“Dear Steve,

Ex left 5 years ago. I took on the house that is 70k upside down the 4 kids, the credit card debt , the tax debt, the parent plus loans, the counseling fees for the kids. @ the time my contracting business could handle all of this.The my work load was cut in half twice and I was laid off for months at a time 3 years in a row. I am out of money @ 58.

I would need @ least 117000 dollars to make things manageable, I have been to state free credit counseling and their assessment is I am loosing 1995 a month and can not pay back the money owed.

I have to pay back the taxes and the parent plus loans no matter what and I am barely making enough for food and shelter now. Is there any solution for this mess other than bankruptcy ?

James”

The Answer:

Dear James,

Besides winning the lottery, no.

The good news is that depending on the age of the taxes, some of them may be dischargeable in bankruptcy. I’d suggest you click here and find a local bankruptcy attorney as quick as possible. You may also want to read How to Get Out of Debt. The Honest and Unvarnished Truth to help you understand the reality of getting out of debt today.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

@GetOutOfDebtGuy

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.

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• My Wife is Divorcing Me. – Mark
• Lost My Job, Upside Down in Mortgage, and Our Expenses Far Exceed Our Income. – Doug
• Should I Take Money Out of My IRA and Use it to Pay Off Debt? – Dan
• I Was Wondering if it Would Make Sense to Liquidate Part of our IRA and Pay Off the Mortgage? – Ken
• I Am Confused And In Trouble With My Option Arm Mortgage. – Kim
• Our Debt is From IVF Treatments But We Are Also Underwater On Our Mortgage. – Rob
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• Dayna Can’t Afford to Keep Her Car Or Get Rid Of Her Car, Even By Repossession

Read the full article at GetOutOfDebt.org, click here: Wife Left, Business is Down, and I’m Out of Money. – James

Doug

“Dear Steve,

I have lost my job, We have a huge overhead and with the current economy, we have tried, but unable to sell our house for loan value. Upside down with bills 4 to 5 times what is coming in. Applying for jobs but nothing yet and have depleted savings and 401 ks leaving early withdrawl penalties I can’t pay. Do I have any options to save my family?

Is bankrupcy my only option? I feel overwhelmed and fight the urge to consider cashing in on life insurance the bad way to take care of my family.

Doug”

The Answer:

Dear Doug,

Your situation is like this, you are crossing a financial desert and you are halfway across it. But you’ve managed to drain and use every bit of water you had, and even the water from the 401(k) as well. What are the chances of you making it the other half of the way across the desert?

The answer, not good. Draining assets without an endgame in sight just postpones the inevitable difficult choices that need to be made. If you had reached out for help earlier before you drained the 401(K) my answer would have been the same, bankruptcy. The difference is that back then if you had gone bankrupt you would have been able to keep the 401(k) funds and not owed a big IRS debt because of the early withdrawal.

I don’t say any of that to make you feel bad, but to help someone else that might be facing the same situation as you.

I predict that once you face the situation with bankruptcy that you outlook on life and your chances of a better future will improve. They usually do.

Look for a local bankruptcy attorney and go in and have a free chat. Ask all the questions you can think of and then go home and decide if bankruptcy sounds like a reasonable solution for you based on your situation.

My concern is that even with bankruptcy that your basic living expenses may exceed your family income. In that case, a job, any job, will be critical. You might even have to take some crappy temp jobs just to earn some money. That’s what I did when I was in that situation. It sucked but sometimes you do what you’ve got to do.

Big Hug!

