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I’ve Got Three Kids, Falling Behind, Unemployed and Have a Lot of Debt. – Kevin

“Dear Lewis,

Here’s my situation. My name is Kevin, I am married with 3 kids. My story began when my wife and I tried to restructure our finances by applying for Obama’s mortgage modification program.

The irony is we didn’t need to, but we were told that we qualified and figured, if we could save some money lets do it. They put us on a reduced payment and blah blah blah, next thing you know, we were denied a mod, forced to pay a huge fee, took a credit hit and ended up with a payment about $1,500 more than before we started this nightmare.

Really a sad joke.

Anyhow, I have since depleted a $25k home eq loan and am carrying about $35k in credit card debt making min payments. The only positive is that i have a lawsuit that should bring me a six digit settlement in the next six months. I have depleted my kids educational funds and am currently unemployed, but I think that will change soon. I honestly could care less about morals etc. I have 3 kids to think about. My lawyer told me he could keep me in my house for two years and then what? Foreclosure and bad credit. Not good in todays market. I have no family and my friends are in the same boat.

i know my options are either bankruptcy or foreclosure. I don’t want to find myself laying out all this cash from the settlement and have nothing left for my kids college fund. Will bankruptcy court take my settlement money? I am sixty grand in the hole and don’t really know the next move.

Thanks

Kevin”

Dear Kevin,

I think the answer is rather simple. Yes, the bankruptcy would take the settlement in one form or another.

I am assuming it was a personal injury, or something similar.

It is an asset of the bankruptcy estate. So if you file chapter 7, the trustee will take control of the “asset” and settle it for the benefit of your unsecured creditors – the credit cards. So you may still get any surplus, but you have lost control over the “asset”.

In chapter 13, it would be very similar. Since you expect to recover more than the amount of your unsecured debts, you either have to pay a lump sum to the trustee, or propose to pay 100% of your unsecured creditors over time to keep the asset. But with no work, how can you make a monthly payment to the trustee?

What I am afraid of is the following…

You get $100,000 settlement, so you pay off your credit cards. You then pay off your equity line. Now you are down to $40,000.

I have no idea what your monthly expenses are, including the remaining first mortgage. But I know just about all families eat up $40,000 a lot quicker than they think.

So you use the $40,000 to live off of (paying the first mortgage), and if your employment situation doesn’t change, then you are out of money.

At that point, you might have wished that you didn’t pay off the equity line and continue paying the first mortgage.

I am not saying this is exactly how you would handle it, but what I commonly see from clients who come to see me.

Depending on where you live, and exactly what your settlement is for (the type of injury), there may be other ways to shield it from bankruptcy.

But if it is normal personal injury claim, the likelihood of exempting the settlement is generally not good.

Ive Got Three Kids, Falling Behind, Unemployed and Have a Lot of Debt.   Kevin My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

Legal Disclaimer: This is for educational purposes only. It is not to be relied upon as legal advice. It also does not create an attorney-client relationship. No such relationship is formed with attorney without a written agreement.

If you have a bankruptcy question you’d like to ask just use the online form.

I've Got Three Kids, Falling Behind, Unemployed and Have a Lot of Debt. - Kevin by

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About Lewis Roberts

Lewis Roberts
Florida Consumer Protection Attorney
  • Greg

    here’s my two cents: don’t give anybody any money unless and until you get the settlement money. Stay in the house for as long as possible and “bank” the payment. Figure the house is gone (i’m going to assume you’re under water and/or too far behind to catch up). If, and its a big IF, the lawyer can get you more time in the house, do so, but only so long as the additional “rent free” savings clearly exceeds any attorney fee. If the settlement money comes in, do not pay 100% to the creditors (even the second, see Phelan’s article today on this site. In fact, if your letting the house go, don’t pay the second anything. If you stay, at least negotiate the second). If you don’t pay the second you can elimate the unsecured debts for even bigger discounts due to the foreclosure. Cash is king. Keep as much of it as you can. You are actually in good shape. You can eliminate a lot of debt, keep your cash, and start over. At least you got the kids education money back. The only reason you should pay the unsecured creditors (eventually) is because you can’t file BK and eventually will work again. Use your unemployment and foreclosure to your advantage NOW and you will be able to keep a lot of the cash. Finally, don’t tell anyone about the 100K!

  • Greg

    here’s my two cents: don’t give anybody any money unless and until you get the settlement money. Stay in the house for as long as possible and “bank” the payment. Figure the house is gone (i’m going to assume you’re under water and/or too far behind to catch up). If, and its a big IF, the lawyer can get you more time in the house, do so, but only so long as the additional “rent free” savings clearly exceeds any attorney fee. If the settlement money comes in, do not pay 100% to the creditors (even the second, see Phelan’s article today on this site. In fact, if your letting the house go, don’t pay the second anything. If you stay, at least negotiate the second). If you don’t pay the second you can elimate the unsecured debts for even bigger discounts due to the foreclosure. Cash is king. Keep as much of it as you can. You are actually in good shape. You can eliminate a lot of debt, keep your cash, and start over. At least you got the kids education money back. The only reason you should pay the unsecured creditors (eventually) is because you can’t file BK and eventually will work again. Use your unemployment and foreclosure to your advantage NOW and you will be able to keep a lot of the cash. Finally, don’t tell anyone about the 100K!

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