Living on Credit Cards

[RickInMich]

Hi,

We have a situation not unlike many other people, I'm sure. By the time we pay our mortgage, credit cards, and normal recurrent household bills, i.e., utilities, we have very little money left over for gas, groceries, clothing, etc. I work in a job where I do get something like commission checks in addition to salary, and usually I have full intention on using that money to pay down the credit cards more than the minimum payment. But that is not happening at all. We just seem to be going further and further into debt. I end up using the commission checks so we don't have to go further in debt that particular month. We have substantial credit card debt now, and I just don't see any other way than bankruptcy! Our appt. is next Thursday.

My question is, I keep seeing that we shouldn't charge for about 90 days. But we can't get to the point of not charging. And this summer has been worse than ever. On the one card we use (the others we simply pay on), we have accumulated nearly $5,000 new debt over the last three months. We pay the minimum, sometimes a bit more, but we charge way more than we pay.

I guess I'm asking your advice. Should we not pay on any of the cards so we can use the money we would have paid to live on for the next 90 days and thus not charge? Or is it better to show the trustee or whoever that at least we kept trying to make the payments. We have never missed a single payment, and at this point our credit rating is excellent. But I realize now that's just because we keep charging to live, and we are able to make the payments on time. I just don't don't know when to stop the insanity. Truthfully, we could live like this for another year, but our debt would rise ridiculously.

Anyway, I guess my question is what to do about the next 90 days? There are a couple things we charged in the last 90 days we could return, i.e., some window blinds ($300). Would that show a good faith effort? Or is it just a pittance anyway? We could borrow some money, too, from family to pay off what we charged in the last 90 days. Should we do that?

Any help or advice would be greatly appreciated. We are seeing an attorney next week, but this stuff is weighing on my mind!

Rick

[Boscoe]

Rick, after you meet with the attorney, you definitely will feel better...I am guessing that this is all consumer/personal debt.

The law says that any 'luxury' purchases charged within 90 days of filing will be a problem. So, try to limit your cc purchases as much as you can and justify to yourself that each and every item you buy via charge is a day to day necessity. Keep the clothing purchases to a minimum and only reasonable purchases - then you should be ok.

[lrprn]

We have a situation not unlike many other people, I'm sure.

Hi Rick and welcome to BK Forum. There are thousands of members here who found themselves in the same predicament as you - you're among friends who understand how difficult your situation is here.

what to do about the next 90 days?

The 90 day with no charges before you file shifts the burden of proving fraud from you to your trustee. Frankly unless the purchases are blatantly over the top - jewelry, furs, vacations, cars, etc - it's hard to prove fraud. Some trustees are more touchy about charges close to filing than others as well.

However, this is a golden opportunity to find out if bankruptcy really is going to help you or not. When you are certain you are going to file, stop paying all your non-secured creditors. Use that money instead to pay for essentials that you may not have been able to afford. Also you can save the money to pay for a bankruptcy lawyer as well.

There are a couple things we charged in the last 90 days we could return, i.e., some window blinds ($300). Would that show a good faith effort? Or is it just a pittance anyway?

To a multi-million dollar company, your tiny little charges aren't even on the radar. If you are going to file, don't bother. You have the idea many of us did before filing that credit card companies actually care about you. Trust me when I say that to them, we are just an account number that generates cash, nothing more.

We could borrow some money, too, from family to pay off what we charged in the last 90 days. Should we do that?

It won't matter. There's no way to ensure that whatever you send will cover for just those charges. It's a waste of your family's money.

Hang in there. Before filing when you realize that you have not choice but to file is the hardest time. Most of us mortgaged our souls to avoid filing - cleaned out retirement accounts, sold family heirlooms, one member even sold her wedding rings. Most bankruptcy lawyers say that they wish that debtors would come to them earlier because they could have saved them a world of hurt and financial loss. Glad to see that you are doing that.

Make appointments with 3-4 bankruptcy lawyers in your area. Most give free initial consultations. You will learn a great deal about bankruptcy and whether given your particular financial situation bankruptcy is the right option for you. Keep us posted and keep asking questions - that's why we're here!

