Going to Foreclose, should I just do Bankruptcy as well?

[overthisbs]

Hello all, our situation: we are eventually going to foreclose on our house, we are underwater, house is worth 1/2 of what it was bought for in 2005, $0 down on the house, very little $ into it, we bought with purchase money so we are able to walk away scott free. We don't like living here and want to move on. Deficiency is not a problem and the taxes should not be a problem. We are in CA.

the issue I have is that I have been unemployed 2x in 2008 and have not found work since sept. of 2008, we are now living off of 1/3 of what we were bringing in as income, my wife works but I was the main wage earner. I had back surgery and my wife was out on disability during 2007/2008 due to pregnancy complications. We are now in 50k of CC debt. The debt is not specifically medical bills but just living expenses in general. We have been trading CC debt for mtg debt for awhile now. We pay $900 a month minumums to the CC's, 40k is low interest, average of 3% fixed but according to my calculations that will take 5 years and $4k in interest to pay off. I am thinking that my credit will be repaired in 5 years anyhow, or at least much better and we can put that $ to better use in my daughters college funds, savings, etc. Plus, we are working off of one income and paying this monthly is going to be difficult, especially if I can't find work by early 2010, when my UI insurance will run out (if not sooner, you never know). The other thing is we don't really want or need credit anymore, at least until we buy another home and that is going to be many years away. I don't see the housing market coming back for at least 5 years. I just want to start fresh and live off what we make and that is it, pay cash for everything.

My main question is whether or not we should just file for Bankruptcy and wipe out all of our debt? Leaving the home will help some as out rent surely won't be as much as the house but I would like to figure out how much worse a full BK on my credit report is vs. just a foreclosure. There is alot of misleading info out there, so it is confusing. I am thinking that if BK is only a bit worse than a foreclosure, then it might make sense to just do the full bk and be done with the CC debt as well and start fresh. I am fairly surely that our 401k assets can't be touched, and that is about the only thing we have left besides general household stuff, which I am not sure what of that they can take? I am also wondering if we need to do this quickly, as we are 2.5 months late on our mtg now and I read that if you file you can keep the notice of default off of your credit? I wonder if it is best for us to foreclose and then file bk or file bk and then foreclose?

any advice appreciated, specifically on how much worse a BK is for your fico score than simply a foreclosure.

keep in mind that before all of this we both had stellar credit, in the high 700's, I have heard a foreclosure will drop my score 200 points automatically, how far a drop is a BK?

[Doghouse]

I am basically in the same situation as you (without wife and kids but with parents). Anyway, also live in Calif and house is 1/2 what I paid for it in '05. Had high 790 credit score when I purchased. I am letting the house go too. I will be filing bk in about 2 weeks. I have NOT made a mortgage payment since Oct 08 and have not received even a Notice Of Default yet. I did receive a letter regarding one filed with the county for my HELOC though which I ignored. They'd have to go thru the 1st and 2nd first for a house under water by more than 170K. My CC and LOC debts are north of 100K. I also stopped paying all creditors, except my car, since Oct '08. I have no active credit cards and have only used cash since Oct 08.

Personally, bankruptcy is the way to go. Get a clean fresh start especially if you intend to let the house go. If you stop paying now you can live rent free for eight months to a year and longer in California before foreclosure runs its course (I am already at 6 months rent free and no NOD yet). Your credit score will go down either way (mine already at 498 and I have not filed yet) but with no debt and responsible spending it's just a matter of time to build good credit again and buy another reasonably priced house in a few years. Good luck.

[lrprn]

My main question is whether or not we should just file for Bankruptcy and wipe out all of our debt?

From the limited information you've provided so far, bk seems like your best route for the long-term.

I would like to figure out how much worse a full BK on my credit report is vs. just a foreclosure.

They are both bad and have about the same hit on your credit score. The worst thing you can do is let the house foreclose, then file bankruptcy. Then you get the double hit on your score because they are two separate events. If you file bk and surrender the house as a part of the bankruptcy, you only get the bankruptcy hit.

Don't let all the scare stuff about bk freeze you into doing nothing. Our members typically find that two years or so after filing Ch 7 and keeping all their secured and other payments on time, their credit is improved enough that they can get car loans, buy a house with enough down, etc.

I am fairly surely that our 401k assets can't be touched...

They can't. Please do not take money out of your 401K before filing - that turns a protected asset into an unprotected one plus you get the stiff tax penalty.

...general household stuff, which I am not sure what of that they can take?

The only thing the trustee is interested in are assets with value that can't be protected by your state bk exemptions. General household stuff is of no interest because it has no real value. However, if you have art, jewelry, guns, etc that the CA exemptions can't protect, then those could be at risk.

I am also wondering if we need to do this quickly, as we are 2.5 months late on our mtg now and I read that if you file you can keep the notice of default off of your credit?

