Is Bankruptcy the only answer for me?

**SeanH** · 03-30-2014, 11:14 AM

I don't know if you need to declare bankruptcy, but I know that if you do you'll be back in debt in no time. I looked at your original post and I think that information would have been pretty useful here. I saw a $285K mortage, a $30K car, $80K in school debt (I assume this has increased as it was in deferment). Now there's also back taxes (amount unknown). I see $50K in credit card debt. Anyone one of these things would be difficult to service on your income. The back taxes and student loans will probably not be dismissed during the bankruptcy. I would very much encourage you to strongly consider your post bankruptcy future. Assuming your income remains constant you already know that certain debts are going to come with you. Start shaping a future budget - one that includes surplus dollars at the end of the month and has no reliance on credit cards (cause you probably won't qualify for them for a long time). I'm sorry about your divorce.

**Petunia 100** · 03-31-2014, 09:01 AM

Please don't take any more funds from your 401k. That's just shooting yourself in the foot.

**dczech09** · 04-01-2014, 01:43 PM

So, to summarize, you have the following:

$285,000 mortgage
$30,000 car
$80,000 student loans
$28,000 personal loans
$22,200 credit cards
Back taxes

You will need to sell your house and your car. No bankruptcy is going to allow you to keep them. The mortgage payment is 40% of your income while the car payment is 12.60%. Those are clearly unsustainable numbers!

Your student loans and back taxes are unlikely to be cleared in bankruptcy. While student loans are possible to discharge, it is extremely unlikely and with your monthly income you probably will not meet the definition of "undue hardship." So no matter what, you will be keeping the $80,000 in student loans and the back taxes (however much it is).

Looking at the listing, you are spending $4,348 per month with a $3,500 income. So you are falling behind by $848 every month.

Your utilities and such all seem within reason.

Your student loan payment is $350 per month, which is 10% of your income, so that is not unreasonable yet 10% is the absolute most that should be going to student loans. However, at the rate that you are going, it will take you FOREVER to pay-off your student loan mess! At $350 per month, it would take 229 months to pay it off, and that does not even consider interest! So once you beef up those payments, you will be spending more than 10% per month on student loans, which is pretty high. My point is this: you took out too much in student loans! I hope you and anyone reading this learns from this!

I am not here to beat you up. But another thing that I noticed is a lot of your credit cards are at 0%. What this tells me is you have been doing the "credit card shuffle" (balance transferring to 0% cards many times). So what you have experienced is that balance transfers to take advantage of 0% does not work on its own! You did not pay off any debt, you just moved it. And your day of reckoning has come unfortunately.

Bankruptcy will wipe out most of your debts. You will lose the car and house. And you will be stuck with the following:

$3,500 income

$350 Student loans
$1,000 personal loans
$100 back taxes
$250 Utilities
$160 Gas/transportation
$120 Food

That leaves $1,520 for other items such as rent and a new car.

Bankruptcy is going to be a rough path. You will have a hard time finding credit (not that you should be looking for anymore). You may also have a difficult time finding a place to rent! Rental applications always ask if you EVER filed for bankruptcy. EVER! And you have to say yes, because saying no would be fraud.

My concern is that you have not learned your lesson. Just as SeanH pointed out, you will be back into debt in no time. So what you need to do is stop doing the things that caused you to get into debt in the first place.

Keep the car within reason- a $30,000 car loan is RIDICULOUS for ANYONE! I hope you learned that you need to find a cheap yet reliable USED car.

Housing should not be more than 25% of your income. That $1,400 mortgage payment was way too much for you!

You cannot do much about your student loans. Here is the big takeaway: when you go massively into student loan debt, you lose the option to take on a mortgage! With your student loan debt, you had no business taking on a mortgage. Also, the loan officer who approved you must have been smoking weed! Student loans are a major problem today and they take away from what you can afford for other things such as housing and cars.

Credit cards are too much of a trigger for you. Honestly, I think you need to avoid credit cards. Period. For some people, they are just too much of an attractive nuisance. Stop using credit cards- they are too costly for you. I don't know what it is that you are spending so much on, but you need to find out. You have been bleeding money for a while- a $22,200 credit card debt does not appear out of thin air.

