“Dear Steve,
My wife and I are both teachers. I just lost my job. We have a $310K mortgage on a home that is only worth $250K. The mortgage is a five year ARM that changes in December. We have about $45K in credit card debt and a $40K student loan. We can only make minimum payments on the cards. We have not defaulted on anything as of yet but with half the income it is only a matter of time.
What can we do to get some relief? We can’t even afford a debt counselor. Some friends are recommending Short Sale or Foreclosure to deal with the house. Others suggest Bankruptcy to deal with the credit cards. From what I’ve read, it doesn’t look like we can do both. Our finances are a train wreck what is our best plan of attack?
Jon”
Dear Jon,
Yep, that is a disaster waiting to happen.
Honestly, we could try to tackle these issues one at a time but realistically I think a more compressive approach is the better one.
If you did a short sale of the house you’d be out of the house with a residual liability and tax liability. That would leave you renting and dealing with the credit cards and student loans still.
Probably the better solution would be to consider giving the house back to the bank and then discharging your residual debt to the bank and credit card debt with bankruptcy. This will give you a total solution and leave you without any lingering tax liability.
Find a local bankruptcy attorney you like and go in and sit down with them to discuss the situation. Don’t feel you need to make a decision that day. in fact, don’t. Mull over what you learned for a day or so and then decide what you are going to do. I know the situation feels urgent but there is no reason to rush into a solution without thinking it over first.
Please update me on your progress by
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