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Is BK right for my situation?

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  • Is BK right for my situation?

    Let me begin by telling you some basics.

    I am 29 years old, married, and have one child (age 4). I own my home. I won 2 cars, one is paid off one has a payment.

    Debts:
    150K mortgage, about 30-40K in equity (hasn't been reassessed), tax assessment is at 165K (not sure if attorney will go by this figure).

    17K car note, little to no equity.

    About 80K in student loans, currently on a 30 year (yikes) repayment program at $580ish a month.

    The biggie...about 80K in unsecured credit card debt (in my name) and about 15K in unsecured credit card debt that is in collections (one account already sued) in my wife's name.

    Assets:
    The equity in my home (listed above).

    The paid off car (2015 Honda Fit, 30k miles) KBB value of 10-11K right now.

    Very little cash in the bank right now, I have $1000 for emergencies and enough to cover 1 month of mortgage payments.

    Income:
    Combined about $115-120K gross annually. My wife works part time. I have 2 jobs.

    Right now I'm pretty much up to date with the credit cards. I have been somewhat late (never over 2 weeks) but I feel like things are going in a downward spiral, I end up charging on the cards because I don't have enough left after making minimum payments to live off of. I can't realistically see myself paying them off in the next 5 years.

    All of our "essential" bills such as mortgage, electric, gas, water, cell, etc are current.

    In doing some initial research the median income in NJ is 93K for a household of 3, which means I would have to pass the means test in order to qualify for a chapter 7. I'm not sure if my expenses would check out in the means test. I could take a leave from my part time job which would decrese my income by about $800ish a month (not sure if this is something that would be allowed).

    My wife and I would file jointly.

    I feel like we're 1 emergency or one shift cancel (I am an RN) away from not being able to make the credit card payments. I feel shackled to them.

    The debt came from a combination of years of frivilous spending and a short lived gambling problem (I have been on the self-exclusion list for over a year now and don't plan on coming off).

    I attempted to get the credit cards under control for over a year (cutting cable, switching cell providers, selling items, etc).

    Another issue, 3 of the credit cards are business cards. In 2016 I was reselling electronics on Amazon and eBay, the business was never meant to make a ton of money, it didn't flop I just stopped doing it. Most of the charges on the business card are either left over from the business or personal in nature. Not sure what would happen with this in a personal BK.

    Any input would be great.

  • #2
    Originally posted by FlyingBroke View Post
    Right now I'm pretty much up to date with the credit cards. I have been somewhat late (never over 2 weeks) but I feel like things are going in a downward spiral, I end up charging on the cards because I don't have enough left after making minimum payments to live off of. I can't realistically see myself paying them off in the next 5 years.
    This is the best indication that BK may be a good move for you. If you can't stop using credit cards and pay down debt, you are bankrupt. The one thing to ask yourself is whether getting rid of the credit card debt will give you enough breathing room to continue paying the student loan without incurring more credit card debt.

    I am not sure I would go on leave to file BK. If you want to permanently stop working a second job, that is one thing. But, don't make a decision that could effect your future in order to qualify for Chap 7. Also, your schedule I has to calculate your anticipated income over the next 5 years and if you are just on leave and will go back to the second job, you would have to reveal the increased anticipated income. Even if you pass the means test, that could result in an objection to a Chap 7 discharge based on totality of circumstances. Don't make any decisions on this question until you have consulted with a couple of BK attorneys.

    New Jersey asset exemptions seem stingy, so I am guessing you would use federal exemptions. Since married couples double the exemptions, it looks like you will be able to barely cover the home and the car if the equity is in the range you think.

    Have you tried the means test calculator at https://www.legalconsumer.com/bankruptcy/means-test/? Don't rely on it completely, but it will give you an idea about whether you can pass. File Chap 7 if you can, but don't be afraid of Chap 13. It is ideal for people in your situation. My situation was similar. I was current on my bills but was not paying down my debt and I could see that it was only a matter of time before I would not longer be able to make minimum payments. Chap 13 was an instant relief, even though it did go on for 5 years.

