Considering Chapter 7 and could use some feedback

[Esidedude88]

I've been lingering a while and posted once or twice. I feel like I'm stuck between a rock and hard place. I'm deeply in debt. I feel like I owe everyone money. I bought my first townhouse last year, and it turned out that it needed a lot of repairs that "slipped by" inspection. I've borrowed over $12,000 from my family to help. I now just got hit with another repair that will cost several more thousand dollars and I'm broke. In short, the house is a complete lemon. I feel nothing but hatred for it now. I also have a car payment, credit card debt (not much) student loans... I've managed to keep my credit at a "good" standing (not excellent due to DTI). In all, I have about $100 left per paycheck after bills and groceries with no savings. I'm seriously looking at Chapter 7 as a possibility, but I'm incredibly nervous. I've always considered bankruptcy as an absolute last resort. I'm scared of filing and then suddenly losing my job or having something catastrophic happen with my health. If I've already de;cared, I'd be SOL. Is it worth it for this? I also feel ashamed at my lack of judgement and denial of my financial picture,

I have some questions that I'm hoping people can help with here.

1) Is it okay to continue making the minimum payments on my debts during the BK proceedings? I'm not talking about paying anyone off or anything, but I'd like my credit to take "less" of a hit (yes, I realize it will be ruined still after... But I'll still take the extra 20 points. I also don't want to suddenly stop making payments to my dad, though I realize I must legally list this debt on my BK if I move forward. He's helped me a lot. Does continuing to make payments on ALL accounts ACCEPT your mortgage show preferential treatment in BK?

2) I'm worried about the fact that I just recently used my credit card to purchase an appliance. My dryer died (BIG surprise there) and I had to replace it.

3) I've gotten some feedback on this, but I'd be interested in hearing other people's stories. Should I rent an apartment BEFORE I file?

4) What is life like after BK?

I know some of you might say to just walk away from the house and not file. However, I don't want a deficiency judgment or tax burden later. I want to start fresh, but I'm extremely hesitant.

Thoughts appreciated.

[bcohen]

1) Is it okay to continue making the minimum payments on my debts during the BK proceedings? I'm not talking about paying anyone off or anything, but I'd like my credit to take "less" of a hit (yes, I realize it will be ruined still after... But I'll still take the extra 20 points. I also don't want to suddenly stop making payments to my dad, though I realize I must legally list this debt on my BK if I move forward. He's helped me a lot. Does continuing to make payments on ALL accounts ACCEPT your mortgage show preferential treatment in BK?

Is it "okay" to keep paying on debts that you plan to discharge? Sure, just as it's "okay" to cash your paycheck, put the money in your fireplace and burn it. Neither is a good idea, and both are pretty much doing the same thing. Regardless of whether or not you continue to pay your debts, your creditors will close your accounts (credit cards) and report to the credit bureaus as "closed by credit grantor", and stop reporting positive payment history (installment loans). Continuing to pay will not reduce the impact to your credit scores, nor will it help your credit scores recover more quickly after bankruptcy. Only time, and opening new accounts once your case has closed--and paying responsibly on them--will allow your credit scores to improve. BTW, you can still repay your family members after the bankruptcy case is closed. The debt will be legally discharged, but you can still repay it.

Also, continuing to pay unsecured creditors, while refusing to pay the mortgage does constitute a preferential payment. Depending on the dollar amounts, if you file for bankruptcy, the trustee may attempt to recover funds from the creditors which you did pay--including your family.

2) I'm worried about the fact that I just recently used my credit card to purchase an appliance. My dryer died (BIG surprise there) and I had to replace it.

A dryer costs what, about $400 to $500? Highly unlikely that a creditor would bother to file an AP and object to discharge of such a tiny amount. Just the cost of bringing such action would run several thousand dollars. A creditor simply isn't going to pursue such a claim unless the dollar amounts are much, much higher and there is clear evidence of fraudulent intent--such as purchasing expensive goods while being unemployed.

3) I've gotten some feedback on this, but I'd be interested in hearing other people's stories. Should I rent an apartment BEFORE I file?

The answer to that question depends on whether or not the condominium is habitable in its current condition--or could be made habitable for less than the cost of a few month's rent. If the answer is "yes" then I see no reason to incur the expense of rent when you have a place in which you could live payment-free, possibly for several years, until the lender forecloses. If the answer is that your condo is not in livable condition, and requires tens of thousands of dollars worth of repairs to be livable, then your only option might be to move out and rent.

