chapter 13 bankruptcy

[TUalum0982]

Things aren't looking so good for myself right now, and I dont see them getting better anytime soon. I know bankruptcy should be a last resort, but from researching online, there are too many stories of people wasting thousands of dollars on debt relief programs.  I have no issue with paying back every last cent that I borrowed, I just can't make the monthly payments they are asking for right now, in chapter 13 bankruptcy, my understanding is that you sit down with a trustee and figure out a payment plan that is made in montly payments over a set time (3-5yrs).  I know this will negatively affect my credit score and possibly getting a diff job, but at this point I dont see an end.  It is affecting my marriage, and overall my life in general.  I have taken a pretty decent pay cut over the past 1.5yrs and can't keep up with the payments.  I am not asking for any sympathy just simply asking for some advice.  

I know there are a few attorneys on here.  Am I looking at this the right way?  I already have a house with a mortgage so I am not worried about having a roof over my head, my wife pays her car payment, I have a company car.  I can afford about 400 dollars a month and that still leaves me 500 or so a month for other expenses like food, gas, electric and the like.  Any other things I should consider before taking this huge step?


Thanks for any help TN

[sgrizzle]

Without knowing specifics, I'm guessing you're saying that your primary issue is with unsecured debts like credit cards, medical bills, etc.

I have dealt with similar issues and listen to a lot of Dave Ramsey, this is what he would suggest in your case:

Create a bare bones budget that includes house, utilities, car payment, food, etc. and figure out how much you have available per month if you aren't paying on these unsecured debts. Ideally you will have $2,000/month or so free. Stick this money in a savings account, shoebox, or whatever.

Once you stop paying credit cards, they will likely offer you some sort of reduced interest or other payment plan. 29% interest becoming 9% and 20% becoming 0% can make a big difference. If no good offers come along that would actually help, then use the money you are saving by not making payments to offer these companies payoff amounts for your card. $50,000 in credit card can be $2,000 in monthly payments, or save up a couple of months and you can offer payoff amounts. 2 months saved ($4,000) might payoff a card with a $5-6,000 balance.

It will probably take 2 years before the credit cards would make any major legal efforts to come after you in which time you might be able to have all of this paid off. Typically the longer it has been since the company has seen a payment, the less they will take to settle it. If it does get to the point that you're headed to court, then you might consider bankruptcy.

Another thing to look at is possibly selling your wife's care and buying a beater, just for a year or two while you pay some of this down.

And yes, 95% of the credit consolidation/counseling services are bogus, the other 5% provide little more help than google does.

[waterboy]

A couple of notes from personal experience. There are no worse traumas in life than death of family members, divorce and bankruptcy. It would be good to get some personal counseling, whether from professionals or friends who are familiar with the issues and ramifications. Then counsel with a good bankruptcy lawyer who specializes in the field.

The hangover from a bankruptcy is long lasting. The credit card companies don't care so much but the more serious financial people and employers remain skeptical forever. Forget a political career if you're a Democrat.

And finally, don't take it too personally. I wore it on my sleeve until a few successful businessmen asked me, "Is it your first?" If you're not taking hits, you're not in the game.

Good luck.

[Townsend]

Have you contacted the creditors already?

They may be willing to work with you if you tell them you're unable to make payments.

They'd rather work something out than not get paid.

It's definitely worth a shot.  Like Grizz said, a change in rate is huge and they will most likely offer you a smaller minimum.  Before you stop paying them, call them.

The next thing to do, if you can, is start paying one card off at a time.  Minimums all around but the smallest one.  As you pay off the smallest one first you then apply that amount to the next smallest and so on.  Believe me, it works.  I hope you don't have to BK.

Good luck.

[nathanm]

If they won't work with you, declare before you stop making payments. The lates look much worse to other creditors than the bankruptcy. It sounds to me like you're in a situation that bankruptcy was made for.

We have such a thing precisely so that you can take risks or make mistakes and not be permanently in debt because it didn't work out. You're not much good to the economy if you're laboring under an unsustainable debt load. Note how many times Donald Trump and his businesses have been in bankruptcy protection. It's the American Way.

The forums at creditboards.com is a great resource for everything credit related, including bankruptcy. Good luck.

