Should BK be a consideration?

[bradybunchdad]

First time poster.

It's been a crazy couple of years.

Here's my situation - it seems pretty bleak to us, but after snooping around here, it seems like nothing.

Wife and I would file together considering Chapter 13

My Monthly gross income $5500
Hers is $600 all from child support which runs out next June.
State - PA
Household size - 7 (5 kids ages 5-20)

Form B 22C Data as best as I can compute

Line 38 3919
Line 46 171
Line 51 1212

Total 5302

Here's where things get interesting. 11-05 we were forclosed on, and sherrif sold but went to FNMA for outstanding balance of $90K. Thanks to some really crappy stuff from mortgage holder, we could have rectified with pension plan and did take that out, paid the penalty and bought the house back out of foreclosure for $114K 5 months later at 12.5% fixed. Payment $1201, balance is $80K and Current Market Value could be argued to be the $114 I bought it for, although it had been appraised 2-07 for $144, which would put me in trouble with the Ch7 clause of equal or greater payment.

From 1998-2004, finished up divorce, got remarried and did not collect child support for 3 years from wife's ex, so we built up the CC bills. I had very good credit then but eventually we started the spiral. We basically just quit paying all our bills trying to keep up with the mortgage, but eventually everything crashed. We quit using the CCs in 2004 and tried to pay off plus live on cash and keep up mortgage, didn't work. We've been making the payments on the mortgage on time the past 16 months and living on cash, still scraping by with one in college and one a HS senior now.

Now it seems as if all my bad debt has been sold and everyone is knocking. I already have a judgement for almost $6K against me for one CC that I didn't even know went to court.

I have 2 more cases in the next month, one for $3500 and one for $2500. I still have several more out there for varying amounts up to $13K totaling about $40K.

I also had not filed local taxes for the past 2 years because my employer stopped the automatic deduction. I changed employers last year and now they do, but I also owe about $1000 there. All state and federal taxes are current.

I hadn't run my credit report for a while, stupid, but that's where I found out about the judgement.

Should Chapter 13 be a consideration? I don't think it could be any worse than the forclosure and all these lawsuits lining up. I don't want to call and try to settle the others on my own, because some are closing in on the SOL (another 6-8 months), but I don't want this to go on indefinitely. I am 45, wife 39. The CC accounts are all with debt collectors now, not with the original creditors. I don't want zombie debt following me around until I am 65 because it keeps getting sold. BK seems like the one way to wipe it out.

It seems like we could probably settle this whole thing for about $200/mo for 3 years and be done. We are under median income for PA by a wide margin.

Other than opinions in general, a couple other direct questions that I haven't found the answers to with the search.

We have 3 cars, the kid in college has a 96 beater worth about $500. The other 2 cars are my truck, 99 truck, probably worth about $4500 and wife's van is a 98 worth maybe 1500. All three are paid for. Will I be able to keep all 3?

Wife has been stay at home mom because of little kids. Now that they are all in school, is there an advantage to her working? If she works, that just goes straight to DMI right, so why would she?

Are refunds due to Child Tax Credit yours to keep, or gobbled up by the trustee.

My mother died intestate in 2006 and her estate still needs to be finalized. She was a tennant in common with another person on 2 properties, one of which borders my house and is landlocked. It's not worth much, but there is a chance I could come out of the estate with it. If I get it, can I keep it? It's probably only worth about $15K, but I can probably take close to that off of it in timber - it has several good very large oaks on it. I had an estimate before my mom died of almost $6K for about half of the cherry on it without even touching the oak. I'd really like to keep it because it shields my house from being surrounded and would keep my property vaule up.

Does my kid in college's summer job count toward anything other than household income? He is my dependent, makes about $4000 a summer when not in college.

I can't find a concensus on 401k contributions. New employer I started with last year matches up to 5%. Can I still contribute? That actually puts my DMI negative

$40K does not seem like a lot compared to much of what i read here, but to us it looks like Mount Everest. I am trying to get the mortgage company (IndyMac) to give us a better rate, but so far I haven't heard anything. Getting a mortgage after foreclosure was hard, I don't know if I can refi after BK, and I had getting killed at 12.5%. If I could get that to 7, that would save me about $300/mo. Had I realized at the time, I probably should have just done Ch13 2 years ago and been 2 years further ahead.

We have no "toys" like boats, quads, motorhomes, camp, condo, etc. No other valuable assets just your basic 5 kid family.

I realize this is a book, but thanks for reading!!

[bradybunchdad]

Two other notes

Our house is in my name only both the deed and loan. If we file jointly, can we use both our exemptions? Same with the cars.