[RickInMich]

Wow, I cannot tell you how much I appreciate your responses! Honestly, I'm trying to maintain a good attitude about all this, but I'm bordering on obsession with thinking about it. I know you all can relate to those days before actually meeting with the attorney.

Boscoe, you are right. It's all consumer/personal debt. By the way, that brings up another question. Two of the debts are CapitalOne "loans." They aren't credit cards. But we accepted those offers because they offered a much lower rate, and we consolidated debt to those, with a little cash out to live on, of course. One we've had for nearly 2 years. The other one, about 7 months. I'm assuming (hoping!) those types of debt are considered the same as credit cards. They're unsecured, let's put it that way.

My other worry is over the last two years, I played the shuffle game -- I moved credit from one card to another to get their 4.9% life of the balance rate. Mind you, I was thinking I would get a handle on all this. So at this point, everything is literally down to four accounts, but the total is nearly $60,000, I'm embarassed to say.

By the way, the charges in the last 90 days do include three larger purchases. One was $1100 for house repairs (a front door and surround), $900 for transcription equipment for my wife to start earning extra money, and $600 was payment on software support I'm required to have for my profession. I think those are the three largest in that period. They're not luxury items, per se, but they are definitely over $500.

Then the last blunder was in May (over 90 days ago) I purchased a scooter/moped as a second vehicle for $2,000. Although my reasons are reasonable to me -- my wife is home with four children, and it's unsafe for her to not have our vehicle with her, and I need transportation to work -- even I can understand a trustee looking at these four months as a spending spree in anticipation of bankruptcy.

The honest to God truth of the matter is I didn't even consider bankruptcy until last weekend. It was like all of a sudden I realized, whoa!! We are NEVER going to get out of this mess. What am I doing???? If I had known, I at least would not have bought that scooter. We have no public transportation here, by the way, but God did give me two feet. Again, should I sell that scooter and pay the amount on the card with full documentation of the sale? That's my gut feeling.

Anyway, thank you so very much for the words of encouragement. I know one way or another, we'll get through this. Man, if only I could turn back time....

Rick

[Boscoe]

Hey Rick from the great state of Michigan....

What your story reminds me of is....well me. Playing the cash advance shuffle due to the good rates you got offered, doing fix ups around the house as they were needed....

Everything you mentioned is fine. Even the scooter. You can call it a second vehicle, because it is. I would think it would be covered by your exemptions, but I will let the experts here comment on Michigan exemptions.

The other stuff is what we call "tools of the trade", items you needed to buy to support your profession.

And yes, those Cap one loans are fully dischargable - won't need to pay them back either.

Does your combined income exceed the median for Michigan? Tell us how much annual income and someone will reply.

But I would not worry about fraud. Just keep the charges as minimal as you can, do fix ups around the house and tune ups, etc. for the car - nothing that an average person would not consider excessive, extravagant, luxurious.

[Boscoe]

Ok, I checked and Michigan IS one of only a handful of states that allows debtors to choose either federal or state exemptions.

The good news here is that the feds allow about $3k exemption (equity) for each motor vehicle. So, your scooter would be fully exempt, except you would need to show that it is actually used in some type of meaningful way I think. But ask your attorney. The law DOES say "motor vehicle" and a moped IS a motor vehicle, and you only have one other car, so I think you are fine to keep this.

Just remember during this whole process, a good attorney will be asking you to convince them that certain things you have done are legitimate and reasonable, and be ready to do just that. But from the sounds of things, you are in good shape.

Now, the bigger question - what chapter can you file? Depends on how much joint income you have (you and spouse).

[JollyGG]

It does sound like you have some bigger purchases going on in the last few month. As long as you have made one or two payments on those cards since the big purchases you are probably pretty safe to stop paying on your cards and switch to a cash only lifestyle.

Bosco is correct, you probably could file right now and be fine. However, if you wait three months you would be even more likely to fly through your bankruptcy without any issues. Your credit will take a slightly larger hit, but really in bankruptcy your major concern needs to be learning to live within your means and getting rid of your debt. Your credit can be worried about later.