@GetOutOfDebtGuy

Other Related Articles to Read

• How to Survive a Job Loss
• Should I Go With Bankruptcy or Debt Consolidation? – Patricia
• Should I Drain My 401(k) to Buy a Second House? – Armando
• Should I Take Out a Loan from My 401k to Payoff Credit Cards? – Terry
• I’ve Got a 401(k) Just Sitting Stagnant. – Steve
• Will Baby Boomers Have Enough to Retire?
• Should I cash in 401k to pay debt down to get better mortgage rate? – Carol
• I’m Disabled. My Husband Lost His Job. Where Do We Turn for Help? – Kaye
• Should I Take Money Out of My 401k or Roth IRA to Pay My Student Loans? – Seapar
• My Husband Lost His Job at Age 62 and We Have a Lot of Debt. – Yolanda

Read the full article at GetOutOfDebt.org, click here: Lost My Job, Upside Down in Mortgage, and Our Expenses Far Exceed Our Income. – Doug

“Dear Steve,

Ok, here goes. I have spent the past many years (decades) coming and going from home; being away so much I never paid much attention to the bills. Recently I changed jobs and noticed my wife stressed out, upon investigation, discovered we owe $109,000 to credit cards. We almost own (still have a mortgage for six more years) our own home, but there is no equity to speak of.

Currenlty I have a negative cash flow of $800. Should I take money out of my IRA (traditional) and use it to pay $25,000 of debt so I’m not running negative each month? I have a snowball identified, but am having dificutly getting it started becuase of the lack of extra income.

Dan”

The Answer:

Dear Dan,

You should absolutely not take money out of your IRA to pay off debt.

I think your situation is a classic example of my saying “There is no sense wasting a perfectly good mistake”. We can address the current situation but you’ve got to take what you’ve learned from this and not repeat it in the future.

Work as a team with your wife to mange your finances. Even get a copy of your consolidated credit report at least once a year and sit down together with it. You can review it together and see exactly where you stand. If that had been doing that, this debt would never have snuck up on you.

I think the only logical solution right now will probably be a Chapter 13 bankruptcy. A Chapter 13 will allow you to repay what you can reasonably afford and that is actually what you are trying to do. It will reduce all your interest rates to 0% on the cards and put you on a three to five year repayment plan.

Doing this is better than a credit counseling or debt management plan in your situation since you are already negative each month.

In your case you are simply using bankruptcy like a major corporation would, to reorganize your finances so you can repay what you can afford to.

Please go meet with a local bankruptcy attorney and ask for a free bankruptcy consultation to discuss your options and situation.

Big Hug!

@GetOutOfDebtGuy

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• I Was Told Not to File Bankruptcy Due to Severance I Might Receive. – Diane
• My Active Duty Military Husband Says We Should Not Start Investing Till He Returns From Being Deployed. – Barbara
• Lost My Job, Upside Down in Mortgage, and Our Expenses Far Exceed Our Income. – Doug
• Facing Unemployment and Wanting to Cash Out Retirement. – Susan
• Marriage and Money: How to Talk to Your New Spouse About Finances
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Read the full article at GetOutOfDebt.org, click here: Should I Take Money Out of My IRA and Use it to Pay Off Debt? – Dan

“Dear Steve,

I have lost my job due to a so-called “voluntary” early retirement program. I am looking, but have yet to land another job, and at 55 I dont think my chances are great of making anywhere close to what I was making in my last job. Our children are grown and on their own, and our only debt is a $245000 mortgage on our house.

We have approximately $600K in IRA’s spread at a couple of institutions, and about $80K in other savings. We have been trying to sell our old house without success, for almost a year because the real estate market as you know is dead. Its worth approximately $200K.

I was wondering if it would make sense to liquidate part of our IRA and pay off the mortgage, (6% fixed 30 yr) to get our monthly living costs as low as possible?

Ken”

The Answer:

Dear Ken,

Thank you for looking ahead and planning in advance rather than waiting until the last minute and being in a tough spot.

I’m rarely a fan of liquidating the Individual Retirement Account (IRA) and I’m not a huge advocate of it in your case for several reasons.