In any case, I would strongly recommend against bankruptcy until after the condo is foreclosed and out of your name. Otherwise, you could find yourself paying costly rent, while also being pursued for HOA dues and special assessments on a condo which you don't even live in anymore.

4) What is life like after BK?

Life after bankruptcy is very good if you can live without access to credit cards, and don't need to finance anything for the foreseeable future. If you are able to live within your means after filing, and don't anticipate any ongoing unaffordable expenses, then bankruptcy will bring lasting relief. I have not had any difficulty renting an apartment from a reputable property management company, even within a year of being discharged. As long as you did not stiff any previous landlord, have stable and sufficient income, and no criminal record, you will not be disqualified due to filing for bankruptcy. The bankruptcy must be discharged, however.

That being said, as long as you remain the legal owner of this condominium, you will be faced with ongoing expenses from the HOA, and a bankruptcy discharge will not protect you from being sued for dues and fees going forward. For this reason, it does not make sense to file, until AFTER the condo is foreclosed. If you wait to file until after foreclosure then any such debts will be discharged.

I know some of you might say to just walk away from the house and not file. However, I don't want a deficiency judgment or tax burden later. I want to start fresh, but I'm extremely hesitant.

Yes, that is exactly what I am saying. I see lots of risk to filing now, and frankly don't see any risk to waiting. By definition, a deficiency judgment or "tax burden" due to canceled debt can only occur after the lender has foreclosed on the condo. Once the foreclosure is finalized, then you can and should file--which would prevent the lender from suing for any deficiency, or sending a 1099C if they choose to forgive said deficiency.

[justbroke]

1) Is it okay to continue making the minimum payments on my debts during the BK proceedings? I'm not talking about paying anyone off or anything, but I'd like my credit to take "less" of a hit (yes, I realize it will be ruined still after... But I'll still take the extra 20 points. I also don't want to suddenly stop making payments to my dad, though I realize I must legally list this debt on my BK if I move forward. He's helped me a lot. Does continuing to make payments on ALL accounts ACCEPT your mortgage show preferential treatment in BK?

Let me first be nice and say that there is absolutely nothing in the bankruptcy code that prevents a debtor from paying discharged (or dischargeable) unsecured creditors. Why would you make payments -- to (dischareable) unsecured creditors -- when you have an active bankruptcy? It makes no sense. It is not going to change your credit history. It is not going to improve your credit score.

I see no way that paying on a debt that will be listed as "Included In Bankruptcy" will EVER get you 1 point, let alone 20 points. Once it's derogatory, it's derogatory and will impact your score. In as little as six months after discharge, your score will improve. After 1 year, your score will improve more. After 2 years... you could theoretically be back in the low 700s (I was!). As with anything, your creditor score will be based on your post-bankruptcy handling of debt, payments on time, utilization, new debt, and inquiries. If you managed this poorly before filing, you'll see the same scores and wonder why you're not at 700 in 2 years.

As far as your Dad is concerned, I would keep making payments to him. In fact, there are certain relationships where maintaining the status quo is desirable. However, absent close friends and relatives, paying a discharged debt is simply throwing money away and the creditor will never trust you again anyhow. (I also can see paying a Dentist, family Doctor, or other professional, where a long term relationship was built. Otherwise, it's futile and useless.)

2) I'm worried about the fact that I just recently used my credit card to purchase an appliance. My dryer died (BIG surprise there) and I had to replace it.

The bankruptcy code would not penalize you for this. Anything that has to do with the health and safety of you or your family is not considered to be a presumptively non-dischargeable debt.

3) I've gotten some feedback on this, but I'd be interested in hearing other people's stories. Should I rent an apartment BEFORE I file?

From experience, it's much easier to rent an apartment from a large management complex (or company) when there are no bankruptcy filings within 1-2 years of applying. Many large management companies actually have a rule that a bankruptcy must be discharged or aged at least 1-2 years.

4) What is life like after BK?

It's awesome if you learned from the experience. Otherwise, it will be business as usual.

I know some of you might say to just walk away from the house and not file. However, I don't want a deficiency judgment or tax burden later. I want to start fresh, but I'm extremely hesitant.

Some of us may recommend walking and waiting on the deficiency judgment. If you are "collection proof" (which many people just are not), then you could even let that ride.

[justbroke]

bcohen I actually liked your post as it mirrored everything but the last point I made. I didn't read any of the prior posts so based what I wrote only on this posting.