time to file?

[hooloovoo]

I've just assessed my finances and it's not looking too good... I was on a great path to being out of debt, and then my wife left me. Due to some complicated circumstances I also ended up moving across the country to be with my children. Through this time I racked up even more debt trying to finish up the house to sell, and in moving across the country. In the end I was unable to sell the house and am currently renting it at a $200 a month loss. Currently 25% of my take home pay goes to child support. I have custody of 3 kids 50% of the time.

Recently, two bit things happened. First, credit card rates went up increasing my minimums by about $150. Secondly, my job transferred me to being paid in my new home state which has significantly higher tax rates, decreasing my pay by about $200 a month. What was scraping by is now not enough to live on. The one glimmer of hope is the quarterly bonuses I receive, however the last one is already 2 months late and no word has been given, so I'm not feeling good counting on those to get by.

I'm living pretty frugally now. If I make all of my CC minimum payments, I have about $20 left over to eat and buy gas and such. That obviously isn't going to cut it. If bonuses were consistent I'd have just about enough to cover food and expenses each month, without anything to spare should something unexpected pop up. I have a high deductible insurance so essentially pay out of pocket for any doctor visits...

I've added up my expenses and also calculated them based on the means test values. With a realistic budget for food and my real expenses, I'm about $250 in the hole each month (based on 6 month average income which included 1 bonus). Without bonuses, it's more like $500 in the hole. Using IRS values for car/food/clothing/etc, it varies based on what they consider household size (given that I have 4 50% of the time and just me 50% of the time). I averaged these out (average of 4 person and one person 50/50 for the month) and with those numbers I have about $200 a month to pay towards debt.

Clearly, I'm eligible for bankruptcy and it's probably not a bad move. The whole situation stresses me out, and while I've made some bad moves over the years the divorce and move really did me in. Now I'm trying to figure out my next move.

Option one is to hang in as long as I can and save bankruptcy for when I have no other choice. I'm 100% current on everything and have cash on hand to get me through the next 3 months if no unexpected expenses come up. However, the downside to this is that when I get to that point, I'm not going to have money to pay for a lawyer, and in the meantime there are a lot of things I need to do that I can't really afford to do (my dogs need vaccinated and licensed, my car needs registered out here, etc).

Option two is to go ahead and file now, beat it to the punch. I have a hard time doing this when there's a chance I could pull out of this otherwise. But it's stressful to live like this and hope that next bonus check will be good and get me by. Since my bonuses are delayed, this also gives me a bit better picture on paper since I only have had one in the last 6 months to count towards income. In addition, I have some cash to at least pay part of the legal bill. Plus, filing now means that I don't have to put off going to the doctor, freak out about a higher than expected utility bill or wonder how I'm going to get my kids presents for their birthdays. But on the flip side, I feel bad doing it. After all, I spent the money and I should pay it back and filing when I haven't hit bottom yet seems irresponsible.

Another concern is my car, I'm leasing currently and the payment is rather high (bought pre-divorce). My lease is up in two years. I'd be happy to give it up in bankruptcy, but then I probably wouldn't be able to finance another car. And if I kept it, I'm worried that in 2 years when my lease is up I won't be able to finance another car.

So, that's my situation, any advice?

[Trixie007]

Wow, sorry you're having such a time of it! I've read over and over how most people wait too long to file, so you might take that into consideration. I don't know what your total debt is, but if you can't reasonably see yourself paying all your debt in 3-5 years, it really makes sense to file. Give yourself a clean slate so you can build for your retirement! Good luck to you.

[hooloovoo]

Wow, sorry you're having such a time of it! I've read over and over how most people wait too long to file, so you might take that into consideration. I don't know what your total debt is, but if you can't reasonably see yourself paying all your debt in 3-5 years, it really makes sense to file. Give yourself a clean slate so you can build for your retirement! Good luck to you.

Hi Trixie,

I have just under $40k in CC debt currently. Seems rather high I know, I think when life is in the tank and you are trying to unload a house and survive a divorce you tend to look the other way as it climbs up...

