bk13 vs debt relief

[redbox13]

Hi,

My wife and I are weighing these two options. And I figured, if anyone can give sound advice, it's you folks. I will outlay our situation a little bit.

I have a good job, making pretty good money ~$100k or so. My wife works in the medical field, and is currently travelling because the money is better, but that is starting to wane as more people are taking permanent jobs, and hospitals are offering less and less for travelers, so she will likely be taking a permanent position before we file, if we go that route. Based on what I have been reading on here, a stable income is much more conducive to actually completing the chapter 13 anyway.

Now to the reasons that we are having problems financially. In 2022 we decided to leave the "city" we had some land and decided to build a house on that. I would build the house, and the wife would work. In retrospect, it wasn't great timing, as it coincided with the crazy amount of inflation that was to follow for the next 2 years. In short it cost almost triple to build the house, than what we had planned. I payed for these overages and for the increased cost of food and essentials with credit cards. Bad idea, I know, but what was I to do. Once the house was completed, I consolidated everything into one mortgage. This ended up being a 340k mortgage, at 7.625%, due to the increase in rates, this was the best rate available. So now, We have no car payments, no credit card payments, and a mortgage payment of $2600, including impounds.

One thing I should add is that in 2021, I had the "brilliant" idea to take out an unsecured loan from Bankers Healthcare Group. This is likely the dumbest thing I have ever done, in my life. I still am flummoxed as to why I took the loan. This payment is ~$1400 on an 8 year term, and I cannot pay it off before 4 years has passed. Which will be in November of this year.

After the refi, I did what so many people do, and didn't change any spending habits, while still only having one income. Needless to say, that about 2 years later, we have $100k+ in unsecured debt built up again. On top of that, I have gone back to work, but since we built the house in a very rural area, there is no work there, that pays anything. So I am 5 hours away in order to make a decent wage. I rent a very cheap, crappy apartment and drive home on my off days.

To compound things a bit, the wife was in an accident, and her (paid off) car was totaled, as she travels for work, I couldn't take the $14k settlement and get her a decent car, at today's prices, so we also added a $400 car payment. And due to the accident, and some insurance company BS, we are now paying ~$3500 every six months for car insurance. (Our 19 year old son is on the plan)

Sorry for writing a novel. I would like some advice, on what you guys think is the best way to proceed, a debt consolidation company or bk13. Feel free to ask questions.

[Carmella]

I would see a BK attorney, actually a few of them, who have experience in your area. See what your options are. They will want your income tax returns from the last year since your wife was traveling and is no longer or will no longer do that your income will be different this year than last. Also with your situation of renting an apartment and working a distance from home makes it seem more complicated at least to me.

I would NOT go the Debt consolidation route because they are often unsuccessful. They try to negotiate better terms/pay off amounts, etc. Some creditors will not work with them meanwhile you will run up more interest and late fees once you stop paying those bills. And as you already mentioned you have in the past combined your debt and then ended up going into more debt. I believe that is pretty common, my husband I had done that back with the old credit card consolidation and 0% interest back in the day, but never got ahead of the debt.

You have a lot of variables so see few attorneys and get their opinion on how to handle your situation. You mention your 19 yr old son and he is an adult in the eyes of the law, if he's a student you may have some leeway with paying some of his expenses.

[redbox13]

Thanks for the response, and the advice. We are certainly weighing the options. I think our biggest hesitation with the bk is the failure rate, coupled with the fact that, as evidenced by our current predicament, we have never been very good at sticking to a budget. To ask a couple more questions, about chapter 13...

It seems that all of our income would go to the trustee, who would then disperse the funds to all parties. That includes all funds? Mortgage, car payment so on and so forth, and basically whatever is left over from all of that goes back to us? Is this about how it goes?

Is there a general rule regarding what the bankruptcy payment would be? I guess this would only pertain to a 100% plan. Like if the total is $50k the payment would be X? Is there a way to estimate this, at all?

[Carmella]

The failure rate is high, but if you get on the plan and stick to your budget it works. It is stressful because unexpected expenses can happen. We dealt with a few. It wasn't an ideal situation to put off repairs like water leaking (clean water) from the toilet into the basement being caught in a large pail until we had more than enough money for the repair. Or my husband and I sharing a car, luckily our work schedules allowed this or he would have been riding the bus. Or when my car was totaled by a drunk driver and having to go thru the process to buy a new car not only complicated by BK, but also the pandemic. Life happens. We were still supporting our young adult new college grad daughter that was an expense not accounted for in our BK as she was an adult and not a "dependent." I went on a bare bones food budget for the first few months until I was able to adjust to the budget and make better choices. We were able to squeeze through the pandemic when I lost my second job, but my husband had overtime and even though it was not the same amount of income we made it work. I also bargain shopped going to more than one store for groceries and household items to stretch the dollars.

If you have an emergency, you cannot handle you must contact your attorney right away to make adjustments to the BK. I didn't have to do that, but I have read accounts of this and know communicating problems ASAP is the best thing to do.

We asked to have the mortgage, HELOC and car payments paid outside of the plan. This means we had to pay them not the trustee. They were still required to be paid. You get locked out of online payments so you need to know how to pay. One of our cars was at a local bank, I paid in person. One car was online, but I found a link on the website to pay through a 3rd party. The mortgage and HELOC we could mail or pay by phone.

