Support and live with wife and 3 children–23, 21 and 14 years old. I am 48 yrs. old
Yearly income is $74,000/about $5050/month net
Current on all bills and payments–have never missed a bill payment of any type.
No extra money after bills per month. Job is secure but income will not increase much if any in the next few years
My 10 year old (2003) adjustable interest-only mortgage (currently $1336/mo. including property taxes) is about to increase by $950/month to $2300/month when principal payments begin in August 2013
2nd mortgage of $290/month will have 35K balloon payment in 2018 (5 years)–will need to refi/sell before that time
Total combined amount owed on house is 345,000, current value according to zillow.com is around 365,000. However, the home is old and needs a lot of repairs before it could sell.
Unsecured debt of $68,000 on 5 credit cards with APRs from 8-20%–currently making payments of $1400/month on these cards combined. This debt was accrued because was not able to afford original mortgage in first five years of mortgage anticipating refinancing and paying them off. Even though income increased steadily, this became impossible after the economic crash and house went underwater. Have been paying it off VERY slowly due to banks more than doubling the interest rates on the cards for no apparent reason.
Will not be able to afford both mortgage and credit card payments once new $945 increase in mortgage kicks in. Something has to give. After researching, Chapter 7 bankruptcy seems like the only realistic way to get a clean start. Not sure I could pay the credit cards even with a consolidation/settlement.
Main goal is to keep the house for as long as possible. A rental would be comparably priced unless it was much smaller–might save around $300/month–still not enough to pay the credit card bills.
What are my best options for Since I am still current on all payments, when should/would I file for bankruptcy?
Are there things I should do before filing for bankruptcy that can help me get the most benefit from it?
Is the house worth saving? Or should we try to sell it?
What other suggestions, if any, do you have for this situation?
I agree with your assessment that unless you do something here, you are going to be screwed.
But I do have real concerns about the house. While you mentioned the cost of rent is comparable in your area I don’t think you factored in the additional savings in property taxes, insurance, or upkeep. When you add those items in then the rental becomes less expensive that holding on to the house.
The real question is if bankruptcy alone will do the trick and jump start your savings enough. See Debt and the Theory of Dissaving. Why You Need to Take Action.
Let’s say you file bankruptcy alone and keep the house. The issue is if that will free up enough money to allow you to get back to building your emergency savings, saving for retirement, and paying for all the needed upkeep and future mortgage increases which will come as interest rates rise.
Frankly, my opinion is if people need to file bankruptcy to get the legal fresh start they are entitled to then we should strongly consider if a total life reboot doesn’t just make logical sense.
Let’s say you let the house go and included it in your bankruptcy. So then you’d be able to create a new life that lived within your income and better prepare for the future by saving for emergencies and retirement. You could find a place to live now that was affordable and buy again in the future, but avoid the ARM or balloon notes.
Does that sound like a reasonable approach? It would certainly give you the most benefit from bankruptcy as far as quickly rebuilding a better life by learning from your mistakes.
Please post your responses and follow-up messages to me on this in the comments section below.