Question:
Dear Steve,
$100,000 in unsecured debt.
$50,000 of total is in 5 year consolidation loans.
$10,000 in health bills.
$165,000 annual salary.
Bouncing credit card to consolidation loan keep credit score high.
Going into debt $500 more per month.
Children so can’t reduce expenses, really.
Should I go into Chapter 13?
Should I use debt relief?
So many bits advice who knows what’s right.
Tom
Answer:
Dear Tom,
OMG, your email address is awesome! I get the reference. LOL.
So what this smattering of data tells me is that you’ve been behind for some time and have tried to use credit to makeup for your income shortfall. After multiple attempts to mask the negative cashflow, you are hitting the wall, hard.
The big red flags are the health bills, consolidation loan with continued unsecured debt, and your clear statement of running negative each month.
You ask if a Chapter 13 bankruptcy is a consideration. Yes. But based on the limited information you gave me I can’t give you any specific advice how it would apply to your situation. While you have a nice income, you could be massaged into a Chapter 7 bankruptcy by some.
You should schedule an appointment with a local bankruptcy attorney and discuss your specific situation with them. State variations in bankruptcy exemptions my be beneficial for you. It all depends where you live though.
You seem like a smart, educated person who values good advice so I would suggest you consider talking to either Damon Day or Michael Bovee to discuss the bigger picture and get a personalized plan of action in place.
Just based on the information you’ve shared, I feel confident they would see things the same way I do. They will also want to consider what your current plan is for saving for emergencies and saving for retirement. If you don’t have the capacity to participate in any employer sponsored 401(k) or similar retirement plan that matches your investment, you are throwing money away. Boo.
Now even if you did decide to go the bankruptcy route, my big concern is that your current life can’t fit within your current income. One advantage of a Chapter 7 bankruptcy is it can reduce your debt back to a breakeven point “A” and then below your income level “B” so you can have some immediate money each month to save. The difference between “A” and “B.”
It is always surprising that people think debt problems only happen to lower income people. But that is just not true. Problem debt can occur at any income range since the problem debt is created when resources are insufficient to meet demand.
If the cashflow is negative each month, who cares what the income number is. But one advantage you have is your income level gives you more options than someone of a lower income.
I bet you are holding some expenses as sacred cows and saying they are off limits, but that doesn’t mean changes can’t be made in some of those expenses.
For example, I remember a client who said they would never take their child out of private school and put them in public school. But perception does not equal reality. Public school supplemented with additional private tutoring can be significantly more beneficial and less expensive than a big private school tuition. It’s all about options and choices. I’ve had people tell me that hobby expenses are off-limits, or there is no way they would give up their second home.
At a time like this, everything should be on the table for consideration. While this feels like a big problem, it is really just a great opportunity for you to rearrange your income and debt life to better serve you, reduce your money stress, and give you a safer financial life worth living.
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.
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