What are my options? I need a reality check (sorry, long post)

[StartinOver]

Due to a combination of many years of poor choices followed by bad economy and attempts to better ourselves and our home, followed by more bad economy, we have finally (again) reached a point of more outgo than income. However, we've nearly cut all we can in the budget. Considering whether debt management or bankruptcy or what are the best option for resolving. I've been in big cc debt (40K last time) 3 times before and just paid it down, but we are not in the same income condition any more, and I don't think the number work anymore for that. Over this period of time, I've finally learned that credit is not my friend.

We are residents of New Hampshire

Home: Owned jointly, both names on all debt associated with the home. Value at last appraise 325K. Reality says 265K to 272K max in current market (this is an estimate from a listing agent well respected in the area for setting asking prices spot on the market)

1st mtg paid current 210K at 6.25% 26 years to go with Sovereign Bank. Monthly payment PITI is 1816 and going up because we just got required to carry flood insurance. (It's waterfront on a dammed (not damned) pond.

HELOC paid current interest only for several more years, then amortizes. 62K also with Sovereign Bank (payment is approx 140 - 155 /month)

Vehicles: '97 Toyota RAV 4 221K miles, owned outright -burns oil, but runs good, and needs a new exhaust right now (hoping it won't fall out before I can find $ to pay for it)
'00 Toyota Tundra 150K miles (not sure of that, hubby's vehicle) owned outright
I don't know what year Honda ST1100 motorcycle owned outright

Income:
Mine: cut 28% in August of last year, to 45,000 annual salary
His: fluctuated a lot - years of unemployment (while desperately ill with clinical depression, now resolved) currently $32,200 salary. Works in restaurant business no stability! Was below half that rate for first 4 of last 6 months.

Priority Debt:
Student loans
His: $2496 at 4.13%, 244.61 monthly, currently over 80 days (they say it will charge off at 120 days, I have no idea what that means to me)
His: 6451.54 at 2.58%
Hers: $945 at 2.23% 50.75/mo

Credit Cards:
Hers:
BofA - $24,191 on a 5 year repayment plan, 4.75%, payment is 500, and I'm now behind on this $750
Lowes - 742.83 22.99% (was 6 month same as cash and now I have no cash to pay) has never had a payment - was 613 until the accrued interest got put on this month - that's the dumbass prize, isn't it?)

Joint accounts:
Citibank Visa $3397.45 now on 60 month payment plan at $56.00 drafted automatically each month. Will return to 29.99 interest on completion of payment plan. Yeah, whatever. I don't ever intend to use a credit card again.)

Sam's Club: $6,189.80 22.99% interest. Was on an interest only payment 4 months, but that's over. And things are no better. Have not called to negotiate anything else.

That all sums up to a total indebtedness of $336K on an annual income of 76.2K

You'll ask about expenses - That will be harder to figure out. My Quicken file blew up 3 times in 3 months last year and I got sick of reentering the same data and just flew seat of pants all year with my bank website.

In January, my company moved and my commute more than doubled. Hubby drives his truck (or the bike in good weather) 16 miles each way to his work, and I drive 36 miles each way.

Expenses:

Gasoline: $600/month (gasp)

Automobile maint: dunno, but I put an oil change in every month at valvoline (I go there because top ups for my oil burner are free)

electric - 150/month average. Currently behind and on a 6 month budget at $190/month to catch up and avoid shutoff

cell phones (no home phone) $120/month (thought about doing away and going back to a home phone, but no one is ever home and we both travel too far to be stuck on side of highway with no phone)


Auto Insurance: $101/month

Comcast (internet and basic cable) $73/month

Groceries and household supplies: $400

Heating fuel $200/mo (budget to pay off overdue oil fill payments, but it's a safe annual monthly rate for us, between oil and wood for the stove

There's more, but I don't know what it is - he gets haircuts because food service requires it and I gave them up in December to save money. I hate the results but I feel guilty spending money on this anymore. (I used to go every 5 weeks, for cut/color. Paying for that extravagence now.)

Home maintenance? no idea. not doing any right now, fortunately nothing is falling apart. But it needs painting again. We use the truck to take the trash to transfer station ourselves. We have our own well, so no water/sewer charges , though the septic should be pumped and the chimney needs cleaning and the oil burner needs annual service this year that was skipped last year. (System is state of the art new about 3 years old, and very efficient.)

Anyway, I can't seem to make a budget that works with our take home pays to fund it all. I tried to get a loan modification (what a nightmare) and they decided we failed Freddie Mac's Imminent Default Indicator so we don't qualify.

We have retirement assets of $185K between us (in IRAs and 401k). We have no liquid savings account at all. Our checking account is in the same bank as our mortgage and the HELOC is automatically drafted (their requirement) and the mortgage is too for convenience.

I LOVE our home on the water and get a lot of pleasure out of maintaining the landscaping and of kayaking with my beagle. It will almost kill me if we have to give it up. But I don't know what to do next. I've been researching and trying to find a solution. Is it Debt Management services? Is it Bankruptcy? I don't want to fail. But the numbers no longer work and before it gets so much worse I have no options, I thought I'd ask for the bluntness of people who have been to this brink and either survived or rose like phoenix from the ashes of their former financial lives by bankruptcy.

I'll be away from the computer all weekend (prayer retreat), and looking back in here next week. Don't be gentle with me.

[SMinGA]

First thoughts:
*you are even on your home, or pretty close.
*I'm guessing there are no kids & you're a household of 2?
*Median income for 2 in NH is just shy of $64k per year.

To determine if you're over or under median, you look at what income you earned in the 6 months prior to filing. If you file in August, it would use Feb-Jul for example. You are roughly $1000 per month over median, but you indicate your husband often earns less than the stated salary.

