Hey everybody. Haven't really been posting much lately, just trying to get the life together. My wife has been taking care of her health and her diabetes has been controlled well through her discipline and diet. I'm proud of her and think in the long run she may beat this thing or at least make it a significant non-factor.

The other thing that is going on is that our finances have fallen apart. I have posted in the past about some problems we were having with money and they have not gotten better. We have made spreadsheets, cut costs wherever possible but find ourselves running anywhere from $500-$1000 in the hole every month. We both have very good jobs but, not counting mortgage, we are about 90 K in debt. Didn't happen all at once, just a series of both neccessary and irresponsible credit decisions. Anyway, I can do any number of post-mortems on it but the fact of the matter is her we are, behind the financial 8 ball with the vultures circling.

We have been seeing various counselors and creditors. The guy we talked to today was an attorney and he said that Chapter 13 was our best option. By declaring Chapter 13, we could do the following:

1) Immediately stop paying bills
2) Stop paying the mortgage until September
3) Starting in the next few months, pay a set amount a month (around $400), our mortgage, and our utilities. Nothing else.


Choosing Chapter 13 would be declaring bankruptcy, which we would have our record for the next decade. It would make buying a car or a house more difficult. It would be giving up in a sense. But it would allow us to get all creditors off our back, pay out a lot less, and start over. I have been doing research on it all evening and I just don't know. The wife and I are going to talk about tomorrow and try to decide by Friday.

I need some suggestions. What should I do? Should I raise the white flag and declare bankruptcy? Or should I fight it? Has anyone else been in a situation like this? If so, I would appreciate any experiences or insight you can share.

Thanks y'all.
[Edited 7/17/06 13:55pm]

First of all...visit VARIOUS lawyers who specialize in bankruptcy. Unfortunately you will discover that it isn't all as clear-cut as you might think. And amazingly, different lawyers have different opinions. Pick one whose proposal matches your goals the best.

Second...make sure that you do alot of reseach on your own as far as the bankruptcy laws that apply to your State. Especially now that Bush cahnged the laws. That way you don't just accept what the lawyers tell you at face value.

Third...it's not a decade. It's 7 years. And it's not as bad as it once was. In fact, nowadays soon after the bankruptcy is discharged, the credit card offers will start pouring in. Be careful and read the fine print.

Peace of mind is definitely worth a ruined credit score. So long as you learn from your mistakes and get to keep your house and stuff.

i've been seriously considering bankruptcy as well Theres just too much debt, I have absolutely zero credit rating, and I just dont think Ill ever be able to pay it off. I cant afford to pay it off AT ALL now, and wont for at least two years. My credits already shot, so I'm not even motivated to pay it off.

Still seriously considering it. I think Im going to have to research it more

But then I dont have a family to raise, just a scrounging mother to feed, so I feel for you gottaletitgo

I'm not sure what the differences are with US and UK Bankruptcy laws compared to Australian ones, but I declared in 2000 and I maintain it's the best thing I ever did financially... it was a hole I was just getting deeper into with no real way out

I copped a whole lot of criticism from family and friends for it but I still think it was worth it I wouldn't literally be here in London today if I hadn't

HAVING SAID THAT, THOUGH... it may not be your only way out of debt so make sure you do check all your avenues and see what your choices are before making a decision

Natisse said:

Wow, thats a definite selling point honey Im gonna have to look into this more.

well done you!

susannah said:

there's a lot to consider, hon... I've got a feeling Aussie Bankruptcy laws aren't quite the same as they are here or in the US I could be wrong though

it's all in the research I guess

Natisse said:

Well to be honest the only people Ive ever known who filed were very disorganised to begin with and were just spending recklessly; they never really recovered from it at all. Its good to see that you can recover, not only that, but get to travel, which, as we all know, id the only reason Im sticking around on this planet!

Im definitely gonna look into it, but the "other avenues" as well

Thanks hon

susannah said:

uuuh well the only way I got myself into that kind of debt enough to declare Bankruptcy was to spend recklessly, hon... there was absolutely no way out for me unless I got like 5 jobs for the next 100 years lol it was a move that got a lot of criticism and was seen as a cop-out by people and still is by most of them. it's not something I'm proud of at all don't get me wrong - but if I wanted to have an actual life and have enough money to go see a movie or something let alone travel then it was the only way.