[RickInMich]

Listen, I don't want to get too "mushy," but you guys are literally saving my life by at least talking to me about this stuff. I have felt so isolated in all this, although on the outside no one would even know.

Let me give you our exact situation. We do live in Michigan. My gross income (some of which is 1099) is approximately 62,000. My wife has earned around 3,500 this year, most of which was in the last six months. So including her 3,500, our gross monthly will show about $5750 per month. Multiply that by 12, and it comes to $69,000. We will have four children by the time we file (she's due end of September), so we're a family of 6. I am pretty sure we fall under the median income in Michigan. If I did my homework right, Michigan's median income for a family of 6 is $87,653. I don't know then if I still have to figure out disposable income and all that.

1st and 2nd mortgage equal about 150,000, and our house state equalized value (taxable value) is about 120,000. It might appraise for 135,000, but I even doubt that. So we really have no equity at all. Speaking of the 2nd mortgage, there's nothing we can do about reducing that through bankruptcy, I assume. We would be able to continue paying on the 1st and 2nd anyway. Why, oh, why, did we take out that 2nd to consolidate debt!!

As for vehicles, we lease one, and, as I said, we charged that moped/scooter. So we have no equity in the lease, and only $2,000 on the scooter.

So:

Gross Income: 69,000
1st & 2nd mort: 150,000. (House value 135,000)
5 unsecured debts: $62,000.

That is our total situation. I know it's bad. Ugh.

Rick

[SinkingFast]

You're currently way under the Median for a family of 6 in MI. Ch 7 should be a viable possibility for you.

Many of us have been in the same spot, Rick.

The only way we could make it monthly was to quit paying CC's. Then we could pay our routine bills and eat.

But since you're at this juncture,.............

If you pull out the amounts you pay on your CC's each month,.......... Can you live??

Can you pay the mortgages, the car payment, insurance, buy food, pay utilities, etc.??

You've got to sit down and run the numbers. Or maybe let the CC's payments go. Not pay them. And see how things go for a couple of months.

Could be you can make it and keep the house. Maybe you need to trade the Lease for a 722 Redemption Loan car. You might need to seriously look at letting the house go and renting someplace cheaper. Maybe the rent will be close to what you pay in mortgage payments, but you won't be responsible for repairs, taxes, and insurance. That's a savings right there.

Creditors aren't gonna come after you tomorrow. You'll have time to look at all your options and decide what's best for your family.

[veloguy]

Rick, we are in the exact same situation. In fact, at this point, we owe more on the house than what it is worth (the value went down over $100K in the last nine months).

Like you, we used our credit cards to purchase groceries, Dr. co-pays, the birth of our Daughter (than you health insurance! *grumble grumble*), etc.

Then we noticed we couldn't pay more than the minimums. Then the credit card companies who were once our best friends upped our interest rates because we were close to our limits, which threw us OVER our limit, which gave us an over limit fee, and....well you get the idea.

Everyone here is spot on and honest. The hardest part truly IS coming to the conclusion that bankruptcy is the only sane solution out of a bad situation.

The positive that has come out of this situation is now wife and I are on the same page, financially, we will be aggresively socking away our $$ (once this is all over) for retirement, and will be a cash only family.

Hang in there, it does get better.

[whatamess]

I just wanted to add that I had one of those 'grand' consolidation loans as well, for $18,000. (It started at 9% and went to 23% and thats while still paying on time every month!!) I had paid on it for two years when I filed in July. BofA barely flinched. The one they annoyed me about was a lousy $2,000 credit card debt!!
Like you, we also used our paycheck to pay CC and bills then charged food, clothes, gas, school supplies, hospital bills, car repairs... It's more common than you think . You will be in shock if and when you file and you look at pacer (court public info) and see how many people have filed lately. I think my district alone in July was around 600-800 7's & 13's combined???
You are not alone. We will be here to answer and help.
Take it easy.
WAM

[leftyf]