If you file and surrender the house, what will show on your credit report is that the house was surrendered and the loan will be coded IIB (included in bankruptcy). If your lender forecloses before you file, then the mortgage loan will show up as foreclosed. If you can't pay your mortgage, nothing keeps that off your credit report. Since you're already more than two months behind, the 60 day late notice is likely already there.

I wonder if it is best for us to foreclose and then file bk or file bk and then foreclose?

It is FAR better to file bk and surrender the house as a part of the bankruptcy. See my answer above for why.

any advice appreciated, specifically on how much worse a BK is for your fico score than simply a foreclosure.

Please forgive my direct talk, but you are way too concerned with your credit score in this situation. Your focus needs to be on what is going to resolve your financial problems in the best way for your family over the long run. Credit scores should NEVER be used as the main deciding factor about whether to file or not.

Credit just gets you things. What really matters here are your family and what's best for them. Credit scores be damned - do what's right for them - that's your real focus and your goal. Filing needs to be a cold, emotionless financial decision - nothing more.

Set up 3-4 free initial consultations with experienced bk attorneys in your area. You will learn a lot about what is going to be best for you given your financial situation. If you don't know how to find an attorney, there's a Find a BK Lawyer tab at the top of the page. Another good approach is to contact the CA state or local bar association and ask for referrals - here's where to find their contact information - http://www.abanet.org/barserv/map/ca.html

Good luck to you Keep asking questions - we'll help you sort things out as best we can.

[overthisbs]

thank you so much for your reply, very helpful.

A question, are you saying that the notice of default is already on my credit report? I am understanding that after 90 days the bank files a notice of default with the city/state and that this notice effects your credit? but I am ok now as far as the foreclosure not being on my record, correct? How fast do I need to file BK in order to ensure that I don't get a double hit as you say with a foreclosure and a BK?

I appreciate your forward manner. You are right. The thing that kills me is I have always paid my bills on time, never once late on anything and then all the suddent this tidal wave hit us. The last six months have been a whirlwind.

The way I figure it, any credit lines that we had will be wiped away anyhow once we foreclose, so no credit anyhow. My CC companies already told me that they will lower my available balance to 500 bucks above what we owe on the cards. So, really the only thing stopping us from BK is the question of whether or not it is a worse hit on our credit report or not. It sounds like a foreclosure and a BK are about the same hit on your credit report? is this true? I searched myfico.com and they mentioned that a foreclosure is better in the sense that it is only one line item and a bk is several. Any more insight into the difference between a BK and foreclosure and how they stack up would be appreciated. There is just alot of misinformation out there, it seems many lawyers try to push you into filing BK because they get paid for it. It would be nice to find some true unbiased info out there.

The other thing is I am looking at making 1/2 of what I made in 2008/2009 as a base salary. The senior level jobs just aren't there anymore. It would be nice to just start fresh.

In the end, if BK and FC are the same hit on my credit report, then it just makes good fiscal sense to wipe everything clean and start fresh.

[Logan]

Go BK....Life is much better once you get out of that hole.

Logan

[jeb]

Something to consider - are you going to have more medical bills that you can't pay over a reasonable time period? If so, you will not be able to include them in BK so if you wait until you can include them it would be a plus to wait.

As mentioned, why are you even interested in your credit score? The last thing you need after a BK is a lot of available credit. - jb

[overthisbs]

thanks, yes, we don't need credit, my main question is really how much easier it will be to repair my credit if we just stick with just the foreclosure only and just pay down the cards OR just wipe it clean with BK?

we don't have ongoing medical bills, so far we are all healthy, which is great.

as I mentioned, if the FC is a large enough of a hit on our credit report, then it may make sense to just go BK and wipe it clean? I still am looking for more solid info on how a FC affects your credit vs. a BK? meaning someone with just a FC, drop x amount and someone with a BK drops x amount and it will take x amount of time to recover from a FC and x amount of time to recover from BK. FWIW, we are current on all of our other bills, except the 2 mtg's.

[BK2008]

Figure 100 points a piece, roughly. If you just forclose, you will probably drop 100 points
( I believe I went down 120 when i filed BK). If you later BK, there is another drop of 50-100. The benefit of surrendering the house in BK, is you avoid the double hit.

But, I am also 50 points up from my BK discharge date, and it has only been 8 months. So time is healing very slowly, and I've opened a new trade line (small) and maintained the ones that survived BK (keeping balances at 10% or lower, paying all everymonth) making my car payments before their due date, watching and correcting my credit reports (neverending).

[eddiep]

If the cc lower your limits to $500 above balance your credit score is about to bottom out.

[overthisbs]

I don't know whether or not that will happen, I am just assuming that will happen after a foreclosure goes on our record.......