[TUalum0982]

thanks for the advice.  I will check out that forum.  I will also call them today and tomorrow to see if they can help me at all.  I am not so much worried about my credit tanking as I am finding another job down the line.  That to me is the scary thing.  No I dont plan on running for any political office, but I do/did have dreams, and those are probably crushed now once I file this.  But I will call them and see if they can help me out.  If not, I guess bankruptcy is the way to go.  Anyone care to give me a 30K loan that I can pay back 400 dollars a month at a time?!

[nathanm]

thanks for the advice.  I will check out that forum.  I will also call them today and tomorrow to see if they can help me at all.  I am not so much worried about my credit tanking as I am finding another job down the line.  That to me is the scary thing.  No I dont plan on running for any political office, but I do/did have dreams, and those are probably crushed now once I file this.  But I will call them and see if they can help me out.  If not, I guess bankruptcy is the way to go.  Anyone care to give me a 30K loan that I can pay back 400 dollars a month at a time?!

Don't be so hard on yourself. You'll get through it. Your dreams will survive, although they may take a little more time to realize. BK isn't that bad on your credit, as long as you have one card you can afford to affirm and keep current through the process.

[TUalum0982]

thanks nathanm on the advice for that forum. I have read through a couple of threads and found some numbers for the diff credit card companies to set up payments directly through them over a period of time.  This will close the account obviously (which I am fine with) and wont impact my credit as much as the bankruptcy would.  I have read from people on that forum they received anywhere from 3-5yrs with rates from 0-6% interest.  I am on hold currently with Chase and will see what they say.

[izmophonik]

It sounds like the same situation I was in about 5 years ago.  I was almost $40K in the hole on unsecured debt making $37K per year.  I had two choices, take the high road and pay everything off in 3,4,5 years or file Chap. 13.  After long thought I filed and on top of that I couldn't sell the house so I walked away from that too.  

Bottom line, if you end up feeling like you can't dig your way out..Chapter 13 isn't entirely going to destroy you if you have a decent career ahead of you.  I make $60K+ now and could care less about what I can or can't get credit for because A.) I'm married and B.) Dave Ramsey

Like Dave says, "the credit score should be called the I like debt score".  It's pointless if you can figure out how to save and not use credit to buy everything.  Now I have a nice home again, 2 NOT NEW cars that are paid for and no unsecured debt.

Good luck either way.  It was definitely a lesson learned for me.

[nathanm]

Dave Ramsey

Dave Ramsey is an idiot. The only good part of his message is the part about not getting into debt.

There is nothing wrong with debt, so long as it's used responsibly. If you're carrying debt at less than the rate of inflation, you are saving money by carrying debt. Maybe I haven't paid close enough attention, but I haven't seen him acknowledge that.

If you're using debt to supplement your lifestyle, you're doing it wrong. If you're borrowing money at 0% to buy something you would have bought anyway and leave the cash in a money making investment you're doing it right. Ramsey's no credit card mantra is a good way to be sure you never get advantageous terms on any credit. Back in the bubble period I made thousands of dollars on interest rate arbitrage. I took out over $40,000 in 0-1% debt and piled it all in savings accounts and CDs yielding 6% or more. I've also gotten several thousand bucks worth of gift cards and cash back out of 'em.

Granted, I paid a hell of a lot of money to the credit card companies before it got knocked through my thick skull that paying interest on consumptive purchases is a fool's errand. I've managed to claw back a fair amount of it since then, though.

Then you get into the fraud protection aspect, where credit cards are light years ahead of debit cards. And the car rental insurance. And the travel insurance. And the extended warranty coverage. And the lost item coverage.

[Gaspar]

Dave Ramsey is an idiot. The only good part of his message is the part about not getting into debt.

There is nothing wrong with debt, so long as it's used responsibly. If you're carrying debt at less than the rate of inflation, you are saving money by carrying debt. Maybe I haven't paid close enough attention, but I haven't seen him acknowledge that.