Rick,
O-H-I-O...that's all I have to say. No, just kidding. I'm in the same boat as you. I haven't paid a card in over 90 days and I was getting harassed non-stop. The calls have slowed down and Discover just sent me a letter asking me to make a payment and they will stop charging me fees and harassing me...what a joke! I suspect the cc companies are getting ready to take it to the next level...or a lot of people are on vacation, not sure. I still haven't adjusted to the cash only lifestyle, but I'm trying. If we can cut back on eating out and buying beer, we should be able to break-even, but barely. The sad part is that I will probably be forced into a 13 even though I can hardly make the budget work as is. I make about $80K with a family of 5...not bad, but not great either. Won't be able to pay back the $85K in CC debt though, unfortunately. The means test calculators I have used say I should qualify for a 7, but all of the attorneys I have met with immediately said I would be filing 13. Strange.
Good luck...I am holding off filing because I received a large bonus in May and I need to wait 6 months. I'm eating away at that bonus quickly though since I'm not using credit.

Lefty

[JRScott]

This is not an unusual situation. You took out a second mortgage to pay off unsecured debt making it secured. The step you forgot was to cancel all the cards so you didn't get back in the same situation. Many of us have made that mistake or know folks that have made that mistake.

I would not pay back any money on the credit cards at this point. On your credit card the money you pay in is applied to the oldest debt on the card not the newest debt. Thus borrowing the money to attempt to pay back the newer charge won't work. (Also you can't go in debt to pay off debt, for 90% of people that never works and just sets you up for problems in the future.)

I would certainly wait until after the baby is born to file. In fact you might want to wait about 3 months after that. The reason is that you might pile up additional unforeseen medical bills that you may also need to discharge. (Hopefully you have adequate insurance, sadly most of us don't).

If I was in your situation I would stop paying the credit cards now. Yes it'll ding your credit report, but in the end it sounds like you don't have the money to pay them anyway. Use cash as much as possible. Pay food first, pay utilities second, pay mortgages third, pay car next, then pay other transportation costs. Be sure to pay property taxes, insurance and other living expenses as well. Don't pay unsecured credit payments.

You'll hopefully show less than 100 dollars left over after paying the above, more than 100 dollars and there is the possibility that you might be put into a Chapter 13. Note it is important at this time not to cut corners on food, non food groceries etc. Also do not neglect health care and vehicle repairs. You need realistic numbers for your future expense schedules.

Any money left over I'd put in the fund to pay the lawyer from. Don't use it to pay on the credit cards. Yes they'll start calling, you can have the answering machine pick up (make sure the message identifies your name clearly).

After you file and have thus paid the lawyer I'd start sticking the extra money into an emergency fund. This is what you'll fall back on instead of credit. Ideally in time and it'll take time you'll want about 3-6 months worth of funds in the emergency fund. This first couple of years after filing its going to be hard to get any credit at a reasonable interest rate so an emergency fund is really essential. (I've been doing this but sapped my emergency fund fixing the brakes this week on the car, so I gotta start over ...but was nice to know I had the money and could pay for it even without credit.)

Good Luck to you

[RickInMich]

You'll hopefully show less than 100 dollars left over after paying the above, more than 100 dollars and there is the possibility that you might be put into a Chapter 13. Note it is important at this time not to cut corners on food, non food groceries etc. Also do not neglect health care and vehicle repairs. You need realistic numbers for your future expense schedules.

JR,

I didn't realize I was at risk of being put into Chapter 13. Even though our income is well below the state median, is that a very real possibility? I mean, I'll live with whatever we have to do, but I'm really thinking Chapter 7 is the right option for us.

Also, if one is below the state median income, do we then still fill out forms showing expense schedules? Since I'm meeting with an attorney next week, I have only perused the forms online, so I really have no idea.

Rick

[JRScott]

It is possible but unusual for someone that is below the median income to be put into a Chapter 13. I would not worry about it so much but just be advised it is possible.

On the means test you only go so far as until it tells you to check the box that says the presumption of abuse does not arise.

For your expenses beyond the means test in the bk papers itself you will have an expense schedule. I think it is Schedule J, so yes you will still need that information. (Schedule I is income).