GottaLetitgo said:

Well of course if it saves your baht

Natisse said:

I dont want to assume things and please never think Im judging you! The people I meant, they never had the money in the first place, I remember my auntie just buying expensive clothes galore, on credit card after credit card, and she was a student working as a delivery driver for pizza hut at the time! I dont mean this to sound the wrong way and please dont think I want the attention, but my problem is just never having it in the first place. I grew up with both *alcoholic* parents on benefits, have been working and handing over my wages to the household since I was 13. In debt the minute more money through credit was available at 18 (again for the household fund), not including the £2000 my mother scammed out of my bank account which Im paying off. And then I decided I could afford to go to uni! What a joke. My mother still lives off me and owes me about £4000 that Ill never see again because shes just too useless to get a job. I think Im about £16000 of debt in total now, including loans, student loans, overdrafts, and the one credit card a company can give me, with a grand total limit of £250. Lol.

Money is my big problem. I shouldnt have said all that, sorry org, I hate crying to you

Natisse - If its the best thing you ever did then thats great! Dont listen to anyone, sometimes the strongest thing you can do is accept it and deal with it, no matter if it seems like the easy way out. At least youre here - where are they?

GottaLetitgo said:

Chapter 7 is way better!

TonyVanDam said:

Whats Chapter 7? And do you get it in the UK?!

If you own a house and you have enough equity in the house, you may want to pursue a home equity loan.

I've been really tight on money this year, and just signed a home equity loan. It doesn't reset my debt, but it switches it to a less expensive form of it.

All my credit cards and a few other things moved on to it, reducing my payments from well over a thousand dollars down to below 300.

This will allow me enough savings so that my next car may actually be paid off in cash if I save up instead of spurging.

But declaring bankrupcy is a good way to reset your life. You just have to ensure you reset your habbits too.

Imago said:

that's the crux of it, right there

susannah said:

Chapter 7

Chapter 7 personal bankruptcy is also known as straight bankruptcy or liquidation bankruptcy. Under Chapter 7, debtors are sometimes required to turn certain property that they owned when they filed their bankruptcy petition, over to the trustee. This property is sold, and the proceeds are used to pay the creditors. This process is called "administration" of the estate. However, in the vast majority of cases the debtor is allowed to keep most, if not all of his or her property. Debtors are required to file a schedule of exemptions in which they may elect to apply certain statutes, known as exemptions, to protect from the trustee and creditors, the equity they have in their property. Exemption statutes typically allow debtors to retain a portion or all of the equity they have in a given type of property like the homestead, a vehicle, household goods, and tools-of-trade. In most cases debtors have few if any assets with equity they cannot protect in this manner (non-exempt assets), and thus in most cases they do not lose anything to the trustee. The list of possible exempt assets differs slightly in each state. It is important to consult a personal bankruptcy attorney to determine what you can and cannot keep.

In most Chapter 7 cases the discharge is entered about 90 days after filing. The discharge is an order by the bankruptcy court that permanently forbids creditors from attempting almost any act to collect a debt owed by the debtor that existed at the time the case was filed. One example of an act not forbidden by the discharge is the sending of a home mortgage statement to the debtor even though the personal obligation to pay the mortgage has been discharged (see discussion of secured debts below).

The general rule is that all debts are discharged upon the entry of an order of discharge by the court. Unless a debt falls within one of very few exceptions to the general rule, it will be discharged. The court does not normally endeavor to determine which debts are discharged unless the debtor or a creditor files a law suit, known as an adversary proceeding, to determine dischargeability. This it is typically left to the debtor and creditor to figure out whether a given debt has been discharged.

Some of the more common debts to be discharged in bankruptcy include credit cards, medical bills, personal loans, liability for negligence, and liability for breach of contract. In Chapter 7, exceptions to the general rule include most student loans, certain taxes, domestic support obligations (like child support and spousal support), fines and penalties owing to the government, and liability for personal injury arising from the operation of a motor vehicle by the debtor while intoxicated. Some debts will be discharged unless the creditor objects. These include debts arising from fraud, malicious injury to a person or property, and debts (other than support) arising from a judgment of divorce or a marital settlement agreement. Unscheduled debts (debts that are not listed by the debtor in the bankruptcy) are also sometimes not discharged. However, unscheduled debts are discharged as long as the creditor receives notice of the bankruptcy in time to file a proof of claim and in most Chapter 7 cases, it is never too late to file a proof of claim.

