Bankruptcy (Ch13) or Home Equity?

[anonymoose]

$120,000 income; $75,000 credit card debt; $45,000 personal loan - definitely over extended myself trying to make a business work.

I've spoken with DMP and they can reduce my credit card payments + interest to a good degree. Monthly payments of $2,200 to $1500 and paid off in just 50 months. However, they can't do the personal loans.. so I'm still owing $1,500/mo on those.

I could stay afloat with a HELOC loan - which I could also get cosigned - spread over 15 years @ $300-ish/mo. Without it, I am going to be negative due to the high payments/interest on the personal loans and recent increased expenses in addition to all the debt (some medical, some work related - like requiring a car now).

It seems like the recommendation is to NOT do this because you convert unsecured debt into secured debt. The question I have is whether the $300-400 monthly payment still follows that advice. It seems to be in a worst case scenario, if I lose my job, I won't be able to pay the mortgage or the loan or the cards - so it's all gone anyways as far as I can tell.

The side annoyance is that I have a side business that is still making $350/mo passively, but it can get up to $2,000/mo if I'm working on it (and has done before). The issue is that I haven't been working on it for 1 full year.. but I had a talk with work to not be working 70+ hours a week for them (salary) and get to a normal workload.. and we are moving in that direction quickly. It seems like it would be awful to be bankrupt and having this additional income stripped from me to keep that venture alive since it is proven to do well.

Is this a worthy last stand before bankruptcy or should I continue with Chapter 13?

I am not able to talk to a lawyer until next week - my first missed payment (in my life 😔) will occur on the 15th and one of my credit card statements generates tomorrow which will put the card over balance).

[anonymoose]

To add, I only have about $80,000 in home equity (at max) and I believe I'm covered by $50,000 in VA - and can only get a home equity loan of 80% of it.

I could still pay all my debts this month and have enough food to get by. I wouldn't make it past this one so I one of my consults said to stop paying all unsecured debts if I'm considering bankruptcy or DMP.

[anonymoose]

Update: I've run my budget and calculations like 1,200 times since - looking for every possible angle.

Pros of my situation.:

• In the current state of affairs, with the $1,500 DMP payment (which I'm going to execute regardless) + my 2 loans - I'm going to be going negative each month still.
• If I can get a deferred payment on my mortgage for at least 1, but even better 2, months, I have a bit of extra runway to making a final blow-in.. but that still only gets me through February at my current burn rate
• If I can get a home equity line of credit, I free up $1,000/mo - which puts me back into the green and breaking even if I want to try to count for maintenance/savings
• None of this includes my second business income that is currently still auto-generating $250-350/mo (although reducing slowly over time the longer I go without working on it).
• Tax refund will go to me and therefore give additional runway.

Cons:

• I was chatting with ChatGPT today, and apparently taking a home equity line of credit to these 2 entities will FORFEIT my ability to exclude that new debt from my Chapter 13 bankruptcy if I end up failing still and having to file. It shows a preference toward these two entities.. even though I don't have a preference, they just refused to work with the DMP program.
• This seems to mean that then filing bankruptcy could mean that I lose the house still - as it would no longer be protected.
• I would have to keep this strict budget up for 52 months or gain additional income - so around the same time period as the bankruptcy - but seemingly equal chance to **** things up.

With the HELOC I seem to be in the clear, but in the event that I am not in the clear and have to fall back to bankruptcy then I lose everything because I wouldn't be able to do their minimums due to the new loan? At least that is how the AI worded it.

I think I have enough hang time - even though I have to pay this $1,500 DMP on Monday to get that moving - to avoid paying my other loans until I can speak with an attorney.

Curious what you all would do in my boots. I'm so close to the edge of salvaging it, but also at the spot where any type of emergency payment could break me for the next like 6 months - but if I can make it that long then I can be in the clear and slowly improving over time.

I'm also asking my boss for another raise tomorrow - I am due for one that should net another $230/mo to my checks.

[despritfreya]

Stop using AI. Talk to a well qualified bk attny. Consultations are usually free.

General rule: Never run the risk of losing the roof over your head therefore do not use that roof to bail yourself out.

And, yes, if you convert unsecured to secured debt, secured by the roof over your head, a bk is not getting rid of it.

As to the AI's assessment of "preference", there is no preference if the payments on the loans were made more than 90 days prior to filing a bk.

Des.

[anonymoose]

Yea, just racking my brain until then. I've called 2 different firms, both said they're calling me back this week but still nothing. I've just been sitting here in a pool of stress and anxiety for the past week and a half trying to claw my way out.

My first loan payment just went past the payment date for the first time in my life. I've decided against the HELOC because of how dangerous it seems.

Where everything stands, I think I'm still deep as the latest overages have knocked cards to 29% - it seems like my only options are BK or to join the DMP program and STOP paying the SoFi loans.. with the hope they charge off and settle for a lump sum of ~30% to get that off my back.. I prefer this option over BK and I can't tell if a BK lawyer is going to be honest enough with me to confirm if it is a legitimate option to try before falling back to BK as a last resort.

It's a risk but one that could save me from having to file BK and stay above water/poor on my own without government oversight. This is important because my side business still brings about 5-8k/yr and is set to increase here - but under BK it seems like I do not get to keep working on it to grow it.. which means it will die (it's the main benefiter of why I'm in this mess - I overextended myself to get the gear to get this to the next level and make it a full-time gig).

[Carmella]

Find a BK attorney experienced in your area, find a few, talk to more than 1 and go with what makes the best sense.

