Should I file now?

[hu5ker555]

Here's my situation. I'm 38 years old, married, three kids. I make a good salary, about $100k per year. My wife has recently been diagnosed with an uncurable disease and cannot work. She applied for disability but was denied...we are appealing.

We are in what I consider to be severe debt, just barely keeping the house out of foreclosure each month, paying the essential utilities, and just enough food in the house. Am completely unable to pay any medical bills (after insurance), cannot pay on credit cards, cannot keep car insurance current, have no savings, etc. Here's some particulars...

House is worth about $280k. We have $230k on the first mortgage, and $50k on a second. No equity. I'm 2 months behind on my mortgage. Each month I just barely have enough to keep it from being 3 months behind which would trigger foreclosure.
I owe $25k from my 401k loan.
We have about $35k in credit card debt, all closed out, threatening us with legal action.
There's about $3k in overdrawn bank accounts.
There's an unknown amount of medical bills piling up...maybe another $10k.
Haven't been able to pay taxes in about 2 years.

On the plus side, I take home about $5600 a month. I have $80k in my 401k (after my loan value is taken out).

Not sure what to do. Chapter 7? 13? Does the new BK law mean anything to me? What would happen to my 401k?

[stevie2012]

I'm rather curious, with that much net income, what exactly are you paying where you can't pay your mortgage payment, credit cards, etc?

[hu5ker555]

Medical bills are huge. My wife has about 6 doctor's visits per month, and we pay about $500-$1000 a month in prescriptions (and that's after insurance).

Mortage payment is 2400
2nd mortgage is 700
Utilities are 700
3 kids, food, etc....not much left after that.

[hu5ker555]

Forgot to mention that I have had a car repo'd. My credit is shot.

[HHM]

Well, odds are, you won't be able to file a Chapter 7, you will more likely end up in a chapter 13, which isn't a bad thing per se. Remember, what happens in a BK, is that you no longer need to make payments on your unsecured debts (i.e. medical bills etc), that is going to free up significant income. If that freed-up income exceeds what you need for living expenses, then you will end up in a chapter 13 and have to pay that disposable income into a chapter 13 plan. If you have a ton of debt, you usually pay significantly less to your creditors in a chapter 13 than they would otherwise receive.

Also, if you are behind on the mortgage already and can't make it up, and want to keep the house, chapter 13 is the way to go.

go see a lawyer ASAP to evaluate your options.

[hu5ker555]

Why would I not be able to file Chapter 7? I have a lot of debt and it just keeps getting worse. I haven't even been able to add up all my medical bills. I just know I cannot even begin to pay them.

I'm really concerned about my long term condition. Even if BK can help me get back on track, with my wife's health condition, my current mortgage obligations, and three kids, what I really want to avoid is getting back into this situation again. I don't have any money available to sell my home or move. I really feel stuck!

[HHM]

Why would I not be able to file Chapter 7? I have a lot of debt and it just keeps getting worse. I haven't even been able to add up all my medical bills. I just know I cannot even begin to pay them.

I'm really concerned about my long term condition. Even if BK can help me get back on track, with my wife's health condition, my current mortgage obligations, and three kids, what I really want to avoid is getting back into this situation again. I don't have any money available to sell my home or move. I really feel stuck!

You said your income was around $100k per year? Insolvency for chapter 7 purposes means that you have very little (i.e. less than $100.00) left over income at the end of the month after deducting your "reasonably necessary living expenses", (i.e. things like, mortgage, insurance gorceries etc). Although its conceivable you might be able to file a Chapter 7 (depending on where you live and your situation, for instance, I don't know what your run rate is on medical expenses for your spouses condition). Qualifying for a Chapter 7 has nothing to do with how much debt you have, rather, its whether you have ANY ability to at least pay something back to your creditors, if you do, you will be forced out of a chapter 7.

Like I said, you should go see an attorney asap, I was merely helping to set your expectations a little bit because its rare that someone with your income level (regardless of where they live) to qualify for a chapter 7. But again, I don't know your full circumstances, a local BK attorney can help you further.

Incidently, it sounds like you are the case study of why the NEW bk law is a bad thing, I wish you the best of luck.

[hu5ker555]

Is the new BK law in place yet? Do I have a chance of getting my BK through before it becomes official?

Also, how does my 401k fit into the picture?

[HHM]

The new BK law goes into effect October 17, 2005. As for the 401K loan, unfortunately, that is more bad news for your situation. The Bankruptcy system doesn't recognize 401K's as true loans (afterall, you are really borrowing from yourself), and your payments to payback the 401K loan are not allowable expenses.

At some point you will have to deal with this, I would speak to a BK lawyer soon if I were you.