Want to file - JUST took on new debt

[Lana]

In an effort to stay afloat in July I refinanced a 10k personal loan I had into a 20k personal loan to buy some time and keep up with my bills. Bad idea I know, but I have not managed to fix the problem (I pay out 5k/month and only bring in 3k). There is just no way I'm going to be able to keep up. Its inevitable I will have to file. Problem is whats gonna happen to my new 20k loan. Ive only made 3 payments. I am not yet behind with anyone but will be within a month or two. Should i try to stay afloat as long as possible so that I can distance myself from that new debt? how long?

[HHM]

You are outside the 90 days (I assume since you made 3 payments that at least 3 months have gone by). But since you took out "new" money, I would probably wait at least another 3 months until you actually file. During that time, keep making payments on "that" loan, but since your finances are insufficient to cover your expenses, you should stop paying any other credit cards at this point.

[Lana]

Okay - I figured the more time the better. Another question if you dont mind. I'd like to keep my house at the end of this. I have a main and a HELOC from citibank. If they would work with me to modify both into one manageable loan I would keep paying on the house through the bankruptcy despite the fact that I would owe slightly more than the house is worth. Is this a conversation I should have with them now and ask them for the modification ahead of time, or will they not work with me until I am actually behind or perhaps even in BK?

[HHM]

You can try, but I would not trust a hope. Generally, banks won't even entertain any sort of workout until you default on the loan, which, of course, is risky for you. If you are significantly upside down in your home, you really need to consider, from a financial perspective, walking away. You are far better off walking away, and buying a house in 2 years, than trying to dig out of negative equity. If you are more than 20% upside down in your house, it will take you a decade or more to dig out of that negative equity. No point in throwing away money when you can walk away, buy again in 2 years and start building equity.