DMP ? Debt Management Program? may not be the solution because they might not be able to make a great deal with all your creditors and any thing charged off will be seen as the IRS as income making your taxes higher. Someone can correct me on that if I am not correct and I do not know the best terms or way to explain it.

I would buckle down and see what the BK options are and take that route. I am glad you decided against the HELOC because it is super dangerous.

If it's a BK13 it's not easy and you will have to budget, but it was the best option for me and my husband. And there's no game playing, All the debt is added up and you get a payment amount for up to 5 years. Yeah it dings your credit and you can't charge anything, but for us it was the best thing since we kept trying to pay down and consolidate and would end up back in debt--playing games. Credit score came up fairly quickly 2 yrs after the BK was discharged (it's a total 7 yrs, but 5 of it is during the active BK).

If you chose BK13 read up on things to prepare for it like having a reliable car!

Stress and anxiety has been relieved for many of us when we bit the bullet for BK. It's still a bit stressful during BK, but nothing like that game playing/nail biting stress prior to the BK.

[anonymoose]

Appreciate all the extra experienced info!

Yea, by DMP I meant the debt management program. I think it's separate from what you are describing as a "debt settlement" company. One is a non-profit credit counseling (DMP) with special ties to lenders - basically getting you lowered interest rates for a fixed payoff term (what you could do yourself through hardship programs but all at once), and the others is a for-profit company that takes your money into escrow, pays themselves, and tries to settle on your behalf at what seems to be a less success rate than you could do on your own due to creditors not liking them (debt settlement)

Final update: finally had the lawyer call I'd been waiting almost 2 weeks for. He confirmed that high income earners like myself are effectively ****ed in Chapter 13 - in that I could end up paying more than I can technically afford (which is opposite what I read), but he said it is a CHANCE I'd be risking because of how high my expenses are (mortgage, HOA, utilities, car, etc.) are above IRS norms for this area by 20-50% as a single person. Even just my power bill is far above average because of the compute power I run for work - but those types of things are apparently not taken into consideration even though it comes out of my pocket and not the company's.

He doubly confirmed that BK should be an absolute final last resort and not something I default to even though I can see the trees through the forest. He said this is extra true due to my income. Sounds like they like to throw the book at a single person as someone who mismanaged business funds vs. someone who is struggling for say medical issues, has a dependent and with a lower income (which makes sense, but sucks for me). Apparently there is generally a long amount of time from being current to being over due and actions happening - so he wouldn't want to take me until I was behind already.

He said do everything I can to settle and negotiate prior - even if that means taking the calculated risk of trying to settle and getting sued.. as any judgement can be stopped in its tracks by filing for bankruptcy and that it can be done soon enough. To be fair, he didn't advise that directly but confirmed it as a calculated risk option that could be a viable one given my circumstance. I don't think I can settle, unfortunately, without first missing payments - and I'm still current and could be for 2-3 more months.

I did talk to a second attorney that is not a part of a firm (a solo guy from a listing) and while he was knowledgeable, he said he could not provide any type of insight or advice like this other guy provided - and also seemed generally like he'd just be filling out the default paperwork and not really going to bat for the best outcome for me. I need someone that I feel good is is going to step up to the plate to give me the best shot at my life going forward here and not do the bare minimum.

I have one more attorney call but its just he's gonna call me when he can and its been almost 2 weeks already - I have to make a decision to pay or not pay as of today.

[Carmella]

Neither of those attorneys would make me feel great. No consultation in person, etc. It's too bad you can't find an attorney that would gather your info and come up with a real plan, yes you have to pay a fee--not too large--but then you would know in black and white the projected payment. The first attorney we went to was a piece of work told us we wouldn't even qualify for BK 13. Our payment was large with my husband's and my income combined. More than what I had seen other people mention on this board at that time. It was a struggle, but if it was just me and my husband, not having the extra expense of our young adult daughter we paid her car insurance, cell phone and few other things as her internships after graduation was low paying, but helped her get a better job...if it was just me and my husband even though it was a large payment plus we paid the cars and house on our own which was still required to be paid it would not have been as tight of a budget.

My fear in your situation is that you may do these things and still end up with a BK. I might just be projecting my situation and others that I have read on this board that we wished we had done it sooner rather than later.

I truly wish you can find an attorney you can sit down with and share your expenses and have them come up with a plan even if you have to pay out a few hundred bucks for it.

[chrisdfw]

When you are in a hole, stop digging. You can take some time to determine the best course of action, but don't get deeper by continuing to be negative each month.
I am not an attorney, I can just tell you what I would do. Stop paying. Do not give a dime to a debt management company. You can handle it yourself if you decide to try and settle.
Use the money you are not paying to put yourself in the best possible position. Save it to try and settle if that works out, or pay bankruptcy attorneys if you go that route. You might increase retirement contributions a little for protection, in general retirement accounts are shielded from creditors, almost certainly in bankruptcy, but also from judgements in some states. Workplace plans are ERISA and almost certainly shielded.

I would not take a home equity loan, you are on the right track there. You are going to have to keep paying the mortgage and car loans if you want to keep them.
Assuming bankruptcy won't work for you (get a good attorney to really run the numbers, you can actually make quite a bit depending on secured debt, medical expenses, taxes, etc)
From your posts it sounds like you would free up close to +/- 3000 a month if you stop paying. I would probably put aside half to try and settle. The other half I might put into a retirement account. You can also use some to get the business going better, but be careful, you don't want to throw money are something that isn't going to work, only you know that.