Your credit card debt tells that you do not save much and you do not live on a budget. So you need to fix that! LIVE ON A BALANCED BUDGET! Also, save money. Set aside money for emergencies! Stop using the credit card to cover your lack of budgeting, then later moving the balances to 0% cards!

Finally, you need to invest for the future! Retirement is going to come some day, so you need to invest for that. Currently, you have no ability to do this. After bankruptcy, I sure hope you learn to seize the opportunity! You killed your 401k which was unnecessary. Your 401k is protected from liquidation during the bankruptcy. If taking money out of the 401k would have cleared your debt, that may have been a good idea, but seeing as you still may need to file for bankruptcy, it was not a good idea. It did not stop the bankruptcy; it may have just made thing worse. Now, you may need to worry about the IRS early withdraw penalty if you lose your job or go somewhere else.

Please do not take this response as me berating you. I want to help you! But I sincerely worry that you have not learned your lessons. Without learning your lessons and figuring out how to "come back" from this, a bankruptcy will not help you. It will just ensure that another one emerges in the future.

Before you go through with bankruptcy...

You must first sell the house and car! They are gone anyway, so don't give yourself any excuses not to do this. You will not keep them in a bankruptcy anyway, so sell them! If you owe more than what they are worth, then sign a note with the bank for the difference if you can.

Then, find a cheap car for cash. Even a clunker. Something that gets you from point A to point B.

Get a cheap apartment or rent with a friend if possible. Keep your costs low! No luxury stuff; you are not in the position to be looking for luxury. Keep in mind that a bankruptcy will FORCE you to do this with housing and the car anyway.

This will hopefully free up some income. However, you may want to consider a part-time job on the side to help clean up the mess.

You need to get on a balanced budget! No ifs, ans, or buts about it! You should have done this a long time ago. There is a very good reason why 99.9% of the people on this forum recommend budgets!

You will need to go through with these steps regardless if you file for bankruptcy. And actually, bankruptcy will see to it that you do all of this, plus it will likely be a requirement that you go to bankruptcy counseling.

I would not file for bankruptcy yet. First, you need to try to get out of this by doing the right things and working your way out. If during that time, your credit card lenders force you against a wall and threaten lawsuits, garnishments, etc, then you will need to file to avoid that. Bankruptcy is a last ditch effort that is used when there is nowhere else to turn.

You have a tough fight ahead of you. I think you can do this- after all you would only really be filing bankruptcy on he $28,000 in personal loans, and the $22,200 of credit card debt when all of the smoke clears! Maybe on what you may be "underwater" with on your house and car. So for arguments sake that is $55,000 you file for bankruptcy on. Is that worth it? I cannot answer that for you. What I can tell you is that things are going to be tough no matter what path you take. But it is do-able.

**hamchan** · 04-01-2014, 06:42 PM

I have not had trouble renting post bankruptcy, and none of the apps I have gotten or filled out even asked. It's an extremely tight rental market here too. I'm not saying no one would have an issue with it, but it hasn't been an issue for me. And mine was only two years ago.

**dczech09** · 04-01-2014, 07:27 PM

Originally posted by hamchan View Post

I have not had trouble renting post bankruptcy, and none of the apps I have gotten or filled out even asked. It's an extremely tight rental market here too. I'm not saying no one would have an issue with it, but it hasn't been an issue for me. And mine was only two years ago.

Interesting. Maybe it depends on location since bankruptcy varies by state. I have lived in Minnesota and Wisconsin all of my life and have always seen job applications and rental applications ask the bankruptcy question.

I know my current apartment has rules on bankruptcy. Its not like they flat out deny people, but they have specific requirements in those circumstances.

It probably varies by state. I should look into this.

**hamchan** · 04-01-2014, 07:58 PM

It is illegal for an employer to discriminate based on past bankruptcy. They definitely should not be asking this on a job app.