1. As long as the funds remain in the IRA they are protected from your creditors. If your financial position was to go downhill, say you could not find a new job, I don’t want you to have opened that door to the IRA and left the withdrawn funds exposed.
2. Refinancing is out of the question right now probably due to the “early retirement” but once you get employed again you could look at a refi at new lower rates and that would lower your monthly expense.
3. You could use part of your 80K in liquid cash and pay down the mortgage so you can get it at a price someone would bite on. That money is already exposed anyway so using it to get you out of the house is not a bad idea.
4. Besides, if you take cash out of the IRA you’ll probably have to pay a 10% penalty on the money taken out and taxes on it also. So if you wanted to pay off the mortgage you’d have to take out $245,000 + enough to pay income taxes on the 245K + a 10% penalty on that entire amount. It adds up to a lot more money that just the mortgage. Think about it, between the amount you are underwater on the mortgage plus the penalty to get the money out of the IRA you’d have to sink in about $75K when you can just use $45K of savings to get it down into selling range.

It seems that potentially dumping the house, while full of sentimental moments, might be the more logical route to weather out the current financial storm. You could rent a small place with less upkeep, or maybe even an upscale condo. That would reduce your utility expenses and upkeep costs. It would give you greater flexibility right now and allow you to wait to see what the real estate and job market may do before you purchase again.

While you don’t have a new job just yet, you could again turn to the 80K and use some to pay a larger deposit for a rental and that should grease the skids to get you in.

So, if you consider this approach, it would allow you to dump the house much faster, reduce your overall monthly expenses, let you focus on finding a new job and give you some greater flexibility in your life to maybe close the door and take more vacations. But the big bonus is that it keeps your 600K safe for its intended use.

Steve

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• Should We Pay Off Our Mortgage? – Andy
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Read the full article at GetOutOfDebt.org, click here: I Was Wondering if it Would Make Sense to Liquidate Part of our IRA and Pay Off the Mortgage? – Ken

Kim

“Dear Steve,

Husband and I take home $6,200 p/m. 1st mortgage $355k changes per libor 6 months, monthly $1300, 2nd mortgage $110k, 15 year fix, $867 p/m to end in 11 years. Home is upside down. value now $270k.

Credit cards approx $45,000 about $760 p/m, car loans $37k, $529 p/m. no retirement/ira and no large assets whatsoever. Husband is 40. I am 37. I don’t know if I should seek credit counseling or file or BK 13 to get some relief.

We live in San Diego. Seriously in trouble and need advice. What should we do? I’ve watch your show, and have much respect for you. I am about begging for financial advice. I have 2 minors, 16 and 3 (which we pay $730 p/m in child care.

Kim”

The Answer:

Dear Kim,

From the description of your mortgage it sounds like you potentially have one of those libor based option arm mortgages that give you some choices about how much you can pay each month. Payment choices range from one that will pay the loan off in 15 years to a payment that won’t even cover the interest. Libor stands for London InterBank Offered Rate. These libor based loans are part of the next wave of mortgages that will reset and payment are projected to increase and cause more foreclosures.

I am not a fan of 15 year mortgages. I prefer to see people in 30 year mortgages and making a payment that will pay off the loan in 15 years. This way, in difficult and unexpected situations you can drop back to the 30 year payment to get some breathing room and then resume the 15 year payment when life gets better again. Otherwise, the option is default and the loss of the home.

Just from the numbers you gave me it looks like you can make ends meet but I’m confident there is more to the story. To get a grip on what you can afford to pay towards debt repayment and/or savings you can use my debt reduction dollar formula that begins on page 81 of my book, “Eliminate Your Debt Like a Pro”, which you can download for free.

No matter what your situation, I don’t think you can go wrong with setting up an appointment with a local bankruptcy attorney and go in for a review and to learn about what bankruptcy would mean for you if you went that route. You don’t need to go to file, just learn and get the facts.

Before you break into a full fledged panic and rush to make an emotional decision, let’s get all the facts first.

I’m going to give you some homework. Come back and update me in the comments section about what money you have left over each month to use for debt repayment. Also, give me feedback on how the meeting with the bankruptcy attorney went.

Big Hug!