Realistically, there is no way I could pay it off in 5 years at least given current circumstances (prior 6 months average income). There's always the remote chance of a good raise, winning the lottery (kidding, I don't buy lottery tickets!). Based on my balances, if I had 0% interest on all of them I could be debt free in 5 years for $650 a month. But I can't imagine getting 0% interest and even then while I'd be getting by I'd still have no savings or money for unexpected expenses. Basically the only way I'll get by over the next few years is with my bonuses, and I can't really plan on those.

I have considered a second job as well but I just don't see it happening. First, I have custody of my kids every other week so it's not like I can work nights regularly. Secondly, the economy is in the tank and competition for part time jobs around here is fierce...

For starters I'm going to see if I can schedule a few free consultations to get some feedback on my position, costs to file and what I might expect to pay under chapter 13.

I'm tempted to call up the credit card issuers and tell them honestly, look, I can't get by and I'm meeting with a bankruptcy lawyer next week, how about you give me a break and we save everyone a lot of hassle... But I wouldn't expect that to work given that I have a perfect payment record, and the banks aren't exactly doing well these days either.

[Trixie007]

I have just under $40k in CC debt currently. Seems rather high I know

Thanks for giving me a chuckle so early in my day! Our cc debt is hovering around 180k right now, plus about 170k in now unsecured second mortgages, plus a couple thousand in misc crap that I normally would have fought or eventually paid (moving stuff with utility cos not turning them off when I asked, and a few charged me a fee to shut off service). Your 40k looks sweet to me.

Realistically, there is no way I could pay it off in 5 years at least given current circumstances (prior 6 months average income)... even then while I'd be getting by I'd still have no savings or money for unexpected expenses.

Then realistically, you can only forecast your income without the bonuses. One thing is sure, life will continue to happen. Murphy will come to visit - he especially likes people who are unprepared for him! Also, when you look at the future and trying to hold on, how many things that are necessities are you not including? Clothing, medical care, transportation, things your kids will need, etc. I know that when I look back at how long we held on, there were a lot of things that we let go, which is why now our dentist is charging extra for cleanings on DH & DS...

I have considered a second job as well but I just don't see it happening. First, I have custody of my kids every other week so it's not like I can work nights regularly.

You are reminding me of someone... oh, wait, it's me! Last year I tried to work three jobs for several months. One of them had me traveling away from home for 3-4 days a week overnight. I thought if I worked hard enough we could climb out of this mess - but the fact is, your kids need you more than they need things, maybe even more so in the case of divorced parents. I'm just guessing there, I don't have personal experience with that.

For starters I'm going to see if I can schedule a few free consultations to get some feedback on my position, costs to file and what I might expect to pay under chapter 13.

Why a 13? From what you posted here it looks like you might fit in a 7? Definitely look at that one first.

[hooloovoo]

Thanks for giving me a chuckle so early in my day! Our cc debt is hovering around 180k right now, plus about 170k in now unsecured second mortgages, plus a couple thousand in misc crap that I normally would have fought or eventually paid (moving stuff with utility cos not turning them off when I asked, and a few charged me a fee to shut off service). Your 40k looks sweet to me.

Well you got me there! Sadly, it was under $20k pre divorce and mostly at balance transfer for life rates of under 5%. Now I'm at $40k with a lot in the 27% range. Ouch.

Then realistically, you can only forecast your income without the bonuses. One thing is sure, life will continue to happen. Murphy will come to visit - he especially likes people who are unprepared for him! Also, when you look at the future and trying to hold on, how many things that are necessities are you not including? Clothing, medical care, transportation, things your kids will need, etc. I know that when I look back at how long we held on, there were a lot of things that we let go, which is why now our dentist is charging extra for cleanings on DH & DS...

Yeah, that's the thing. My budget consists of only necessities. Food, utilities, gas for the car. Also includes internet service and phone, which is a necessity since I work from home. There's nothing to really trim, other than dish network at $35 a month. I have no budget for clothes, doctors, dentists, etc. Nada. No emergency fund, so when these things pop up I turn to the credit cards because I don't have any choice.

Why a 13? From what you posted here it looks like you might fit in a 7? Definitely look at that one first.

I'm pretty sure I make too much for a 7. My income last year was $78,000 including bonuses. My salary is about $72,000. Median income in this state for a family of 4 is $70,000, but then again I don't really have a family of 4, just 50% of the time.

