We Were in a Debt Settlement Program and Our House Burned Down. – Rebecca

“Dear Steve,

Please help! We are in serious financial problem over our debts. Both my husband and I made some bad choices regarding our old home and credit use.

We moved to a new house in August 2008. We had a higher mortgage and additional HOA fees. Anyhow, we started having problems paying all the credit card bills. In February 2009 we started with a credit couseling service. Some of the creditors wouldn’t participate and with added fees and interest we couldnt afford to pay the cousleing amount plus the amount for the other creditors.

Our credit counseling service had another side for debt settlement. So, In May 2009 we started paying a law firm for debt settlement (money put into an escrow, then as it added up they would pay the debts). Our understanding of the process was that they would negotiate with the creditors and then as the money grew in our escrow account they would pay them.

In July 2009 we had a terrbile house fire. WE lost at least 95% of all we owned. While we did have insurance, everything is depriciated and you have to have the money to buy the items to get the money back that is the difference between the cost to replace the item and the depriciated amount they give you.

Anyhow, we have been living first in a hotel and now in a rental house the past 6 months while they rebuild our home. We have recently received a court summons to appear about one of the credit card debts. When we contacted the debt settlement company it turned out that they only had communication with the companies that they could offer a settlement with at that specific time. For the vast majority of our creditors a form letter was sent out stating that they were “representing” us but no negotiations had occurred.

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So, we looked online and found out there is a total of 3 pending cases against us. We figure we havent received the other summons yet because they probally have our “real” address and not the rental home we are staying in.

So, my question is; should we file for bankruptcy? And if so, what kind? I looked it up and our income is under the median income for our area for a family of 4. We aren’t behind in the mortgage payments. WE have very little equity in the house; as we just moved in August 08 and we only put 3% down for the FHA loan we have. We own two vehicles and we need them to get to work.

Should we file for bankruptcy? IF we do file , can we keep the house and the cars?

Rebecca”

Dear Rebecca,

Who was the debt settlement company?

It unfortunately sounds like you fell into the typical debt settlement black hole. The debt settlement company made all sorts of glorious promises to you but the reality is something far different.

The very minute you stop sending payments to your creditors you trashed your credit and opened yourself up to being sued. It’s really hard to envision a long term monthly payment debt settlement program being helpful at all.

At this point you need to click here to find a local bankruptcy attorney you like. Under a Chapter 13 bankruptcy you will be able to keep the house and cars but you might also be eligible for a Chapter 7 bankruptcy and get a quicker fresh start. Either way the result will be the same, the suits will be stopped. That is something to do before any of these creditors wins a judgment against you.

It will be up to your bankruptcy attorney to decide which route, Chapter 13 or Chapter 7, is best for you. When you go to the appointment make sure your husband is with you so you can hear the same information and ask all your questions together. The process is stressful enough without the two of you being on the same page of music.

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Don’t feel pressured to make a decision to file bankruptcy on the day of your appointment. Go home, mull it over, but make a decision within a day or so if this sounds right for you.

I think once you see the advantages of bankruptcy you’ll probably go that route. And don’t worry, with the delinquencies and lawsuits your credit is already bad. Bankruptcy will actually improve your credit and a great credit score can be rebuilt after the bankruptcy.

Sincerly,
Steve

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Damon Day - Pro Debt Coach

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