If you're using debt to supplement your lifestyle, you're doing it wrong. If you're borrowing money at 0% to buy something you would have bought anyway and leave the cash in a money making investment you're doing it right. Ramsey's no credit card mantra is a good way to be sure you never get advantageous terms on any credit. Back in the bubble period I made thousands of dollars on interest rate arbitrage. I took out over $40,000 in 0-1% debt and piled it all in savings accounts and CDs yielding 6% or more. I've also gotten several thousand bucks worth of gift cards and cash back out of 'em.

Granted, I paid a hell of a lot of money to the credit card companies before it got knocked through my thick skull that paying interest on consumptive purchases is a fool's errand. I've managed to claw back a fair amount of it since then, though.

Then you get into the fraud protection aspect, where credit cards are light years ahead of debit cards. And the car rental insurance. And the travel insurance. And the extended warranty coverage. And the lost item coverage.

I agree with Ramsey on many points, disagree on others, but he is far from an idiot.

There is a point (and I've gotten there) where you simply don't want to deal with debt any more.  The only real debt we carry is our mortgage, and we make bi-monthly payments on that.

No matter how well managed or ethical the lender (bank, visa, retail) the game is to make money from your debt, and the rules are not in your favor.  I would simply rather not play the game. 

I don't like casinos either.

[nathanm]

No matter how well managed or ethical the lender (bank, visa, retail) the game is to make money from your debt, and the rules are not in your favor.  I would simply rather not play the game.  

I don't like casinos either.

It's not really rigged against you in a way that matters if you pay off your balance each month. All of the banks I deal with automatically draft the money out of my bank account on the due date. (I have them set to take the minimum and I manually pay the rest, just in case of a dispute or fraud I hadn't caught yet)

Since I only use one or two cards a month for expenses (one for personal stuff, the other for work-related stuff), the time aspect is minimal, and as I mentioned previously, it makes me money.

My boss is one of the most pro-cash people ever, but he still uses credit cards simply because he can run a few hundred thousand bucks a year through them buying things he's going to immediately turn around and resell and get rewards out the wazoo. 375,000 frequent flier miles a year will save you a lot of money on airplane tickets. $3,000-$10,000 (depending on what promos run in any given year) in cash is also pretty nice.

Edited to add: He also tells you to do silly things like closing old cards. That's not a good idea unless you're paying an annual fee. Age is one of the big contributors to your score, and whether he likes it or not, your good score gets you cheaper auto insurance, a lower interest rate on your mortgage, and saves you from having to pay deposits on utilities, among other things.

[izmophonik]

Well said.  The point the previous poster made about inflation is really not an intelligent stand to take.  When you pay a credit card company to purchase ANYTHING on your behalf you are losing; every time.  I'll take 5 years on a mutual fund over 5 years on a Discover card at 5% 10%, it doesn't even come close.

Once you realize things like these you'll see that Ramsey is not an idiot.  While sometimes I don't like his evangelical style or a particular strategy, he's got you beat on your credit card vs. inflation argument.

[nathanm]

Well said.  The point the previous poster made about inflation is really not an intelligent stand to take.  When you pay a credit card company to purchase ANYTHING on your behalf you are losing; every time.  I'll take 5 years on a mutual fund over 5 years on a Discover card at 5% 10%, it doesn't even come close.

Do the math. If you're paying 1% APR (or 0%, as in no carrying cost at all) and earning 6% APR, you're making money. I'm too risk averse to put the (temporarily) free money in stocks, but insured deposits? That really is free money. How the hell do you think banks make money? They borrow low and lend high.

If you're paying interest and not getting anything for it, you are losing something. Unless you're paying it off in cheaper dollars later, but that's more of an abstract buying power thing. In this near-deflationary environment, you can forget about that one. I'm not interested in carrying debt at the moment, given that it's looking more and more likely that it would be paid off with more expensive dollars later. That still doesn't change the fact that they give me 1-5% back on all my purchases and I pay them nothing for the privilege. It's not as if I pay more to buy that cheeseburger than you do, I just get a nice rebate on the cheeseburger that you don't.

But yes, if you're paying interest and not making more in interest or whatever from it, you're not making money.

[izmophonik]

FYI guys even if you pay the balance off every month you still pay interest on 30 days worth of debt which is compounding interest.  Calculate the dollars it took for your boss to get 375,000 miles.  Chances are he's paid more than those flights are worth in interest on the card over the 12 months.