Met with an attorney...I have some questions

[jwmc1]

Met with an attorney on Friday to discuss my options. Currently, I have about $56,000 in unsecured debt, $25,000 in state and federal income taxes and a $100,000 second mortgage that is completely underwater. In Michigan we must file a AP to get the second lien stripped, and the attorney told me that he thought it would not be a problem. Based on my income I would likely be pretty close to a 100% payback...but at the end of 60 months I wouldn't have a second mortgage, so it is attractive. We also have one judgement against us that has resulted in a garnishment of my checking account. I have been told by the law firm if I make a $460 payment by the end of the month, and then agree to make $153 in monthly payments thereafter, they will not proceed with the wage garnishment against my wife.

At this point I am trying to decide if I am better off making that payment and waiting to file. There is a chance I may be getting a decent amount of incentive compensation in March, and I might be abel to settle with my two largest creditors (B of A in the amount of $13,000 and Citi in the amount of $8,000). I have been offered very good settlements, but I just don't have the cash right now.

I have a couple of concerns, but my boggest is, my son will be graduating from high school in June 2010 and he is very smart and I would need to get some kind of loans for him to go to school. He may be able to get some aid, but it is highly unlikely he will get enough to keep us from having to come up with some good amount of money. Since I will be in a 13 plan, I will have a very difficult time paying any college expenses (I may have trouble regardless).

My prefernce is to wait as long as possible to file (although I know many of you will disagree with that). I am not completely sure what I am asking, but would you take the risk of waiting 5 or 6 more months based on the thought I may be getting some cash and see if creditors will settle, or shoudl I just say screw it and file.

And one final question...if I do get a bonus, will the trustee take it, or can I use it to pay my taxes?

Thank you for putting up with my "stream of conscienceness" post

[walkthaplank]

Some thoughts.

1. The lawyer for this creditor is no doubt still charging you interest on the judgment and will until it is satisfied, how much is that going to cost you? They may just decide to hit your checking account again. They may just decide to go the garnishment route anyway, maybe even put liens on your property.

2. Avoid student loans like the plague. How many people do you see here that were definitely helped on the path here with student loans? If your son is healthy, intelligent and not opposed to it, ROTC is a great way to pay for school. They offer great scholarships and even a small stipend. Your child would be required to serve a year for every year of school that the military pays. He'll also be doing it as a commissioned officer.

2A. Will your son be ready to transition to a university right out of school, or will he need to grow up a bit first? I was disappointed at first when my oldest told me he wanted to enlist (instead of going the ROTC route through college). A friend of mine told me about his experience with his kids. Three of his four high school honor students were on academic probation by the end of the first year of college. They were on the "Five year plan" and he got to foot the bill. The Navy and Air Force want intelligent recruits and will encourage further education once out of their training. They will even help pay for it. My son needs to do some growing up, I am happy that Uncle Sam will be helping that along and footing the bill for it

3. If it is really looking like you are going to file (and if you are talking to lawyers, you probably are to that point) why put it off? Why let balances increase? Why continue to pay interest? The sooner started, the sooner it is over.

4. Settling with two of your creditors (even if you could find the cash) will likely lead to FURTHER tax liability. Uncle Sam isn't dischargeable and new liabilities will be yours to deal with while Citi IS dischargeable.

5. Bonuses may very well be grabbed by the trustee, they may not. Ask your lawyer.

I don't see any reason in your questions WHY you would need to put off filing or any benefit you might receive from putting it off. Your debt is only going to continue growing. IRS penalties and interest are going to start hitting you hard. Yes, those are dischargeable, but in a 100% or near 100% plan you will still be paying them. Interest on your debts that you are paying is going to continue adding to the principle, you are likely going to be paying all of that too.

The idea of filing BK sucks... trust me, I know. But it is a means to an end. It is taking an active role in dealing with your finances and getting them in order. It won't be fun or easy, but if you do it right you'll come out on the other side better off.

Good luck!

[rrockinggramma]

I think you should do what you can. Is this garnishment the first one of many or the only one you expect.

Your credit with the judgment filed etc will probably get you denied for borrowing for your son's college. However he will be able to borrow and you are right, he will need more money than financial aid will allow. So that is a problem. I am sure that he is applying now and figuring out where he wants to attend. The FAFSA can be filed Jan 1,2010 and make sure he puts the most expensive college on line 1 (that he is planning or thinking about attending) This is because all financial aid is based on the cost of attendence of that one college, even though he may have listed 3 or 4 possibilities. When he makes his final decision, the financial aid office of the college will adjust his financial aid.

Filing is a big step. For many here they waited as long as they could before they filed. Bankruptcy is not ususally the first choice of options. Most drain their 401k's and savings long before the last option is found. So if you think you can hold off, by all means, hold off as long as you can. Your credit is already shot anyway and that will force you to live on cash anyway.

Good luck!