File Bankruptcy -or- borrow money from parents? HELP!

[cfgdag]

Not long ago my husband and I were doing very well financially...not long ago meaning 2 years ago. We had very little cc debt (maybe 2K) and had money in the bank (8K). Long story short, we discovered we were having baby #2 (unplanned). During my pregnancy I was on bedrest and lost 3 months of pay. Between the loss of pay and medical deductables/copays, we ended up living on credit cards for quit a while. It's been hard to get back on our feet and out cc debt kept snowballing until now. We now have zero savings and are almost 50K in debt between a personal line of credit and credit cards. We still are paying our bills on time, have never been late on 1 card or mortgage. But we struggle to live. We are litterally selling things on ebay and craigslist to get by (and my mother in law helps us out when she can). I am to the point that I can not go on like this anymore. We have to do something. As I see it, we have 2 options.

Option 1: File chapter 13. Get on a right track with a payment plan we can live with and be done with this in 5 or so years. The downside....it will ruin our credit. Our credit scores are at 701 and 730. I really hate to ruin them and our name. I have worked so hard to maintain decent credit even with high credit card balances. It's something I have been proud of.

Option 2: As my parents to loan us the money (but they would have to take out a mortgage on their house, which is fully paid off currently). I am pretty sure they would help us out....which would save our credit scores. The downside....it will be on a 20-30 year note (vs paying for 5 years). I would also feel that we might be "frowned" upon by my father if we take any vacations or spend a little extra cash on something nice (but I really can't see how he would expect us to cut everything for 20-30 years). And trust me, I would definitly try to pay it off in 10 or so with overtime, bonus checks I may receive from work, tax returns, etc. Our cars will be paid off in 4-5 years which will free up $750 a month. Both our kids will be in school in 4 years which will free up $1000 a month (daycare expense). So I know I can pay him off sooner.

I am just torn on what to do. File Chapter 13? Or borrow from my parents? They both have downsides and upsides.

Chapter 13....Take care of my problem on my own and have it paid in 5 years but ruin my credit
Parents...keep my good credit but have to rely on someone else to bail me out and take 10-20 years to pay back.

What would you do in my situation?

[kvangild]

If I were in your shoes I wouldn't borrow money from your parents. It just changes the whole relationship. But I guess it all depends on what you and your husband are comfortable with. Good Luck either decision.

[walkthaplank]

This is an entirely personal decision. I have not even discussed the fact that we are filing BK with anybody but my wife and our lawyer. I could probably get my folks to help me out of my mess, but MY thinking is I didn't have my parents help getting IN to the mess, I'm not going to ask for their help getting OUT of it.

Another thing to keep in mind your parents are probably getting close to retirement. Parents being parents, most would gladly cut off their own limb to save their child if they can, would it be detrimental to them to lend you that much money at this point in their life? You are likely at an age where retirement is a distant hope, your parents are probably looking at it around the corner. What happens if something drastic occurs and you can't pay your parents back?

I just noticed that you said they would have to take out a mortgage on their house to help you. I wouldn't ask somebody to borrow money to lend me money. Work it out through BK or some other method with your creditors.

[mynextlife]

I think the emotional guilt you would feel with borrowing the money from your parents FAR outweigh the fallout from filing CH13. You should consider yourself blessed to have parents that would be willing to put themselves in debt for you. You and hubby got into this mess alone and you would feel better and look at yourselves in a more responsible way if you handled it on your own. Just my .02

[sassiebaz]

File!

[Buzzbolt]

Keep the family out of it. Never a good idea to commingle, imho.

[cfgdag]

Thanks for all your replies! You all said what I feel. I know we did this to ourselves and I know we should get ourselves out. My parents are both retired already and have paid off their house. I would hate to ask them, even though I know they would do it. I just wanted other opinions. I know BK isn't the end of the world and we are young enough to rebuild our credit (we are 30 and 31 years old). It's just that BK sounds scary....and overall I can't believe we are in this situation. But at the same time, I am looking forward to "starting over" and not crying every week when I pay the bills.... We have a consultation with an attorney this afternoon to review our income and expenses. I guess my next question is.....since I am current on all my bills will I be advised to stop paying and fall behind? I also heard that since I bank with a credit union I will be "kicked" out of the credit union once I file so I should find another bank now. Is this true? I have 2 vehicle loans, a credit card and a line of credit thru the credit union (also a checking and savings account).

