Need Help Before I Resort to BK...

I am in a real bind and was hoping someone could give any sort of advice. I'll try and make this short...

Wife lost her income, we ate through 1 year emergency savings over the course of the last 3 years, credit cards are maxed out, almost no equity in our home, our net income is around $4,000/month and our expenses are well beyond that. The last 12 months we've also had to support a family member and her young daughter after she was diagnosed with cancer and lost everything (job, home, etc.).

I am currently not past due on anything but I am really having to juggle things around just to pay things on time or with late fees but avoiding 30-day late marks.

Here is a quick breakdown of expenses:

Mortgage - $2950
Car #1 (Buying) - $540
Car #2 (Leasing) - $375
CC #1 - $400
CC #2 - $450
CC #3 (Already in a hardship payoff agreement) - $300
CC #4 - $100
CC #5 - $25
Utilities/Cell/Internet - $350

I owe about $440k on the house and it's probably only worth $400k right now. I can do without Car #2 and the only thing left is my credit cards. Most of it was racked up paying for two surgeries my wife had over the past 3 years and helping to pay for basic living costs the last 12 months or so. I've also had to juggle paying off some of the utilities with my available credit after I've made the minimum payment for the month.

From what I've read, if it comes down to paying your house or your credit cards, you should always go for the house but is that still true? I've been trying to get help from my mortgage company (PenFed) but they are slow (over 5 months now) and I'm wondering if they'll be more willing to help if I default on the loan. Does it make a difference if I only stop paying the CC's and keep the two cars or if I stop paying the CC's and give up Car #2?

I'm so lost and desperate right now. I'm also so scared to mess up my credit so badly. Both my wife and I have enjoyed scores in the mid-700's for the last 5 years but I guess that is all going to go straight to poop now.

Thanks in advance for any and all responses. I just really needed to vent and hope that someone has something I can use in my decisions to come.

Rather Ironic user name...

Your problem is the mortgage it's going to be impossible to balance your budget with a mortgage that is so out of whack with your current income. Either find another 4-5k/month or dump the house, with your income you won't keep it in BK anyways.

How far upside down are you on the cars? If you're close even with the one you bought try and sell it. Ideally you would get rid of both and buy a $1000 beater until you get back on your feet.

See if you can sell the lease on Car #2 on CL or Swapalease
Rep Car #1 and get a cheaper car.

Since house has no equity hmm can't help you on that one.

without more income than what you've got, you're just falling deeper into the hole. Any prospects for your wife to get another job? If not, it's time for BK. Sorry. Good luck.

Thank you to all who have responded. It at least lets me know I'm kind of on the right track. I am hoping my we can come through this but my wife needs one more surgery in March so I don't think she'll be able to work any time soon. I've thought about getting a second job but it's hard with 3 kids and my wife being ill.

I forgot to mention I have about $15k in my 401k that I haven't touched. The advice on the cars is pretty good. I'm not opposed to driving a clunker for a while.

I think my problem is that I should have seen this coming a lot sooner than I did. I am always clinging to that last bit of hope that things will turn around but so far they haven't. I guess it's partly due to pride and partly due to being an optimist.

$2950 on mortgage?

My Apt rent is only $1250 ..

May be you can rent part of your home..

#1 - Take mikef07 advice with the first 4 items.

#2 - You need to unload the cars as quick as possible, and get a beater to drive around. Would having an extra $915 a month instead of paying it towards those cars would likely change your perspective, right?
If you are upside down in any of them, scrimp save, sell some stuff, borrow, whatever it takes. You will do much better controlling the sales price of the vehicles rather than turning them in for a repo.

#3 - Definitely consider unloading the house with a short sale, hopefully with non-recourse. Rent someplace cheap.

#4 - I would hold off on BK as a last resort - meaning wait until the CC issuers have sued and are about to garnish. It will be quite some time before you get to that point. Most CC issuers will likely sell it off to collections, and you should be able to settle with them back for as little as 25 cents on the dollar at a later date, hopefully 1 - 2 years out. Better to piss off the CC issuers for some time rather than have to answer "yes" on any future form if you've ever declared bankruptcy.

Yes, I agree with nccops on waiting it out with the ccs, rather than jumping into BK.

okwiater said: OP, in your market, what are the rents for houses going for? Will it support renting out your entire house for $2500+? If so, you can get a renter for your house and get into a cheap apartment for you, your wife, and the kids (ideally around $1000/mo). This will at least temporarily fix your housing payment problem, which is the reason you are in trouble in the first place.

If you can rent your house for $2500, and you get a crappy apartment for $1000, and your mortgage is $3000, then you've reduced your housing payments from $3000 to $1500. You should get rid of car #2, and you can still pursue credit card settlements to eliminate/reduce those balances. Then eat cheap and don't waste a cent on anything.

It sounds like you do have a couple of options, but none of them are great and you are definitely running out of time.

I think he wiil run out of cash to live before he can do any of that.

I have thought about the option of renting out my home but as Battle mentioned, I will run out of cash by then. I should be able to get at least $2k/mo maybe $2200. If I could find a renter fast it might work. We'd have to start preparing to move out now so we'd be ready to go by the time a renter comes in.

I will have to do some research on a short sale. Don't know a lot about it...

What about a hardship on his 401K to get some breathing room? ... I know 401K is like the Holy Grail to most of you on here, but it is "only" 15K ...

And what about HAMP? or is that not a good idea, fellow fw'ers?

The house is killing you, and you can't afford it. I would quit paying the mortgage personally.

