contemplating chapter 7. Need opinions please.

[burnout42]

So, this is a bit of a long story so bear with me. I have a home that my wife and I purchased about 5 years ago (at the top of the market before it died...). For the market conditions as of the time it was relatively cheap....$140k. It needed alot of work. We have since sunk about 25k of our own money into re-modeling the house. That was when I was making good money and so was my wife. Fast foward to today - we have had a rough time the last 2 years. We refinancing the house about 2 years ago and pulled out about 20k in equity. During that 2 year period I wasn't making much money, we had our first baby so my wife has been home with our son so she was not making any money either. We went through our savings to the point where we were broke. I fell behind on the mortgage payments and just about all of my other financial obligations. At this point we are behind about 5 months on the mortgage. Recently I have been making some decent money again and we got a tax return that was pretty good. I have about 7k saved and in the bank. I recently spoke to a lawyer about my mortgage problem to get some legal advice. He is basically pushing me to file for chapter 7. Let me give a little more info about my situation. My wife and I are sorry that we bought our home. It has taken us 5 years of dumping money into it to get it where it is right now. It still needs work.....The NEW roof that we put on is leaking again, the basement is taking on water when it rains hard, we still need to landscape the back yard, my garage is falling over, the entire outside of the house needs to be repainted or re-sided, etc. We still need to put alot of money into the house to be happy with it. Due to the shitty market conditions in cleveland, the house right next door to me just sold for $115k! I have about $5k in other debt including hospital bills from my son, and a few small credit cards that I couldn't afford to pay. Our credit is trashed. We also have a personal loan from CITI financial that I currently pay $200 / month on at a STUPID interest rate. We want to get out of our house and I don't think we could sell for what we owe right now ($155k). My lawyer suggested that we drop the chapter 7 bomb. I never considered this move, but from what he is telling me, we could flush the house, all our debt, the personal loan and start over....plus I could stash the little bit of money that I finally have saved and keep it instead of putting it back into to keeping the house that we hate. I am scared of a BK. I always thought that it was financial suicide. What do you guys think I should do? I think that I could negotiate to keep the house, or apply for a partial claim to come current, but then we have all these other bills to pay for plus I can say goodbye to my $7k that I have saved and be broke again. Or, I could flush with a CH7, and use that money to go rent a better house than I have now using extra freed up money from my budget that goes to pay my personal loan plus catching up on credit card bills. I just think that if I keep the house that every dime I sink into it going to be wasted, plus I think it would be harder for me to re-establish our credit than if I just filed BK. What do you think?

[mortmomof2]

We filed for very similar reasons...house upside down (with a large 2nd) that we no longer needed or wanted and that couldn't sell due to the economy along with other debt and medical bills. If you can't afford to maintain the home without going into further debt, especially on a home you don't even like/want, then I don't think BK is a bad option. Our credit score has always been great, but was beginning to go down...and a cash advance on one card to pay the other was the 'straw that broke the camels back' for us.

In a couple of years we will be able to buy again if we want to. Many people file and go on to live quite productive, happy, and fulfilled lives...when they learn from whatever led to the situation to begin with...I don't want to say 'mistake' because it may not be...just situations to learn from.

Good luck!

Mortmom
filed ch. 7 - 3/19/10
341 - 4/14/10
No distribution 4/15/10

[outofdebt201]

[JackBondLove]

Would you rather rent for the next 10 years (possibly that long until you could get another loan) or stay in your current house? Once you get over the owning a house hump, there is not much of a downside of BK. You will need to pay as you go (no more plastic) on everything, and pay through the nose on your next car loan, but if you were to wipe away enough debt, it would definitely be worth it. I have calculated that the net cost of BK at about $10-15K in terms of worse interest rates (or no loan!) (counting the attorney.) If you would be wiping out more than that amount, then it sounds like BK would be the strategic option.