My company typically pays a bonus in Feb which could be about $5000. If we do a Ch 7 would we need to wait until after that at this point?

I am starting to think if we can meet the requirements and not lose the house, Ch7 might be the ticket. A lot would depend on the value. It had no bidders at the sherrifs sale in 1/2006 for $90K. I owe 80

[Flamingo]

I am just going to comment on a few things here that stand out to me inasmuch as you have listed quite a bit and really do need to sit down and talk to a BK lawyer.

Raising 4 kids, I totally understand your plight together with the divorce and blending of kids and the lack of child support by an ex. I commend you for at least making everything work out. However, with only $40,000 in actual debt and such a low balance due on your mortgage, I would look for other ways out and also investigate BK. Your wife apparently is able and can go back to work. Your working childrens' income counts toward your household income and I am assuming you claim them all as dependents.

"I also had not filed local taxes for the past 2 years because my employer stopped the automatic deduction. I changed employers last year and now they do, but I also owe about $1000 there. All state and federal taxes are current."

As to the above, it was your responsibility to ensure your local taxes were sent in if your employer stopped auto deducting them and paying them just as one would be responsible for paying estimated taxes if enough were not taken out, etc. That is no excuse for not filing them. I don't believe any of those local taxes could be discharged but an attorney in your area/state can correctly advise. They could be paid back in a Chapter 13 but at 100%.

If I were you I would investigate filing BK and make an appoitment with a BK attorney to obtain a consultation and I would also look at the option of your wife going to work and possibly working to get the debt down without filing. There are pros and cons to both for you to consider. It doesn't sound like you are "drowning" but just have a large family, a non-working spouse and, therefore, a lot of debt and bills (food, household, etc.). The older kids can work part-time and cover a lot of their expenses that way (i.e., car insurance, incidentals, gas, etc.).

There are just some things that stood out to me as to what another person sees as to your situation. I am sure otheres will chime in as to different aspects of your posting and maybe offer other insights/suggestions.

[bradybunchdad]

The older kids are one in college living on oodles of noodles with huge loans, so no help there. The other is a senior, doesn't drive and is going to be in the same boat as the oldest in 9 months. They are all my dependents.

I know $40K is not a lot compared to some, but for us it seems like Everest. Wife has no skills, so she'd be looking at a min wage job, and the collleges are already expecting us to pay a lot more than our EFC and tap our equity. We can't get to it because no one will loan us anything, and we're stuck with this stupid 12.5%.

I know that we could make it from here with just a little struggle, the worst should be behind us. But there it will take us 10-15 years to at least to pay off the $40K and by that time we'll have 3 more college age.

I am hoping to pay the local taxes shortly. I know we should have paid it, but we just never had it when the time came.

I appreciate your thoughts very much and we are going to talk to at least a couple BK lawyers.

[BK2008]

You might want to run this through a credit counseling service (non-profit). They are online as well as in-office. There may be another way out besides BK. They can run your numbers and give you scenarios of what you can do.

[bradybunchdad]

We plan on that too, but I am anticipating what happened with B of A with our mortgage, they simply told us we did not have enough monthly income to ever get caught up just with the mortgage, which was only $5000 behind. Our expenses now are basically what I bring in, and that's with no car payments etc. My other fear is zombie debt with counseling. I've read horror stories where one creditor agrees to something like 30%, the person thought it was gone, only to have the 70% show up with someone else and another 7 years starts. I just want it all over. I don't want to have to deal with 7 or 8 liens, court cases, etc. I'm really not worried about the FICO score. We've been living on cash for the past 3 or 4 years, so we shouldn't have anything to object to, we haven't charged anything in that time. I have 18 negatives on my credit report plus a judgement and a foreclosure. How much worse can it get? I wish the lawyer that got us through the foreclosre would have suggested BK then. We'd be 2 years on our way now instead of delaying what looks to be inevitable.

Thanks again to you BK2008.

[2Bshinyandnew]

If you are under the median income in PA, why would a Chpt 13 be considered?

Unless you are having your wages garnished due to liens, since you are already living on a cash only basis, a Ch. 7 may not change your immediate living situation all that much. I was told my daughter's summer job is NOT considered if she is a full time student, and she only works 2 months out of the year.

If you have a 5 year old, and your wife has not worked in years and can't do better than minimum wage, the cost of day care might make your wife's earning ability outside the home not worth the effort, unless she wants to

If the debt is in your name only, and you do file, I would look into filing alone. The non-debtor spouse may be entitled to some protection, particularly with tax refunds and inheritances, possibly even homestead protection, even with the house titled in your name only.