@GetOutOfDebtGuy

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• Should I Take Money Out of My IRA and Use it to Pay Off Debt? – Dan
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Read the full article at GetOutOfDebt.org, click here: I Am Confused And In Trouble With My Option Arm Mortgage. – Kim

“Dear Steve,

Key Points. Combined 150K salary with wife. 47K in CC debt (9 different accounts – all APR at 11% and below. 8k loan (0% interest for new windows for house). 80/20 mortgage with first loan I/O ARM (reset Feb 2012, at 6.75%, balance is 284K. Second mortgage at 8.58%, balance is 69,842. 38k in combined 401K. House is worth about 330k based on estimate from realtor. Wife has 100% matching 401k that we max out each month – total contribution is 1150 per month. We have 2 car leases, each at 190 per month. We have 3k in savings

We are lost. We’ve paid down about 5k on credit but i’m not sure if we should be saving instead of attacking credit cards. We’ve tried to refinance our home under new mortgage plans but our lenders won’t because we are underwater. My credit score is 570. I don’t know what we should be doing. We have good income and fairly stable jobs – should we be paying off credit cards first? 2nd mortgage first? Saving all of our cash? File for BK?

We filed for BK over 12 years ago and I can’t belive we’re back in this mess all over again? Most of our debt came from IVF medical procedures to have a child which we were successful and have a beautify 5 year old boy. Any advice is appreciated.

Rob”

The Answer:

Dear Rob,

A very interesting situation. First, congratulations on your son. I’m so happy that it worked out well for you. IVF is an expensive process.

My primary concern is the loan reset. It would be a shame to make all sorts of progress now only to be sunk by an interest only loan that will reset in three short years. Time flies fast when you have a reset or a balloon note due.

I’m not sure why your credit score is in the toilet. The best way to check would be to order a copy of your consolidated credit report with the credit score option and see what the very people that calculate your score have to say. This consolidated credit report is the very same one that I use and love. I think it is the best.

As I ponder your situation it occurs to me that not every moment of every situation is the time for forceful action. And this might be that time for you.

Here is what I’m thinking. Bankruptcy is always a possibility but it would be more effective for you if bankruptcy judges are given the power to modify mortgages so yours could be adjusted to value. That proposal is kicking around congress right now. You have not given me any sort of indication that you really want to be out of the house now so why go?

You are making the most of your IRA contributions and this is a great time to be doing that and investing. If an employer wants to match 100% then take it. Never turn down free money. There is so much doubt that Social Security will be around latter that we all need to save for our own retirement.

For right now I would suggest that you pay minimum payments on the cards and save any freed up cash by putting it in a boring old savings account. This is just to build up your emergency fund since your IRA should be left alone and not borrowed from.

It would be a good idea to write to both of your home loan holders and ask them for assistance to adjust your mortgage. We know they will say they can’t but you’ll need that documentation in hand if you decide to go bankrupt to deal with the home situation.

That mortgage you’ve got and the fact that you are so upside down on it is a ticking time bomb. We’ve got to address that or you’ll never be able to dig your way out.

I’d wait to see if bankruptcy judges get the power to adjust mortgages before drastically altering course. In the meantime you could always do a little pre-planning and schedule an appointment with a bankruptcy attorney now for a free bankruptcy consultation so you can create a game plan to execute latter.

Does that make sense?

Steve

Other Related Articles to Read

• Trying to Get Lender to Modify Our Mortgage Again. – Kay
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• What You Need to Know Before You Refinance Your Home to Pay Off Debts
• I Was Wondering if it Would Make Sense to Liquidate Part of our IRA and Pay Off the Mortgage? – Ken
• My Car Payments and Car Insurance Are Killing Me Financially. – Greg
• My Mortgage Left Chicago on a Train at 9 AM Going 52 MPH. – Rick
• Mortgage Company Won’t Modify Loan Because it is an FHA. – Debora
• My Second Mortgage Loan Was Charged Off. Do I Need to Worry About It? – Michelle
• We Can’t Afford Our Mortgage and Bank of America Said They Can’t Help. – Anne
• Loan Modifications. More PR Than ER. 57% of Monthly Payments in Modified Loans Are the Same or Higher.