    Consult with a few bankruptcy attorneys. Most give free initial consultations. If the first says you can't qualify for a Chap 7, go see another 2 or 3.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


    • #3
      FlyingBroke ~ I have a little bit different perspective.

      I think the most important question that stands out in my mind about your second job is this: If you were no longer responsible for the payments on the unsecured debt, would you still be working that second job?

      Many (many) times, people pick up a second job, get more and more overtime or cover extra shifts for people, out of financial desperation. We try and try and try to keep juggling all of these minimum payments -- but when we've decided we can no longer do it, we're just digging a deeper hole -- and when bk looks like the only option -- it gives us an opportunity to reevaluate the entire situation.

      Do you *want* to keep working the second job for at least the next 3-5 years, to cover the payments you'd commit to in a chapter 13? Is your current 6-month income lookback a realistic picture of what your income will be over the next 3-5 years? Or are you killing yourselves trying to make that income right now?

      I would never advise someone to quit their primary job in order to qualify for a chapter 7. That would just be dumb and shady. But I know all too well how my husband was killing himself (and never home) in order to make as much money as possible when things began to get very tight for us. There is no way we wanted a chapter 13 payment for the next 3-5 years based on him working the absolute maximum he could possibly work. Things change in his job constantly -- money that was once available is not guaranteed to always be available. How secure is your second job? Are you working PRN? Does the amount of shifts vary from check to check? All important things to consider ~ especially if you are very close to being able to qualify for a chapter 7.

      Comment


      • #4
        Chrysalis -- You sound like a nurse? I'm a RN and have been working 2 jobs since I became one. I don't mind working 2-4 extra shifts per month, I do see myself working the two jobs I have now for the next 3-5 years as they are very good positions (FT in the CVICU in a large academic hospital, PRN as an RRT nurse at a smaller community hospital). In 2016 I busted my ass working 5-6 12 hour shifts per week trying to pay the cards down, after seeing little to no progress I cut back and I am only working 2-3 extra shifts per month (only my PRN job, no OT at my FT job). So to answer your question, yes I think my current 6 month income would be a pretty accurate reflection. We're like 25K over the median income, I highly doubt we would qualify for Chap7. Who knows, all's I know is over the past 6 months my blood pressure is at the point where I should probably be on meds and I've gained like 20lbs (most likely all stress).

        EDIT: If I wanted to, I could work everyday of the week. The community health system I work for would allow me to pick up in any unit in any of their hospitals (3). Also at my FT job OT is plentiful, we have 5 ICUs and I could pick up time in any of them. The fact is, I don't want to kill myself.

        Lady -- Thanks for your response. Could you elaborate on how similar your situation was to mine? Thank you for that link I will look into it.

        One thing I hadn't thought of is leaving my wife out of the bankruptcy (her debts have been in collections for over a year and one company had sued, I doubt anyone else will at this point) because NJ has tenants by the entirety, which would take our home out of the equation leaving me with basically just my car as an asset.

        Comment


        • #5
          Ha, I am in nursing school... I have one aunt who's a nurse for many years, and several good friends who are nurses all over the country. I suppose I am beginning to sound like one... Lol. I even understood all of the abbreviations you used! But I'm not quite there yet. ;)

          So you're happy with the work you're both doing, life feels balanced in that area -- no desire to cut back. That's good. Just something I wanted you to evaluate before committing to a payment with that income.

          Re: the stress of your finances. If you decide that bk is for sure the road you are headed down, don't wait to stop making payments on your unsecured debt. I know, we have to get our ducks in a row mentally... but when the time is right, the time is right. I guess if your wife has debt in collections, then you've already been down that road. Some people (self included) just can't take that final step of saying NO more payments, and we end up throwing money down the drain, pretty much. Could be used toward necessities... things to prepare for the reality to come.

