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I Used an IPO to Pay Off My Mortgage. Now I’m $450K in Debt. – Lynn

“Dear Steve,

6 years ago, with money from a high tech IPO, I paid off my house. Shortly thereafter, my husband and I started a business (with a HELOC). 4 years into the business, we had accumulated a $390K balance (maxed out) on our HELOC since the business was not profitable and neither one of us took a job (we kept thinking the business would improve).

We sold the business two years ago and I started a new business. It has made enough for my share of our living expenses. However, my husband has remained unemployed and we’ve used credit cards for his salary.

We currently have $60K in CC debt. We’re trying to figure a way out from under. We’re thinking about trying to sell our house (hopefully in the high 4s). Minus the realtor commission $15K, minus about $10K in needed repairs, and $10K for a probable septic repair, minus paying the HELOC, we’re hoping to have about $40K left to put down on a smaller, less expensive house.

Our house is 4,000 square feet, HELOC pmt. is $1,200/mon -variable 3% interest rate, taxes $570/month…the heat, upkeep etc…is too much).

I have about $$40K in stock that I could use to pay down the CC debt. We are worried that a bank will not approve us for a mortgage on a new house based on my husband’s job situation. I have my business, plus I do contract work and make about $10K (pre-tax) a month. I also get $1,600/mon from business sale (we financed sale) and child support.

Our house is assessed at $515K.

My question is what of these options do you consider the best:

  1. “Try” to sell house for desired amount and buy another for around $340K (who knows how long this will take and if we’ll get $ aksing?). Pay down CC debt with stock $ in order to better qualify for new mortgage.
  2. Stay put and apply for fixed rate HELOC and pay down CC debt with stock $
  3. Stay put and apply to roll CC debt into HELOC at a fixed rate
  4. My husband owns an $800K property in Europe that he’s been trying to sell for 2+ years…borrow $ on this to pay CC debt or leverage equity somehow?
  5. Stay put and use stock $ to pay down HELOC and lock into fixed rate. After, file chapter 7 on CC debt. I’m out of other options.

I hope you can give us some suggestions.

Thank you

Lynn”

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The Answer

 

Dear Lynn,

All I can offer you is my opinion of the situation based on an overall holistic approach. The reality is that there is never only one solution to any problem.

Let me run through your given choices.

  1. “Try” to sell house for desired amount and buy another for around $340K (who knows how long this will take and if we’ll get $ aksing?). Pay down CC debt with stock $ in order to better qualify for new mortgage. – Seems to make sense but only if you have cash to carry you until the sale of the house. This would require your husband to get a job and for you to stop adding to credit card balances.
  2. Stay put and apply for fixed rate HELOC and pay down CC debt with stock $ – A good solution but again, you have to solve the underlying income problem with hubby not working. If he does not bring in money, you can’t afford to stay.
  3. Stay put and apply to roll CC debt into HELOC at a fixed rate – See answer above.
  4. My husband owns an $800K property in Europe that he’s been trying to sell for 2+ years…borrow $ on this to pay CC debt or leverage equity somehow? – Real estate sales in Europe have been slow and scuttled with the same credit crunch that is hurting America. Properties are sitting for record times and values are dropping. Depending where the property is in Europe the quality of local estate agents is varied. It might be for sale, but not marketed.
  5. Stay put and use stock $ to pay down HELOC and lock into fixed rate. After, file chapter 7 on CC debt. I’m out of other options. – Problematic with the conveyance of cash assets prior to bankruptcy.

I’d like to offer an alternative path. It seems that the underlying issue here is under-earning which has lead to debt from living on borrowed money. The time has no come to pay the piper. I think you can get out from under the ton of iron on your backs but it will involve a little pain, but no bankruptcy.

It would be possible to do a lump-sum settlement on the $60K of credit card debt using the $40K of stock. Use a professional debt settlement company to handle this for you.

It will result in a negative mark for the amount of debt forgiven and you may have to pay income tax on the forgiven money. But this approach will end the claim against you for $60,000.

Then, focus on selling the house and get out from under that obligation.

Next, rather than run back into another purchase, you could rent, rebuild your credit to get best mortgage rates, and get hubby to produce income to help support the both of you.

Renting will lower your overall living expenses and help you to save money while you are solving the income issue.

This will get you totally out from under your debt with your assets at hand and without bankruptcy.

Let me know what you decide to do.

Big Hug!

I Used an IPO to Pay Off My Mortgage. Now Im $450K in Debt.   Lynn
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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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