Read the full article at GetOutOfDebt.org, click here: Our Debt is From IVF Treatments But We Are Also Underwater On Our Mortgage. – Rob

Greg

“Dear Steve,

Car payments and car insurance are killing me financially!

I don’t know what to do on my car payment anymore? I’m getting financially stressed! Its extremely high and I pay high interest, plus I have another car I owed on and traded it for this new car and what was left on the loan? Was tacked onto this one.. I’m thinking very seriously about going to bankruptsy to get out of it?

By the time I pay this car off? I’ll have 42,000 dollars into a 18,000 dollar, this is on a 6 year note, the car is a Ford Fusion S.. I’ve already payed a year on this car and I’m living pay check to pay check plus I’m opening new credit cards to live on and survive off of because of these big payments along with the 82.00 a month full coverage insurance.. I even thought of letting the car go back? Instead of doing the bankruptsy?

Greg”

The Answer:

Dear Greg,

Dude, you are way upside down on that car loan and in a debt death spiral if you are taking out cards to pay bills. When you traded in that other car with the negative equity you just wound up rolling the debt forward and now you owe way more on your car than it is worth.

The path you are on right now is not sustainable. Bankruptcy would allow you to give the car back and not have a huge bill, that would otherwise be due.

Giving the car back alone as a solution here, really isn’t an option.

Rather than be afraid of bankruptcy, go talk to a local bankruptcy attorney or click here for a free bankruptcy consultation. It certainly sounds like the right thing to do.

Big Hug!

@GetOutOfDebtGuy

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Read the full article at GetOutOfDebt.org, click here: My Car Payments and Car Insurance Are Killing Me Financially. – Greg

Dayna

“Dear Steve,

I have an upside down auto loan that I owe about $27,000 on a Mazda car and my monthly payments are $500 per month for 7 years with about 12.45 percentage interest rate. I am unable to refinance my auto loan because my credit is not that good and I owe too much debt.

I am trying to figure out options on how to lower this car payment or get rid of the car – since I am upside down- selling the car is probably not going to help. If I did not have the car, I think I would have enough money to get myself out of other credit debt I have.

Do you have any suggestions or can you help? I have no savings either and it is getting check to check for myself and my family.

What can I do to either lower my car payment or get rid of it without heavy penalties and repossessions?

Dayna”

The Answer:

Dear Dayna,

Sadly your situation is experienced by thousands and thousands of people each day.

It is a sad and unfortunate situation for which there are only a couple of good solutions. One solution is to do an auto loan refinance. But this depends on credit being available and you having a reasonable credit score and good credit. Doing an auto loan refinance in that situation can lower your car payment by extending your auto loan out for a longer period of time, but then again, your loan is already fairly strung out so it is doubtful if a lender would go further than seven years. At this point it is not going to do any more damage to your credit to see if you qualify for an auto loan refinance so click on the link and see what they’ll offer you.

The other solution is to sell the car and take cash that you have in the bank to pay off the remainder of the loan, after the sales price, to get a clean title to then transfer the car to the buyer. But then again, you don’t have any extra cash and that isn’t really a possibility for you either.

So what are we going to do here?

You probably need the car to get back and forth to work so we’ve got to prioritize your other credit debts. If those debts are credit cards or unsecured loans then the most logical thing to do is to look into a debt management program to see if they can reduce your payments on that credit, or stop paying it altogether.

If you stop paying it and you think your financial situation is going to improve in the next few months, you can then go back and make a plan to repay your debt. If you don’t think you will be able to repay anything then you can consider bankruptcy now or wait until the collection pressure gets to be intolerable and then consider bankruptcy.

I wish i had better news for you but it is a tough situation to be in with few good options.

Big Hug!

@GetOutOfDebtGuy

The Answer:

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Read the full article at GetOutOfDebt.org, click here: Dayna Can’t Afford to Keep Her Car Or Get Rid Of Her Car, Even By Repossession