          Comment


          • #6
            Chrysalis -- Again thanks for the reply. I, pretty much, have my mind made up on BK. I have the names and numbers of 3 attorneys in my area and will be contacting them this week to meet for the initial consultation.

            How did you end up picking your lawyer? Most of the websites I visited we're so cheesy that I felt like I wouldn't get the personal attention to detail that my case would needs. I mean, if you can't get your website together then how can I just you with my BK (LOL).

            Im just so scared that I'll be put in a chap13 with unrealistic payments....I guess anything would be better than what I'm doing now.

            Comment


            • #7
              Originally posted by FlyingBroke View Post
              C
              How did you end up picking your lawyer? Most of the websites I visited we're so cheesy that I felt like I wouldn't get the personal attention to detail that my case would needs. I mean, if you can't get your website together then how can I just you with my BK (LOL).
              .
              There's a lot of advice one who has been in a Ch 13 can give regarding attorney selection. I'll just offer a couple things: 1) Bottom line is going to be your comfort level. If you don't feel in your gut at your consultation that the relationship between you and your attorney is going to work, move onto someone else because you are stuck with your attorney for 3 to 5 years unless you move to fire them, which I believe requires court approval; 2) Ask some questions on how your attorney will handle your case from confirmation to discharge, in addition to how the will handle your case from the first payment to the attorney to confirmation; 3) don't totally rely on Advo for attorney recommendations, if you noticed most of the reviews are glowing, most likely because attorneys asked their clients to provide the recommendations; 4) don't totally rely on the look of the attorney's website. I found one such website of an attorney in my area that looked late 90's/early '00s, but the info provided on the BK process was far deeper and more detailed (and more helpful to understanding Ch 13) than most attorney websites I've visited. If that attorney lived closer to me, I would've selected that attorney.

              As for whether you should file for BK, I'll offer this: I managed my high debt load (which was around 130K of unsecured debt when I filed) for a long time. Then the recession hit 8 years ago, my pay increases stopped for several years and what was manageable became a slippery slope that titled further downward and got more slippery with each passing year, which led to a number of bad decisions on my part to avoid BK. When home ownership came info play, I filed BK which I was planning for a good three years prior. It is far better to file when you are in control of your finances when you are at the mercy of creditors because you can plan better (i.e., keeping 401K contributions going, which should survive if you've been paying at or beyond the six-month lookback period for income and expenses).

              Comment


              • #8
                Originally posted by FlyingBroke View Post
                Lady -- Thanks for your response. Could you elaborate on how similar your situation was to mine? Thank you for that link I will look into it.
                It is similar in that I had enough income to live relatively comfortably, if only I weren't struggling with credit card debt. All of my payments were current, but I could see that it would not be long before I started having trouble making minimum payments. Even if I could continue to make minimum payments, without bankruptcy, I was destined to work the rest of my life (I was in my early 40s) only to make credit card payments. I had no hope of getting the debt paid down. I was living paycheck to paycheck and was not able to add to savings.

                Unlike you, I did have $10,000 in savings from a gift from my mother, but if I had used that to pay off debt as I did with a prior gift from her it would have only been a temporary fix. It was comforting to have the savings during the Chap 13, but I didn't have to use it and am now building on it. Also unlike you, I did not have a student loan, but my household income was lower than yours ($85k) and my mortgage twice what yours is.

                In Chap 13, my $500 plan payment replaced about $1300 in monthly payments on credit card debt and my second mortgage and a little over half of the plan payment went to pay off my car loan. I suspect you will have similar immediate relief, even if you will still have a large student loan at the end.

                Speaking of the student loan, make sure that if the lender does not file a proof of claim, that your attorney files one for them. That way, the loan can be paid a pro rata portion of what goes to unsecured creditors, even though the balance will not be discharged.
                LadyInTheRed is in the black!
                Filed Chap 13 April 2010. Discharged May 2015.
                $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                Comment

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