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Should we try bankruptcy or try to negotiate? – Rosi

Written by Consumer

My husband and I spoke with a bankruptcy attorney last summer, there was an issue with a loan paid back to my mother, so we waited a year.

We retained him this fall. Having been unemployed for almost 2 years, with a short time back to work (3 months) then laid off again.

Basically dinged the unemployment 200 less per week. We were paying our mortgage and car payment until then.

But since June we have not been able to pay for the mortgage, even with unemployment and side jobs, we’re just making car payments, keeping basics, and looking for work.

So I gathered the information for ch7 filing, and presented to attorney. Now my husband’s job called him back, and the attorney says we have to file ch13 for 2 reasons, 1. if we want to keep the house, and 2. because his income will be too high for ch7.

My question is this….should we continue with the bankruptcy which includes 2 judgements/liens on the home from credit cards, as well as several other debts totally about 69k. Or should we try to negotiate with all these collectors and keep bankruptcy off our record?

Rosi

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11 Comments

  • Rosi,
    I forgot to ask – do you have a 2nd on the home? If so, how much do you owe on it?
    This fact may establish more value for you in filing a chapter 13 and may be why the attorney is pointing that direction.

    • Hi Michael,
      Thanks for your input, it’s keeping me sane and preventing me from giving up 😉
      We do not have a second on the home, and the attorney says that we are filing ch 13 only to keep the house. Now I’m rethinking this choice, as you say it doesn’t make a lot of financial sense. We do have future plans to build on my daughter’s property on our own and retire there, it’s a totally emotional choice to keep the current house…. It’s such a vicious cycle, I love reading things like “you ain’t your fucking debt” lol.

      • Hi Rosi,

        Just wanted to let you know I’m here but Michael is giving you some great advice. 

        Glad you enjoyed my article. LOL. Getting ready to post a new one on bankruptcy that I think you might enjoy as well.

        The most important question I think people need to ask themselves at times like this is if they want to spend the next five years trying to repair the past or instead spend that time building a better financial future.

        Watch the site feed or the daily newsletter for the new article.

        Steve

        • Hi Steve,
          “The most important question I think people need to ask themselves at
          times like this is if they want to spend the next five years trying to
          repair the past or instead spend that time building a better financial
          future.”  That kind of says it all, doesn’t it?
          Thank you, I’ll keep reading!
          Rosi

        • Hi Steve,
          “The most important question I think people need to ask themselves at
          times like this is if they want to spend the next five years trying to
          repair the past or instead spend that time building a better financial
          future.”  That kind of says it all, doesn’t it?
          Thank you, I’ll keep reading!
          Rosi

      • Hi Rosi,

        Just wanted to let you know I’m here but Michael is giving you some great advice. 

        Glad you enjoyed my article. LOL. Getting ready to post a new one on bankruptcy that I think you might enjoy as well.

        The most important question I think people need to ask themselves at times like this is if they want to spend the next five years trying to repair the past or instead spend that time building a better financial future.

        Watch the site feed or the daily newsletter for the new article.

        Steve

  • Hi Rosi,

    I am having a little trouble with something. It may just be with how I read what you shared.
    I am assuming the problem with the loan paid to your mother was because the attorney was concerned about payments to mom being clawed back.
    Now you are hearing that you cannot qualify for chapter 7 because you have too much equity in the home, that the home will be at risk in a chapter 7 filing where you can get discharge and a fresh start.
    On top of this your husband has gone back to work and makes good enough money to meet the 6 months earnings amortized over a 12 month period.

    You see, my trouble is that I don’t think you are speaking with an efficient attorney. This has me questioning the accuracy of the feedback you are getting.
    Please answer the following questions if you are willing:
    What is your homes current value? You can determine by using comparables of sold homes that are similar to yours, zillow, contact a broker and request a BPO.
    How long has your husband been back to work?
    What does he make in gross pay a week?
    What were you both bringing in from unemployment weekly?
    What state are you in?
    How many dependents do you claim on your taxes?

    These larger impact questions are because I would like to see you get a fresh start with a chapter 7. If that cannot happen and your husbands income back at his job tips the median income test that rapidly, I would look at settlement as an alternative to the chapter 13.

    If you can answer my questions in a comment reply you will get some tips and feedback.

    • Hi Michael, to answer your questions:

      1. Current home value bpo 11/11 90k-105k, we owe 162k
      2. husband started back to work today, 1/2/12
      3. gross pay is 1350 per week, plus if out of town a per diem of 800 for room and board (he is out of town currently)
      4. His unemployment was 415 wk, ended in Dec
      5. MA
      6. 2, myself and him.
      I’m understanding that with the new income, we wouldn’t qualify for chapter 7. In either case we wanted to keep the home but are behind 6 months in payments. Which I believe we could do if we could get out from under everything else. I’m just feeling like, fine, we’ll pay the bills, it’s not so much about getting out of them as it is just getting a decent place to start from. Also I’m currently self employed in direct sales, but not doing much yet.

      • Thanks for the additional detail Rosi.

        The income median for a household of 2 in MA is about 70k annually. The prior 6 months of income will be amortized over a 12 month period. The detail you provided suggests to me that you would clear the income test hurdle and would qualify for the chapter 7 based on income.

        You are upside down on your homes value. You could keep the home in a chapter 7 by confirming the loans. Mathematically I am not sure why you would. If you walked from it and rented for 3 years you would likely save money and be in a position to purchase a similar home for less than what you owe today and be in a far better position to establish equity. I do not know (nor does anyone else) how long it will take for you to establish equity in your current home, or if you ever will.

        There are different reasons to keep a home besides the math and I respect that. If you don’t mind sharing those reasons in a comment reply, please do.

        Many bankruptcy attorneys offer an initial consult at no cost. I would encourage you to reach out and speak with 2 or 3 more and go over your finances, issues and concerns. I am not an attorney and it is very possible I am missing some things in this very surface scratching observation. My point here is I think you should get a second and third opinion before taking the chapter 7 off the table. If you do decide not to file bankruptcy after you get a few more opinions, settling the debts can work, but with 2 judgments and the uphill battle you will have with meeting your other bills and accumulating the funds needed to keep from having additional ones…. chapter 13 begins to look good (ungood, but better than settlement).

        First things first. Talk with another attorney and then one more after that for good measure.

      • Thanks for the additional detail Rosi.

        The income median for a household of 2 in MA is about 70k annually. The prior 6 months of income will be amortized over a 12 month period. The detail you provided suggests to me that you would clear the income test hurdle and would qualify for the chapter 7 based on income.

        You are upside down on your homes value. You could keep the home in a chapter 7 by confirming the loans. Mathematically I am not sure why you would. If you walked from it and rented for 3 years you would likely save money and be in a position to purchase a similar home for less than what you owe today and be in a far better position to establish equity. I do not know (nor does anyone else) how long it will take for you to establish equity in your current home, or if you ever will.

        There are different reasons to keep a home besides the math and I respect that. If you don’t mind sharing those reasons in a comment reply, please do.

        Many bankruptcy attorneys offer an initial consult at no cost. I would encourage you to reach out and speak with 2 or 3 more and go over your finances, issues and concerns. I am not an attorney and it is very possible I am missing some things in this very surface scratching observation. My point here is I think you should get a second and third opinion before taking the chapter 7 off the table. If you do decide not to file bankruptcy after you get a few more opinions, settling the debts can work, but with 2 judgments and the uphill battle you will have with meeting your other bills and accumulating the funds needed to keep from having additional ones…. chapter 13 begins to look good (ungood, but better than settlement).

        First things first. Talk with another attorney and then one more after that for good measure.

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