You may be a ch. 7 candidate, even if you are over the median. Many things in your budget are limited to IRS standards but some things are based on actual, like your mortgage. The concern is that your mortgage makes up (I'm guessing) about 1/2 of your take home pay, and that the 2nd is interest only so it will go up at some point.

For immediate steps, I would say to contact student loans and ask for forebearance due to financial hardship. I would also say to stop paying the credit cards, concentrate on getting/keeping your utilities current & keeping your vehicles in safe driving condition. You need them to get to/from work.

You must also face the question of whether or not you truly can afford the house - if you did not have the credit cards to deal with. The student loans are not going away, but you may be able to put them off temporarily.

[momofthree]

Figuring $200 for auto maintenance and $100 for home maintenance (neither of which you included), your total expenses come to around $3815/mo. What is your bring home pay? I'm guessing it's around $4500-$5000 depending on your deductions, which leaves quite a big chunk to pay into a chapter 13.

[SMinGA]

Adding $300 for home maint & auto maint I come up to $3915.

But other things are not accounted for. Clothing/apparel, medical/dental out of pocket/copays. And for chapter 7, student loan payments would count as they would go back to repayment status after discharge. And homeowners insurance increasing due to adding flood coverage.

My guess is those items will eat up any remaining net income.

Figuring $200 for auto maintenance and $100 for home maintenance (neither of which you included), your total expenses come to around $3815/mo. What is your bring home pay? I'm guessing it's around $4500-$5000 depending on your deductions, which leaves quite a big chunk to pay into a chapter 13.

[Majakat]

400 for groceries and household seems low too

[StartinOver]

Hi,

Yes we're a household of 2 - we have no children and won't. I'm 52, he's 40, and there's no risk of any babies coming along (nor any desire for them).

We've already used up all the forbearance time available to us for any of our student loans.

My husband has just been put on a salary - as long as the restaurant doesn't go out of business, or get sold, or the volatility of personalities in the kitchen doesn't turn into one of those "total change of staff" situations, he'll be stable. He had some very bad months this winter, though.

$200 a month for auto maitenance? Yikes. Oh, wait, this is budgeting... so when the stupid car 'suddenly' needs tires, the money is set aside... It's been a way long time since I could have that sort of peace of mind!


The groceries/supplies figure is low - I have simple tastes and my dear crazy husband gets free food at work, so he makes a point of eating at work every meal he can.


Momofthree, I'll be able to give an accurate take home figure tomorrow. This is my first paycheck with new withholdings and deductions for benefits- I needed to have more withheld to make sure I don't end up owing. Because I had to reduce withholdings for a while last year. In past years at the higher salary, I got big refunds, so when it reduced,I knew I'd already paid in enough for the year. Then I forgot to fix it til just now.

Oh, and one more thing I forgot to mention. I tried to get a loan modification for our mortgage. What a big PITA for nothing that was. After several months of providing and providing again various documentation, they ran a test called IDI (Imminent Default Indicator) and determined we have no danger of defaulting. (Well, yea, because I'm killing myself to keep it current!)

[StartinOver]

I still don't have an accurate take home because my employer used my old withholdings again. For now my take home is 1296, but it should be higher when they finally get around to applying the additional withhold I asked for.

We have an appointment with an attorney on Wednesday morning. I have gathered all the financial evidence documents for this visit. 6 months of bank statements, paystubs and the most recent copies of the bills was what he asked for.

[SMinGA]

That seems reasonable... In my opinion, you want the attorney to discuss your situation at the first consult. Some seem to not want to get into personal details and just discuss bankruptcy in general. Not useful, again just my opinion.

Fixing your net income/withholdings to an accurate level is a good initial step.

My last suggestion: leave cash, checkbook, etc. at home. Don't feel compelled to retain the atty at the free consult.

We have an appointment with an attorney on Wednesday morning. I have gathered all the financial evidence documents for this visit. 6 months of bank statements, paystubs and the most recent copies of the bills was what he asked for.

[scrapiron53]

Do they go by gross or net in a Chapter 7?

[SMinGA]

Both...

Gross income is used in the means test, to determine whether you are above or below median income & if there is a presumption of abuse.

Schedule I is used to show income, starting with gross and then accounting for deductions to arrive at net.

NOTE: taxes need to be reasonable. If you're having too much federal tax withheld, to make your net income lower, it won't work.

Do they go by gross or net in a Chapter 7?

[StartinOver]

I'm having more withheld because I was underwithheld for the entire first quarter and I don't need the IRS being unhappy with me, too. Assuming my employer acts on the new W4 soon (they should have done it for last week's check), the additional 27 per pay period (every two weeks) shouldn't raise a big flag, if I can show why, right?

[scrapiron53]

I don't think I have enough withheld I paid $3,700 to Fed and $2,500. to state when I lived in MN.

[SMinGA]

If you were withholding too little before, and have adjusted it to avoid owing next April 15th - then this is fine. Its a wise move, actually.

But if you are withholding at a rate that will lead to a refund, then may be questioned by the trustee.

I don't think I have enough withheld I paid $3,700 to Fed and $2,500. to state when I lived in MN.

[StartinOver]

it should not lead to a refund. When I was making 65K, my withholdings led the previous year, to a 2500 refund. When they chopped my salary, we looked at what had been withheld already and set my withholding artificially low for the remainder of the year. At Jan 1 2010 I forgot to fix it. I saw $426 refund for 2009. I used the IRS online calculator to figure out what I need to withold to the end of the year to come out even. But my company has not yet applied that, so I will probably end up owing a little bit, even if they don't apply the new W4 on next paycheck.