To understand how secured debts are treated differently in bankruptcy than unsecured debts, it is important to understand that there are two aspects to a secured debt. A secured debt includes the personal obligations (usually the obligation to pay and to keep the collateral insured) and the security interest. The security interest is a what allows the creditor to take the collateral from the debtor if the debtor does not satisfy his or her personal obligations associated with the particular debt. The personal obligations are dischargeable according to the same rules that apply to unsecured debts. However, the security interest survives the discharge in most cases. This means that, while most car loans, home loans, and other secured debts are discharged, the creditor retains the right to take the collateral if the debtor doesn't pay. This may seem like a fine distinction upon first glance, but it becomes critical when the debtor decides after the discharge that the personal obligations are more burdensome than the collateral is worth. For instance, a debtor will be glad for his or her discharge if the car that is collateral for a secured debt gets stolen or wrecked and insurance will not pay off the amount due on the contract.

Under the new rules implemented as a result of the 2005 Bankruptcy Reform, it is now more difficult for people with an income exceeding the state median to qualify for Chapter 7 bankruptcy. These debtors are subject to a means test, and if their disposable income (income left over after paying their expenses) exceeds limits set by the government, the debtor is not entitled to a discharge in Chapter 7 and may elect to convert the case to a Chapter 13.

http://en.wikipedia.org/wiki/Bankruptcy

If I were you, I'd talk to my creditors - at least the ones taking the biggest chunks out of your finances - before filing for bankruptcy. See what options you have, because very often creditors are happy to take a little bit of something from you over a whole lot of nothing.

We hear doom and gloom stories about financial undoings and catastrophes, but I think some of these stories could have been prevented if folks had just been up front with their creditors before the hammer came down.

See what you can negotiate. You might be surprised. If not, then there's always bankruptcy as a last resort.

GottaLetitgo said:

You have to save your bahts. Yes declare bankruptcy

This is why I come to the Org, besides of course the whole keeping up with Prince thing. I knew I would get good advice. I was talking about it with my wife and I said, "You know who else I could ask?" and without missing a beat she's like "Prince.Org, right?" She thinks I spend too much time on here but she knows how helpful you all are in times of trouble.

Without responding to everyone individually, which I would like to do, the insight has been wonderful. Thank you Natisse for sharing a successful example of this because I needed to hear a positive story. Thank you everybody for presenting a variety of view points. It does in a lot of ways feel like starting over which would be nice because I spend WAAAAAYYYY too much time focused on this, trying to find the miracle that just doesn't seem to be out there. The best-selling novel I was going to write has not happened yet and I don't think I'm going to win Powerball. There is just too much debt. As long as our outcome exceeds our income as significantly as it does, we just cannot catch up.

The creditors we have tried to work with have been ugly. Chase credit cards are just vicious and when we were late with one payment they sent us a bill for $900. Wells Fargo has been hideous and called and verbally harrassed me at work. I'm just too polite and afraid of consequences to hange up but if it happened again in the future I would. We have already refinance the house and in order for us to have any cash-out we would have to have the house appraised for a whole lot more than I think it's worth. So I just don't know.

Credit counseling seems like a great idea...but we should have done it a few years ago. I read negative things about credit counseling but that is mostly on pro-bankruptcy sites. I hear the opposite from the pro-credit counseling people so I feel a little bit like a pawn in a credit solution chess game. My wife is leaning towards Chapter 13 because it just sounds like we would be able to keep so much more of the money we both work hard for.

Anyway, thanks for responding so far and I am talking all of your opinions to heart. I appreciate it greatly.

As far as Chapter 7 versus 13, I think our income is higer than the median income for the state which would make it harder for us to qualify. But I'm going to aak some more about it. Chapter 7 only takes 3-6 months versus Chapter 13 which will take 5 years but supposedly the stigma for 13 is less than for 7. I'm going to research more on it though.

Bankruptcy isn't a cure all.