**dczech09** · 04-02-2014, 04:57 AM

Originally posted by hamchan View Post

It is illegal for an employer to discriminate based on past bankruptcy. They definitely should not be asking this on a job app.

Very true. But employers do not need to say WHY they fired you or chose not to hire you. They could choose not to employ someone for bankruptcy, but cite a different reason when asked. And there is not much around this due to at-will employment. Also, you cannot prove intent.

What if someone who filed has a job (or is looking for a job) at a financial advisory firm or a bank? The employer could throw the book at them with bona fide qualification for occupation.

I am not saying that I agree with this. I am saying that this happens. The OP wants to know if bankruptcy is a good idea or not. I have given advice on how to possibly avoid it, however if they do go through with bankruptcy, they need to know what they are possibly in for. I am not saying that this stuff will happen for sure; I am just saying that it can happen.

**hamchan** · 04-02-2014, 06:15 AM

There are certain questions that can't even be asked in an interview or on a job app because of discrimination laws. If they explicitly ask and you are denied a job you have grounds to sue them. If you are let go from a job shortly after your employer found out you filed for bankruptcy, you'd likely have a very strong case against them. Luckily I work in a field where this sort of BS is rarely pulled.

The OP is going to face a lot of adjustments if she files, but it's important IMO to know your rights as well.

**JulieAlbright** · 04-02-2014, 11:31 AM

Yes and no on a Bankruptcy effecting employability. Companies cannot ask for personal financial information without cause. Many companies skate the line by justifying with "character reference" type of arguments and they will at the minimum pull a credit report. Other positions have strong reasons to investigate job applicant financial history -- such as my job which requires a Surety Bond be issued or my husband's job which requires a security clearance.

As for the OP, I wish I had some better ideas or more encouraging words for you. As I'm sure you already know, the numbers just do not add up well in your favor. I hardly ever say this, but at this point I would agree with the recommendation that you wipe as much of that out as possible through bankruptcy and selling and just try to start over and better.

The house and the car need to be sold, short sell the house if possible.

Even post bankruptcy you are going to have quite a bit of obstacles with the student loans and back taxes. I wish you the best and I hope the next couple of years brings bigger and brighter hope for you.

**Gailete** · 04-03-2014, 08:11 PM

I have had to take on a lot of debt due to my ex losing his job and divorce following.

This is what caught my eye (on top of those that referred back to your last posting). Quit making excuses. Why should your ex losing his job make you go into debt? Does he owe you money? Or he didn't contribute his share of joint expenses? If the divorce is final, why did you leave yourself stuck with a house you couldn't afford? It is possible to always find excuses for spending money you don't have. I know I married a man that got us into $42K worth of credit card debt in less than a year. By the time I divorced him our monthly credit card bills were $1100 and I brought in only $1800 and while he told everyone he made $800 a week, he made $800 a week 2-3 times a year. The rest of the time his paycheck ran around $300 depending on how many cash advances he took while on the road. I played the flip the credit card game, but I wasn't putting anything new on the card for almost the last year. I was so happy to be rid of this money sucking maniac and go back to my frugal dependable ways of handling my money. Selling our house we got enough to pay off the credit cards with about $1000 left over. You can get out of a hole like this but only by taking the hard steps. You may have to live on beans and rice for awhile, no new anything, cut out all luxury items, no new clothes (I currently have on a skirt I made close to 10 years ago--clothes rarely wear out for adults, you just get tired of them), get rid of that house, get rid of that car, get rid of whatever you spent all that money on. Unless you spent it all going out to eat, surely you have something to show for all your spending. As the others have said, much of this debt won't get discharged in a bankruptcy, assuming you can even afford the lawyer to file. The longer you wait start divesting yourself of every bit of excess you can the harder it will be but you need to do it and do it now. Unless the $3500 is your take home amount, you don't 'make' that much, you make what your take home check says you do, somewhere around $2000 most likely. I made that much in my last job and I knew I could only afford a house for around $650, but you shouldn't try to buy a house when you sell yours, you need to find the absolute cheapest place you can find and rent until your bills are paid off. Sorry to say this, and I know not everyone would agree, but when a bankruptcy is filed for overwhelming credit card debt (not medical bills, etc.) to me it is just a legalized way to steal from the people that you 'bought' things from and the people that allowed you the loan with the understanding you would pay them back. The last time you pulled a credit card out of your wallet for whatever reason, how long ago was it? If in the last day, week, month, you know you had no intention of paying it off but hoping a bankruptcy would cancel it. I had a co-worker that did that. Right before she filed for bankruptcy she bought $100's worth of new summer clothes knowing full well she couldn't afford them or would pay them off.