I don't know how to calculate the payment, some people have posted the lawyer gave them an estimate. Ours was 100% payback. Fortunately, not all the creditors filed and our BK was discharged several months earlier than expected. It was a pleasant surprise!

[Carmella]

Someone can explain much better than I can. When you file for BK there is a form to estimate what your expenses are for necessities like food, rent/mortgage, etc. This helps calculate the amount of money needed for those expenses. The amounts could be more or less than you actually spend. I didn't understand all that at the time. I was kind of in blur/fog and emotionally distressed and didn't know of this forum. The form really overwhelmed me and my husband has anxiety so he didn't even try to help with it. His anxiety can get pretty bad, so I couldn't discuss a lot of the little details with him.

This would be a great question for the attorney. Find out your options, see if the attorney can give you an estimate of your payment.

I think, and someone can correct if need be, if you qualify for Chapter 13 and your income cannot meet your necessary living expenses and pay back the debt then you would be in a plan for less than 100% payback so you would still have money to live on.

It was a very tight budget for us, but some people have posted they could save $ while in Chapter 13. Honestly, if we were not supporting my adult daughter for household expenses, car payment (one of the cars we had in the BK plan) our budget would not have been as restrictive. She had a low paying internship after graduation that was a stepping stone to a better job.

[Lanced]

debt relief and debt consolidation offers no protections you can still be sued. and there's going to be fee's for every debt they settle on top of there main fee... to me it sounds like a rip off.

[shipo]

debt relief and debt consolidation offers no protections you can still be sued. and there's going to be fee's for every debt they settle on top of there main fee... to me it sounds like a rip off.

And a 1099-C for all forgiven debt; meaning you now owe the IRS lots more money.

[Lanced]

ooops forget that

[BxRcvor]

I have done both, actually. And, given the choice of the two, I'd choose CH7 over any of those debt relief programs. In fact, my participation in the first of those DR programs is what actually led me to file CH7.

Before we begin, always consult a BK attorney, as mentioned above, before you do anything. My experience might be different than yours. In my case, the first DR program I tried was a total rip off. And it got to the point where I was sued by one of the creditors. I had no choice but to file Ch7. Doing so saved me a lot of legal trouble, even though it may have cost me financially (I lost my car). Still, I had some additional debt post CH7 for which I needed a 2nd debt relief program. This company was quite a bit better. And, as a result, today, all but one of my debts remains unresolved. All the others are settled and payments are being made. Most of the settlements are for roughly 40-50% of the original debt. In another year or two, I should be totally debt free, within the context of this program.

Now, here's the problem with debt relief programs. First, your credit rating/report suffers considerably while you are in the program. Almost to the point where you can't really do anything else with it (depending on what you need to do). This is because the DR company tells you not to make payments on the original debt directly to the creditors. Initially, it's what gives the DR company "leverage" to negotiate with the creditors for reduced settlements. Once you are "debt free," supposedly, your credit rating returns to normal as the debt is closed out, but that is never guaranteed. You need to make sure your credit reports get squeaky clean after you are debt free, and that no adverse information still exists on them.

Second, as mentioned above, you are still liable to lawsuits at any point in the process. Ask me how I know. The DR companies do offer "legal services" that help defend you against such lawsuits, but if the creditor still wants to push it... well. Now, this can also turn into an "incentive" technique by the DR company to get you to pay more every month. They can tell you, "Creditor 'A' is now in pre-legal status. You'd better accept this settlement now and pay a higher monthly amount or they will pursue legal action immediately!"

Third, DR companies will set up your initial plan to recover the debts and quote a monthly draft amount for the entire program (eg. $300.00/mo). They'll tell you, "that's all you'll have to pay (each month) until the program ends," several years later. It seems easy enough to match your budget. DON'T YOU BELIEVE IT!!!!! That monthly draft amount is affected by when (and by how much) the DR company arranges settlements with your creditors. Say you have a total debt of $20,000.00, spread over 5 creditors. The initial monthly draft they collect would probably work if each of those creditors settle sequentially, one after another, over the full projected length of the program. But that's not what happens. The DR negotiators usually try to settle the debts in "parallel" and as quickly as possible, in order to avoid legal actions. If 4 of your 5 creditors agree to a settlement at once, even with a reduced amount, there's no way that initial $300/mo draft will cover it all. The DR firm want you to bump up your monthly draft (or pay a one time cash payment) to be able to cover the payments. They'll tell you, "But you'll be debt free sooner than projected!" But what difference does that make if you can't handle the draft bump up? Now, you can refuse the settlement if you can't afford the bump up, but they'll tell you that will cause the creditors to bring legal action against you. They want you to pay more, and up front. But if you can't, legal action looms. And you are now at the point where you probably should have filed CH7 anyway!

If you can handle the monthly drafts and the changes in them, so be it. Use a DR plan. But, I'd wonder why you would need such a plan if you could afford those draft increases, anyway. Might be better to pay off the original debts directly. My recommendation would be to "cut to the chase" and file Ch7, Get a good BK lawyer who knows the trustees in the jurisdiction and knows how to work with them. You're credit report is going to be bad either way, and you will lose assets/property/cash, but it will be over and done with. But again, consult a BK attorney first.