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We Have Not Been Getting a Lot of Sleep Recently While We Worry About Our Debt. – KL

“Dear Steve,

Steve, my husband and I are not getting a lot of sleep lately and we very much related to your story. Thank you.

Our situation is my husband is in the real estate business and his income has drastically been reduced. We bought and sold a lot of real estate investment properties and did well when things were going up but we over leveraged and now we have a primary home, one investment property (which we lost over $120,000 on and will probably be going to short sale) and another investment property which we would like to keep but the rent is only paying a portion of the expenses.

To try to keep current on these properties, and last year we had four properties but sold one. we drained ALL our investments, 401K’s, etc. etc. we realize now this was a big mistake. We always had excellent credit but have now hit a brick wall with expenses and reduced income.

We do have permanent retirement pensions in addition to the reduced real estate income but it just is not enough to keep everything running. We have very high credit card debt (over $130,000) because of keeping all the properties running in addition to college expenses in addition to caring for a 97 year old mother with little income.

At this point we have no equity in the one investment property which is probably going to short sale but the other investment property we have about $70,000.00 in equity and about $60,000 in equity in our primary home.

We are thinking about filing Chapter 13 but need to know all the pros and cons. We don’t want to give up our primary home or our one investment property and in Chapter 13 would we be allowed to keep an investment property if we could modify the terms of the mortgage to make it more affordable and take in one more tenant to increase the rent so we would either break even or supplement a little. To dismiss some of the credit card debt would they go after the equity in our homes?

Thank you so much for any information we are talking to some attorneys or do you know of a good attorney in New Jersey? Also, is there an alternative to bankcruptcy? Thank you so much for any information

KL”

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The Answer

Dear KL,

I’m glad you finally reached the tipping point and have sought help. While I want to answer your questions they seem best answered by a bankruptcy attorney licensed in your state regarding your specific situation. You can click here to find a local bankruptcy attorney if you’d like. If you meet with one and you don’t like them for some reason, find another one. Just like any professional, you want to work with someone you feel comfortable with and trust.

It is important when heading into this phase of your financial life that you understand the worst outcomes are going to come from your demands to hold on too tight to something. What I mean is that the process will work best if you listen to what the attorney has to say and follow their advice. If the attorney says that under your state exemptions the investment property can’t be protected and you need to give it back to the bank, do that.

You can already see what holding on too tight has done, drained your investments and 401(k)s. Now is not the time to bargain with a fixed rule system. Now is the time to let go and start over.

Any modification of the mortgage will be up to the bank holding the mortgage. You might want to talk to a HUD housing counselor to look at the modification options available.

As far as bankruptcy alternatives go, no. When someone reaches the drained asset, want to avoid bankruptcy stage they become a prime target to be a victim of one of the many debt relief scams out there that will ask you for loads of money but wind up short on real help.

The best approach right now is not to try to bargain against the system but to work within the bankruptcy system to get a fresh start to put this behind you and move on.

It really will be okay and take it from a guy that’s been there, a better tomorrow is in your future. The key to daily happiness at this point is to stop focusing all your energy on what you feel you have lost and instead make a conscious effort to find little items for you to be grateful for each day. While the situation feels bad, life could be so much worse. I think you’d find comfort in my book “The Path to Happiness and Wealth” that you can download for free. It talks about this very issue and provides some insight that may make this transition in your life easier.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

Big Hug!

We Have Not Been Getting a Lot of Sleep Recently While We Worry About Our Debt.   KL
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If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

We Have Not Been Getting a Lot of Sleep Recently While We Worry About Our Debt. - KL by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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