As you said, with the condition of your credit report, your credit likely won't get worse. $40k seems like a small amount 'round these parts but if you have nothing to lose, and you really won't know for sure unless you consult a few attorney's, than getting out from under that $40 on your salary with the mortgage you have seems pretty improbable. Credit Counseling can help some, but you have to have some disposable income, which it seems you don't have.

The attorney consults are usually free, and if not, move to the next name on the list. I'm learning to cut through the small talk and intros at these consults and get to the meat and potatoes of my issues. The attorney's I have consulted so far seem to appreciate that I don't need the standard 15 minute Bankruptcy lesson they all have to give.

Taxes are not discharged, but you probably knew that

[StartingOver08]

Have you tried LoanSafe.org to modify your loan? BOA doesn't have a good reputation for mtgs. Try an FHA loan. FHA is not credit score driven. If you get your loan down to 7% or less you will be on the road to recovery. You do need to check with someone for credit couseling, because a lot of your debt can be reworked without a BK (just from what you have posted so far).

[AngelinaCatHub]

Look, after the advise Flamingo and the rest down the line gave you, I could not even comment. BUT, I would advise to go for the 7 if you can. You sure need a new start and I would do it fast if you will be falling off of child support. I can help no further as here you have been in the best hands other than a (errr how can I say this?) good lawyer. 'Hub

[bradybunchdad]

Thanks all. We'd only do 13 if needed to protect the house, depending on what sort of appraisal value a trustee would come up with. Otherwise 7.

I don't expect that a Ch 7 wouyld dramatically change our lives right now. The thing is there are these lawsuits coming and once they get in and the liens start, they can start attaching bank accounts in PA (not wages though). We've made a pretty drmatic change to our lives so far and I think we're headed on the right path. But spending 10 years gettting to maybe clean everything up and then seven more to clear everything puts me in my 60s.

I guess my main question would be then what would be the reasons to not do BK at this point? As I have said, credit scores are not an issue, and doing anything with the mortgage right now in this market is impossible. Plus predatory IndyMac has a $4000 early buyout for another year and a half and they won't budge on that. So we're stuck at 12.5% for another 18 months.

[StartingOver08]

Bradybunchdad,
Before you consider BK, try reading this link below (Hope for homeowners)

http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL

There may be a way to save your home, get the principal amount down to 90% of the appraised value and reduce your rate substantially. This is for distressed homeowners - and you seem to be one.

[bradybunchdad]

StartingOver, depending on the value placed on the house, we would have between 12-30% equity right now and we are not behind at all., plus pmt is only about 23% of gross. We have made sure to be on time since the foreclosure, so I don't think we are going to get any help with the mortgage.

[allavdj]

I think the reason folks are swaying away from BK is:

If you are barely staying above water and just paying the necessities, a BK isn't going to fix anything. It'll clear up the past debt, but you simply need to make more money to cover fixed expenses or lower your fixed expenses.

Have you kid in college move out and take on his/her own expenses. He/she would qualify for Pell Grants, etc due to being "independent"...there's one major expense outa the way. Kids are resourceful, and if you let them they are able to make it by just fine on their own (I know, I had to).

But the bottom line is, you need to make more money or spend less money. A BK isn't going to be a long term solution

[StartingOver08]

bradybunchdad, the reason I mentioned the program was the reduction in interest rate from 12.5% to 7% It helps that you are not behind

[bradybunchdad]

I am going to try to contact IndyMac again and see what they say.

alladvj, despite the current financial conditions in the world, I do think we turned the corner, ie, if we had no debt other than mortgage, I think we could slowly build our way up. My company was sold in 2003, and that was the final nail in the coffin for us. We got pay cuts and benefit cuts. Finally, I changed jobs last year to a better, more stable company that should be about as solid as any over the next couple years. I started putting in the minimum to get my company match in the 401k, so I am building a little there. The oldest is basically paying his own way now with summer job and loans. Next should follow the same path in a 8 months. That leaves us with 3 elementary-aged. Wife could go find a job where she would work while kids were in school, which would help replace child support and maybe even put us a couple of bucks ahead. The problem is at $100 or $200 a month, even witht the interest stopped, we're looking at 10-15 years or more to pay this all off, with bad credit following us all the way. Now it looks like I am going to have all these judgement liens against me. In PA if I understand correctly, they can just start attaching your bank account. I don't want that to happen and fall behind on the mortgage again. CCs are total evil, I am so glad we have been able to figure out how to live without them in the past few years. I have another CC hearing tomorrow, I'll see what happens there.

Thanks again to everyone for their input.