Thanks so much for the opinions!

[StartingOver08]

Yes, open another bank account with a bank/other CU that does not have any ties to any debt you carry. Don't open your account at Wells Fargo (search on the forums here).

Normally people stop paying on their credit cards once they have decided to file because that is the only way they will have enought to pay the attorney fees. You can pay your unsecured debt right up to filing, but it is like throwing $$ away. Now is the time to plan your budget and to stop charging so you can plan a smooth Bk filing.

[Buzzbolt]

I think it's pretty common to have a cross default clause at a credit union. So it might not be a bad idea to see what your options are at other credit unions.

[cfgdag]

StartingOver08...I think I will look into another bank tomorrow. Oh....trust me, we have already stopped using the cards, months ago. Since January we charged 2 things...one was a tire for my car, another was a $250 funeral charge when my father in law passed away in April and my mother in law needed help with the headstone. We put the cards away and have been used to living on cash only for a while now.

I guess I can see what you mean by "throwing money away" when paying on cards. No point to it I guess other than to avoid creditors call me.

I am just in shock still that it's time to do this. Sigh.... I never thought I would have to avoid creditors. But I guess that's what everyone on here would say.

[pcn]

You mentioned that your father-in-law recently passed away. If there is any inheritance in the near future that is something to consider.

Also, you will read it here as you search more, but I will point it out in the hope you take heed - we didn't. If there is a chance you will need your good credit score to purchase a new vehicle, continue to pay your cc's until you get the financing done. We quit paying cc's as is recommended, but didn't act fast enough to get a replacement vehicle before our credit tanked. 5 years is a long time if your current vehicles aren't brand new right now.

[Flamingo]

Can you actually file bankruptcy? Are you actually insolvent? Insolvent means more debt than assets. You state nothing of your assets, savings, house, just your debt.

[cfgdag]

Nope, no inheritance to count on.....

Well we met with Attorney. He did all his figures and actually said we more than qualify for chapter 7, instead of 13. I think it's the way we are going to go. This way we are done with it in 4-6 months and can start fresh. I must say I feel very relieved now that I have a plan in motion. Of course, we were instructed to stop paying credit cards. We also can't file until at last Aug 1 since they look back 6 months and will see a 2600 bonus I got at the end of January. So we got to wait until that is no longer in the 6 month look back period.

We don't have assets at all. We are upside down in our house. No savings. Very little retirement. Our vehicles are fairly new (2005 and 2007) and we owe more than they are worth. I guess this all works well with us doing a chapter 7....nothing to liquidate.

I am just wondering if we should go ahead and trade in our 2005 for something newer before our credit tanks. It's a honda pilot with 68000 miles on it....something I got to think about.

[jb300]

I would say at this point since you have consulted an attorney, don't make any financial decisions without running it past him.

[njguy1972]

The bonus will need to be included, especially if you get an annual bonus.

If you do not include it, it will show on your tax returns and can cause an issue.

If you file in December and do not include the bonus, it will appear on your tax documents around the time of your 341 meeting.

If you file in January, they will definitely check your 2009 tax return.

Nope, no inheritance to count on.....

Well we met with Attorney. He did all his figures and actually said we more than qualify for chapter 7, instead of 13. I think it's the way we are going to go. This way we are done with it in 4-6 months and can start fresh. I must say I feel very relieved now that I have a plan in motion. Of course, we were instructed to stop paying credit cards. We also can't file until at last Aug 1 since they look back 6 months and will see a 2600 bonus I got at the end of January. So we got to wait until that is no longer in the 6 month look back period.

We don't have assets at all. We are upside down in our house. No savings. Very little retirement. Our vehicles are fairly new (2005 and 2007) and we owe more than they are worth. I guess this all works well with us doing a chapter 7....nothing to liquidate.

I am just wondering if we should go ahead and trade in our 2005 for something newer before our credit tanks. It's a honda pilot with 68000 miles on it....something I got to think about.