This may help your research.

http://www.daveramsey.com...Bankruptcy

Although I don't really practice bankruptcy law, I did once refer a client to a bankruptcy attorney when he got so deeply in debt that he couldn't even pay the money he owed under the settlement agreements that I worked out with his creditors. The client was very reluctant at first to consider bankruptcy, but I talked him into setting up a consultation with a good bankruptcy attorney. After that, he decided to file under Chapter 7 and was glad he did so.

There are some people who make it sound as if filing for bankruptcy will ruin your life. And there are others (usually bankruptcy attorneys) who make it sound like no big deal and that you should file ASAP to get your creditors off your back, wipe out your debt, and get a fresh start. The truth is somewhere in the middle, but it certainly is not going to "ruin your life."

Here are some downsides of filing:

• It could have a significant, negative effect on your credit score. However, from what you've said about your finances, your credit score probably isn't very good to begin with (see below).
  
• It'll be on your credit report for 10 years, at least if you file under Chapter 7. I'm not sure about Chapter 13. (Usually negative information gets dropped after 7 years, but bankruptcy can be an exception.)
  
• Your filing would technically be a matter of public record, and your petition would contain a fair amount of information about your assets, income, and expenses. As a practical matter, though, I wouldn't worry too much about this. Someone would first have to know/suspect that you filed for bankruptcy and then care enough to: 1) contact the Clerk's office; 2) go down to the courthouse; or 3) set up an account with PACER (the federal courts' online docket system), which costs money (albeit a nominal amount).
  
• A bankruptcy could hurt you if you have to undergo a background check. While federal law prohibits discriminating against someone because he/she sought bankruptcy protection, the end run around this is, "We're not refusing to hire Joe Doakes because of the bankruptcy; we're refusing to hire Joe because of the financial mismanagement before his bankruptcy."

Now, here are some positive things that can stem from filing for bankruptcy:

• Chapter 7 is quite good at wiping out unsecured debt, such as credit card debt. The big exception is student loans -- those have been nearly impossible to discharge in bankruptcy for several years, even before last year's new bankruptcy laws.
  
• Although the credit scoring formulas are secret, some people suspect that filing could actually increase your credit score. (With 90k in non-mortgage debt, I'm guessing that your credit score isn't too hot right now.) Why? Well, you've just eliminated a lot of debt, and you can't file again for 6 or 8 years. As PurpleJedi mentioned, you're likely to start getting credit card offers right after you get your discharge.
  
• The negative effects of a bankruptcy diminish over time, even when it's still on your credit report. For example, I'm told that if you have no negative information placed on your credit report for two years after your discharge, you can probably get a mortgage on the same terms as those offered to folks with excellent credit.
  
• You'll likely feel much better after you get your discharge.
  

As for Chapter 7 versus 13, it's true that if you're above your state's median income, you can file under Chapter 7 only if you pass the "means tests." And from what you've described (i.e., being $500-$1,000 in the hole every month), it sounds possible that you qualify for Chapter 7.

However, you mentioned that you have a mortgage, so I assume you own your home. The attorney may have suggested Chapter 13 because you get to keep your home in a Chapter 13 case; in fact, you won't lose any property if you successfully complete a Chapter 13 bankruptcy. By contrast, you might lose it if you file under Chapter 7.

Getting a second opinion from a good bankruptcy attorney sounds like a good idea. Do you have any local friends who are attorneys? Ask them for a referral to someone who does bankruptcy.

Oh, one tip: don't pay a bankruptcy attorney with a credit card. The bank may challenge the discharge of this debt; the theory is that you made the charge knowing that you'd later eliminate/reduce the debt in bankruptcy.

I hope things work out well for you.

[The usual disclaimer: While I am an attorney licensed to practice in Washington state, the above is for discussion purposes only, is not legal advice, and creates no attorney-client relationship.]
[Edited 7/13/06 9:18am]

GottaLetitgo said:

Chapter 13 is more for someone who owns a house and/or car and want to keep them.

Generally under Chapter 13 most debt like credit cards, car payments, etc are consolidated and get assigned to a trustee to oversee and manage a payment play that normally is 3 years. After 3 years the remaining balance is generally discharged. The amount you pay each month is determined by a hearing in bankruptcy court based on what you can actually afford. It does give you room for basics + some extras...it is not like they put every single last cent you earn into your payment plan.