It will be a long hard battle, but you can succeed if you want to. I knew a man that back when the big Lincoln cars when out of style and the new economy ones came into being, his car dealership went into bankruptcy. But to him that didn't mean he didn't owe the money. He literally spent the rest of his life paying off each and every debtor what he owed them. That takes courage and stamina. He died a few months after his last bill was paid off but he wouldn't have wanted it any other way.

**dczech09** · 04-04-2014, 04:43 AM

Well said, Gailette!

soapgal04, I hope you are getting all of this and paying attention. I want to emphasize that none of us are trying to berate you or beat you down. We all want to help you with this. But in order for you to be helped, you need to understand the gravity of the situation.

Please do not take bankruptcy as a "fresh start" or a way to walk away from your troubles. If you take that approach, you will simply be back to square one in a few years. Once you file bankruptcy, you CANNOT file again for 8 years! So if you file and do not learn from this experience, you may find yourself homeless down the road. Scary thought!

I don't think any of us here want that for you, and I am sure you don't want that.

Bankruptcy is a "redo" or a "mulligan." It is not a license to cheat. As I have illustrated, life will not be glamorous after you file.

You have not replied back yet, but I do hope you understand what we are driving at!

**EmzieAtInfinity** · 04-04-2014, 05:01 AM

Spend as little as you can, and pay the minimum on all of your payments that you're able to pay. If you can't pay a few credit cards this month, pay them next month and let a few other ones fall back for that month. Take turns on your credit cards, for example if you can only pay 6 credit card payments a month, pay your 1-6 credit cards, then next month pay your 7-13, then the month after, pay your 1-6, then 7-13. This is NOT good on your credit at all, but at least you will be getting your payments paid. Also, you should look into making some extra cash online in your free time. I make all of my earnings online, there is multiple free ways to make money online, and their is ways to invest a small amount and turn it into more. Message me if you are interested in anything to make some extra money online. I can give you some free programs to help you make a few hundred a month. I know of one website that literally pays to write articles, you can write articles on anything you would like and get paid 1 cent per view, comment, or like. The website is REALLY active. I made a article that took 45 seconds to write and got a dollar in views/likes/comment in less than a hour.

**soapgal04** · 04-04-2014, 06:46 AM

Thanks for all the replies...

No offense taken at any of your replies. Finally had a chance to read them. I asked for advice and brutal honesty and suggestions and insight. So thanks. The $3500 is take home pay. These expenses piled up the past few years after the loss of income, which eventually led to separation/divorce. We had a high income at one time, which I won't go into here but after his job loss, he was not interested much in anything. I don't see Bankruptcy as a way out, or a fresh start at all. It sounds as if I am going backwards and appears pretty humiliating, a letdown to everyone, and gives me a creepy, weasly feeling coming on top of a divorce from someone who was not too keen on trying to find a better job to help out - hence, d-i-v-o-r-c-e.

By skipping payments - don't creditors get tired of that and sue you? I agree - some money is better than no money, but if credit counselors are saying - don't bother, that kind of made me see BK as the only option. Even the IRS seems agreeable to a payment plan, so that's a relief. I am still looking for a part time job - I haven't given up yet.

**hamchan** · 04-04-2014, 07:18 AM

Regardless of what you do there will be big adjustments to make. I would personally go ahead and file. Your credit will take a hit in the short term, but likely it will rebound more quickly than it would if you kept making late payments. Talk to a bankruptcy attorney and see what they say. Sounds like you'd be doing a a chapter 13.

Is Bankruptcy the only answer for me?