jewelry to speak of, and our clothing is from the clearance rack at old navy or target.
What's stopping me from getting into debt again? Discipline and sticking to a budget -- two things I haven't done the past, and know I should do.
I didn't say budgeting wasn't the issue. I know it was. But at this very moment, budgeting is NOT the issue, since again (feel like I've said this a few times already) there is basically no money left over after I pay mortgage, utilities, and debt. I get paid, the obligations go out (bills that I must pay to avoid collections) and I have nothing left. How in the world do I develop a $1,000 safety net when I can't even buy groceries with actual money? I'd squeeze nickels, but there are no nickels to squeeze!
We've cut cable, and only use 2 simple cell phones. Internet service is a must due to my job and freelance design work I do from time to time. I rarely eat out, never go to the vending machine, and the most we do is maybe order pizza once or twice a month. I'm trying to best I can, but even if I were to trim another maybe 100 bucks from my monthly spending, the problem is still there.
My wife is the hardest working person I know, and the suggestion that she "step up" is a bit off putting to me. Taking care of four kids, one autistic, for 10 hours a day is enough to drain anyone. We're not looking for a luxurious lifestyle, and I don't think the idea of me being home at night is a luxury. As I've mentioned, I'm trying to pick up some more side web design work but everyone wants my services for basically nothing it seems. Hard to compete when there are buddies or art students who volunteer their time. That's the ideal setup, working from home after the kids go to bed. And I've done that in the past... just no work to be had at the moment. When I did have freelance work, I would basically fall asleep at my computer at 1am after a long day of work, and put in maybe 70 hours a week total. Is delivering pizzas a better option at this point? Perhaps. But that seems like a band aid as well... I just don't know.
I appreciate all the advice, I really do. I'm getting the sense that most suggest bankruptcy is not the way to go. But the amount of pressure and stress consuming me is almost too much to bear. I love my family more than anything, and I feel like a failure for getting to this point. The prospect of my debt being discharged honestly feels like a dream at this point.
As for the suggestion of lowering my minimum payments -- that would just put me even further behind, will it not? I'm already paying almost all interest. Out of the $1,200 a month I'm spending on debt payments, I would say about 700 of that is just interest. I've called two cards about that option, and they weren't willing to play ball. Even if I were to lower payments by an aggregate of 200-300 bucks, that still doesn't solve the problem.
I am trying to avoid bankruptcy, but I feel like if I literally had no credit cards to use, and stuck to a budget, I can be disciplined and smart with my money for once. I've had enough of it, and I don't want to feel this way again.
I filed for chapter 11 BK around 7 or 8 years ago and pay for it today. I found that after BK, obtaining credit years later was even more difficult than applying for credit when I was 18. lenders view you as too high of a risk. They say that lenders rarely consider your previous BK when considering lending, but I have seen the truth and can say that yes, yes they do. I made a decent income, zero debt, never ever had I been late on not one bill in the 7-8 years since filing BK and it doesn't matter. But, its not impossible to raise your credit score, just difficult. But other people have had no difficulty obtaining credit one year after their BK. In your situation, I would file for BK. But that's just me.
I don't know what chapter 11 is exactly, but ch 7 would be the case for me. I understand how hard it will be to get credit after BK, and that's a cross I'm willing to bear. But honestly, I don't want any more credit cards -- pretty much ever again.
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