If you own a house, you keep the same loan you currently have and still need to make the monthly payments (which is factored into the amount you can afford to pay the trustee).


Chapter 7 is more for someone who does not own a house and/or car. In Chapter 7, much of what you own is liquidated and sold and your debt is dismissed. If you do not own a house or car, this is probably the best option.

However, both do adversly effect your credit and do stay on your record for 7 to 10 years. By law it can stay on there for 10 years, but almost always is cleared off after 7 years.

But bankruptcy will get the creditors off your back and give you a plan to get out of the hole and start a new.

GottaLetitgo said:

There are rules which all creditors and their collection agents must adhere to. Check your state's regulations first; but I believe that you have a right to tell them that you do not wish to be called - to send evrything to you in writing only - and they have to stop calling you. Collection agents can get nasty, and even break certain rules (did you know that they're not allowed to call your family?) so you need to document every call and the nature of the conversation. If they ignore your requests or break the rules, they may lose their license.

According to the credit counselor's on Oprah as a part of her debt diet series, declaring bankruptcy is the last thing you should do.

It was suggested to call in your creditors for all credit cards to get your interest rates lowered. Most people don't realize that even one late payment can jack up interest rates to over 30% If that person wouldn't do it, then ask to speak to their supervisor. If this doesn't work then you should seek out credit cards that provide 0% interest rates making sure to read the fine print. By transferring your credit card debt onto 0% cards, you can pay your debt off a lot quicker.

Also, it was suggested to keep track of your spending to see exactly where your money is going. You may be able to cut out some unneccesary spending that could save you money. This way, you can take any extra money and put it towards paying off your debt.

GottaLetitgo said:

All you have to do is tell them that you cannot receive calls of this nature at work (then immediately hang up so they do not try to continue to harrass you on that call) and they have to stop calling you at work.

Just an update. I went to a credit counselor after my meeting with the bankruptcy attorney and they suggested Chapter 13. As did my employer. And subsequently my parents. It seems like the tide is turning that way. It's a scary feeling but I keep trying to project to a few months from now where I'll have cash to buy my little girls shoes and clothes when they need them without having to mentally calculate which bill is due next.

I screwed up. It was not irresponsible spending, because we have no extravagances, but too much borrowing. And once you start borrowing to pay off what you have borrowed then the downward spiral begins.

So I'll probably turn in the retainer tomorrow. Any last thoughts would be appreciated as I have appreciated greatly what has come so far.

Thanks.

GottaLetitgo said:

That is exactly what bankruptcy is for. Sometimes, for whatever reason, we get in too deep and lose control. It happens to thousands of people everyday. As long as you were not tryin to take advantage, you should not feel guilty. This is your chance for a "clean slate" so to speak and hopefully you have learned how not to do it in the future.

Good luck.

GottaLetitgo said:

Have you checked with Consumer Credit Counseling? When I was a debt collector, I referred folks there all the time (yes, I was the sweet and nice debt collector. ). They are a non-profit organization that makes similar arrangements with all of your creditors that CH 13 would, only you're not paying an atty to file it all for you. You're still paying back (as you do w/ch 13) but they stop all further late fees, finance chrgs, etc. From my understanding, it's bascially the same thing, only cheaper for you cause it's non-profit and not through an atty.

CarrieMpls said:

Except that they develop a plan to get you out of debt in 5 years or so...so that your monthly payment (including the CCC agency's FEES) can actually turn out tto be MNORE than what you are paying out now. If you can afford it; it's wonderful...but if you want to reduce your monthly outlay, then it might be a waste of time.

Okay, here's something that is messed up. I played 10 Carolina 5 tickets, hoping to win $100,000 so I could avoid this whole mess. Damn if I didn't match 4 out of 5 numbers and win $300. If I would have played Power Up (spent $2.00 per ticket) I would have won $900. Still $300 from a $10 investment isn't too bad.

Maybe it's a sign that my luck is about to change. I never win these things. There was almost 16,000 who matched at least one number but only 51 in the state of SC that matched 4.

Where was this luck 6 months ago?!