Perhaps once you "prove" you can't pay the bank will be willing to restructure your mortgage or help you figure something out. The same for your credit cards -- once you miss payments they may let you pay 30 cents on the dollar or get rid of interest. Once you miss a mortgage payment all of your credit cards will be canceled. The good news is it may be years before they actually foreclose on you... and then you can file bankruptcy to delay it even more.

Have you tried calling all the CC companies and asking for a lower interest rate? Or ask them to settle the debt?

OP

As you are an ancient member, I will give you my best ADVICE. Not cheerleading and sympathy but advice based on what I have seen happen to similar families over the past few years.

Of course, seek counsel from a qualified professional - BK attorney.

1. To a fault, the families/individuals in the best shape are those that were agressive and proactive.
2. Stop juggling and take control. Get your finances in your hands and stop throwing good money after bad.
3. Stop worrying about you FICO and save cash.

In this economy and in this environment, waiting and hoping does not seem to work. Also, start searching internet forums for people in a similar situations (as you are doing now) so your mind can start to work on new ideas to get you back on your feet.

You need a plan. Your FICO is going to tank. As an ancient FWF member, you are smart enough to see the writing on the wall. So why not have it crash with money and a paid off car.

You have to have one decent car. Your CCs are all up to date. Do a BT for either: a) enough cash to buy a GOOD solid car or 2) enough to pay off one of the two cars you own. (That decision will be based on how much you owe on the loan/lease. I.E., lets say you owe $26K on the loan , $22K on the lease (assuming the price to pay lease off and buy car afterwards.)and you can get a GOOD used car to substitute for $12K, I would use the $12K in BT money to buy the car and ditch BOTH car payments.) Then make THAT CC minimum payment (the one you did the BT on) for another 6 - 8 months. Also stop driving so much. Some people put 7K miles per year on a car.

I would not pay the mortgage, cars, or CCs (except for the above CC to get a car.) I would try to stay in the house as long as possible rent free. (FYI,I would have recommended a buy and bail - find a condo/town home, but I don't believe you could qualify for a 2nd mortgage now given your income and current mortgage payment.) Unfortunately, you do have a problem as you are dealing with Penfed - Whoa! I have had numerous carloans and CCs with them and they are so uber-conservative. I really like them, but I don't know their track record with mortgages. I would guess that they are not one to let people stay in the house 18-24 months without a payment. But I just would not make that payment - its too much money.

Your current income is your asset and every month you can live rent free is your security blanket - not your FICO score. If you job is secure, start giving that 110% and prepare for a different life.

Start looking for smaller, clean safe place to live and save as much money as possible.

You may be surprised what you find.

I don't believe conventional thinking is going to get you through this.

He should not pay the CC OR the house. He should modify ONLY if the payment comes down to close to what he could rent a decent (not comparable) home for. Too much home is too much home.

Before making another payment ask himself how he will feel after making 12 more payments at $3,000 a month only to find out that the market has given him another 20% to 35% haircut.

Paying the mortgage is just throwing away good money after bad. The house is a bad investment and the value to your net worth is $-40,000 dollars. There's no getting around that. It may not seem like it now but walking away from your house will be a great relief. I bet your house is going to continue to lose value as well.

You will likely need to file BK at some point to protect you from your creditors and keep from getting sued and having your paycheck garnished. I wouldn't file BK until you've tried to work everything out and they start to foreclose though as it will stop the process. Drop the car lease -- it's a waste of money. Save every penny you can while not paying the mortgage.

I don't think there's anything you can do to save your credit. Sacrificing your credit will let your creditors know you are seriously considering bankruptcy will give you negotiating leverage which may create new options for you and allow you to restructure all this debt. With luck and good negotiations you may be able to avoid BK.

If you can find a renter or short sell your house that may work but I doubt you have time. Short sales can take 6 months to get approved. Renter may be a possibility but you need to look asap.

And whatever you do -- don't even consider taking retirement money out to pay your mortgage or any other bills since it's protected in BK

patch96: excellent advice.

The cc and car companies are not going to work with you. Not until you are in default.

Best strategy is to consult a local pro (BK attorney), buy anything you may need on credit while your credit is still good, then start strategically defaulting on the debts. You may not need to BK immediately but it does seem to be the end result and will give you a fresh start.

Hate to say it but, you are done. Do NOT miss any payments until you talk with a BK attorney. Go to the BK forums and learn about what you are going to go into. Your income to debt is so out of whack, credit counseling services cannot even help you. This is a sign that it is time to remove your emotions from the equation, and make a business decision.

I know a lot of people that have had to go bankrupt, on average it is greater then 10% of all Americans. Anyway the ones that recover the quickest, are the ones that did not miss any payments, and filled out of the blue. Once you file, your credit is shielded from any negative hits besides the actual filing(it is possible that your score could even increase, because of filling). Lastly stop using credit cards, it is unethical and illegal to use them once you have decided to go bankrupt; however if you must use them, make sure it is only for living expenses and not luxury purchases.

Edit: I just noticed you live in California, that means on original loans there is no recourse. However you said you have refinanced so I believe that means that your loan is now recourse. Buy and Bail is highly recommended however at current debt to income it is doubtful this is possible.

riznick said: $2900/mo seems a little high for a mortgage on $440,000. I'd think should be much lower.

You mentioned that you have lived in it for 9 years. I am curious to know what the original purchase price was for the 1200sqft place in 2000.PITI?

UGH !!!!! this is like the third time or fourth time i have had to green your posts .... when will the REAL IYHTA show up?