Quick Answer: A couple considering second bankruptcy 11 years after discharge faces $28,000 credit card debt and active foreclosure with $75,000 household income. Filing again could restore their 653 credit score within months without debt burden, allowing retirement savings at age 34, though the inherited $15,000 IRA may be subject to liquidation.
“Dear Steve,
My husband and I have been down the bankruptcy road and it was discharged. I am embarrassed to say that only eleven years after the discharge, we are now possibly having to consider filing again.
We have one child and my husband makes $75,000 a year. I work as a Realtor but pay has been slow and I can no longer afford advertising and marketing and my fees without business in the pipeline.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
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My concern with a 2nd bankruptcy is that we will once again be left in the cold should we need to lease, or get a vehicle.
I have two car leases right now that total $1100 which end in 2 years and we have a home which is active foreclosure.
Additionally I have $28,000 in credit card debt and can no longer afford to pay the minimums on time.
My FICO is currently at 653 and my husband says with a 2nd bankruptcy we can get back to that number within months and not have the debt, leaving us open to save for retirement as we are 34 years of age.
At this point in time is bankruptcy our best option or should we pay our cards late and cover living expenses until I receive the $10,000 referral and put that towards paying down cards so that the FICO goes back up?
I want to make the best choice for our family. Also I inherited my mother’s IRA when she passed a few months ago which is $15,000 and the only money we currently have saved. Will this be subject to liquidation to pay debt if we file? Thank you for your help.
Kelly”
Dear Kelly,
Boy, did you pick the wrong decade to be a real estate agent. Unfortunately there is never a crystal ball to know when is a good time or not. I was involved in real estate at the end of the 1980s and that’s how I got my head handed to me.
Let’s not fret over the past at this point. At 34 and with no protection for the future I think we need to set our sights on long-term and not tomorrow. We need to focus on repair the future and not trying to repair the past.
The longer we waste resources the less optimum the outcome will be. The resource I’m most worried about is the one we can’t replenish, time. If we can get you into a regular savings program now for retirement, and you save just $100 a month in a stock market indexed mutual fund, it could be worth about $800,000 in 40 years.
But as long as you are running negative each month, there is no chance to save.
Hopefully the IRA you inherited is still held in an IRA and if it is, that’s great! In the case of a second bankruptcy it would be protected from creditors and safe.
If the IRA can be left alone and you have it invested in something like a stock market index mutual fund, in 40 years it would be worth about $900,000. That a good start for retirement but you will need a lot more.
Your husband is right about being able to rebuild good credit after a bankruptcy but his timeline might be a little optimistic.
If you get straight to rebuilding your credit after a chapter 7 bankruptcy you can raise your score back up to better than before. Typically you will get credit offers immediately following your discharge and you’d be eligible to buy a new car after a year and get a mortgage after two to three years. But at the very least we’d be able to rescue some time and get you saving immediately.
I’m going to past a bunch of links about life after bankruptcy at the bottom of my answer. They will help clear up any myths about bankruptcy today.
It’s a shame you are facing financial troubles again.
When you first filed bankruptcy you would have been 23 or so. If you had gone to college I would be that bankruptcy was the result of trying to get started while not making much money and carrying debt forward.
Now, eleven years later, the situation has changed dramatically. With a house, husband, and child the obligations are bigger so any income or life interruption can dramatically impact your financial stability.
All it takes is one risk on a car payment that becomes too much later or an occupation that has reduced income and you are back in trouble again.
It is almost impossible to forecast when problems might arise. In reality we are always one heartbeat away from a disaster that would alter our lives forever. Take the families who were impacted recently with the tornado in Moore, Oklahoma. Their financial lives have been inextricably altered through no fault of their own.
I doubt you set upon this path of a second bankruptcy again by taking intentional action. Nobody does.
But bankruptcy is a legal tool that is afforded to people to give them a fresh start and financial second chance when faced with difficult prospects. The tool exists for a reason. It allows you to get your life back. And that’s an important consideration for not only your future, but also the care and nurturing for your child as well. I’ve yet to see any study that shows going up in terrible stress helps make for better children.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
Not knowing the status of the IRA would leave me to have to ask you to talk to a local bankruptcy attorney about your situation.
But here is what we know for sure. With a home in foreclosure, some really expensive leases, and reduced income that leaves you unable to afford to promote your business, without intervention, you are most likely stuck.
I’d much rather see you reboot your financial lives, file bankruptcy, get to work rebuilding your credit, and start building both an emergency fund and retirement savings.
Does this sound like a reasonable approach and make sense?
Please think about joining my debt support group and let all of us help you on this journey.
Please post your responses and follow-up messages to me on this in the comments section below.
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Hey Steve, Thank you so much for your quick response. I had a consultation with a bankruptcy attorney and he was not sure whether or not my mother’s 401K would be protected in my bankruptcy case because it is inherited. He said he was not sure and would have to look into it further. Do you happen to know? Also he had recommended a chapter 13 for the 9 cards I have with $28,000 total in debt as then they would not be going after the 401k. I was told I cannot use it to pay debt without being accused of having preferential treatment. Your help is greatly appreciated in answering some of my questions. I am self employed but my husband workes for a standard employer and the lawyer said we can file together and I can do a chapter 13 and he can do a chapter 7. I prefer a chapter 7 to wipe the debt and wanted to know what I can do with the 401K to be able to do the chapter 7?
Use our directory at http://bankruptcy.live-get-out-of-debt.pantheonsite.io and let’s see if we can’t find you a second opinion from another bankruptcy attorney in your state.
I’ll ask the attorney network there for some feedback on the situation.
I think it would be a smart idea to get a second opinion. It is the smart thing to do. If you don’t use the directory, find someone else local who is licensed in your state.
Kelly, I checked with the attorneys in the Bankruptcy Education Project and the feedback I got is that the protection of the inherited IRA really depends on the state law. So I stand by my opinion of getting a second opinion on the issue. A chapter 13 would be the obvious easy path but a chapter 7 is not out of the question, but again, depending on your state laws.