Child support is what kills me, I got totally screwed on that one since my ex wife quit her job and went to school full time. I don't quite get the system, in an ideal world it would seem like if we each have the kids 50% of the time there should be no child support, we just split shared expenses (medical, daycare, etc). I probably could have fought it but oddly enough didn't due to lack of money!

At this point it basically boils down to trying to decide whether this will severely impact my life. A clean start sounds great, but you get a lot of conflicting advice out there about what life is like after filing. You've got people who say you'll never get a loan or apartment again, and then people who say you can rebuild credit within a few years. My big concern would be not being able to get a car in 2 years when my lease is up, and not being able to find someone to rent to me if I move in a few years. And of course most loan applications and rental applications ask if you have ever filed for bankruptcy, so that will continue to haunt me even after it's off my credit report.

[deadbroke99]

How much you make is just one part of the means test for Ch 7. Your expenses will also be deducted such as child support.

[deadbroke99]

Go to legal consumer.com and run the means test to see if your subtractions from your income will qualify you.

[hooloovoo]

Go to legal consumer.com and run the means test to see if your subtractions from your income will qualify you.

Hmm, that's a good site, I was trying to do the calculations by hand.

I still need to figure out the household size thing though so I'll need to go meet with a laywer. Based on that calculator with a household size of 4, I'm only $1,200 away from qualifying for chapter 7 on income alone. Adding in everything, my average monthly disposable income is -$837, so it says I qualify. But I have found no good info on what joint custody means for household size.

I also have some other complications, namely that I still own a home I'm renting out at a $200 a month loss. I'm basically calling my income from that as -$200 a month but no idea if that's right.

[deadbroke99]

I don't think you use negative numbers on the means test. I think you would have to take a zero there.

As far as joint custody, I am not sure.

[hooloovoo]

I don't think you use negative numbers on the means test. I think you would have to take a zero there.

As far as joint custody, I am not sure.

Yeah we'll see. I figure a consultation with a BK attorney would let me know where I stand on chapters or what I'd have for a payment plan. Given that I have rental income and I'm paying a mortgage and rent, no idea how to exactly calculate it all, plus the household size issue.

The more I think about it the more I'm thinking that it's probably the right choice. I hate to do it, makes me feel lousy, and I do think there's a chance I could pull through otherwise. But on the flip side, my cash on hand right now, plus bonuses if they continue will only just get me by. I've already stopped taking some prescriptions, can't afford to go to the doctor if I need to and I can't afford vet visits, registering my car here, field trips for the kids school, etc. That's no way to live...

I'm not too concerned about chapter 7 vs 13. In some ways I'd almost prefer 13, since I do feel like I should make an honest attempt to repay money I spent. And really, if I took 5 years to pay the total balances with no interest, I could probably swing that. It's just the interest on it that's killing me...

[OhioFiler]

I don't think you use negative numbers on the means test. I think you would have to take a zero there.

As far as joint custody, I am not sure.

Absolutely you claim those children in your calculation. So long as you provide at least 50% of their support you can claim them. It is clear to me you can use them in your means calculation.

[deadbroke99]

I was saying I didn't think you can use negative numbers on the means test. Such as taking a loss on rental income.

[hooloovoo]

Well ok, from what I've found from some googling I will probably get to count them although and since I have them 50% of the time it shouldn't be contested. Seems there is no actual case law I can find on that though...

But, presuming a family of 4 the calculator says my average monthly disposable income is -$850. I'm *assuming* that I count rental income as $0 since I'm taking in $1100 a month but spending $1300 on the mortgage. If I include $1100 a month there as income, my disposable income is a few hundred bucks (makes sense...). But I'm guessing I'm supposed to put in $1100 in rental income and $1300 in necessary business expenses, which gives me a net of $0 income on that.

That is somewhat sobering... When even the government standards, which are usually low, say that I'm in the hole $850 a month, yikes! I was just thinking last night about all the things I should spend money on but can't (car registration, new contacts, eye exams, dentists, etc, clothes, etc) and realized that I have no room to budget for that stuff at all. Sobering.

This is the last thing I want to do but the more I assess my situation the more I realize the odds of me pulling out of this are slim.

[hooloovoo]

Well it seems fate is trying to tell me it's time as well. Just got word from the powers that be that due to some accounting issues Q4 bonus from 2008 will not be delivered, and Q1 for 2009 is not looking terribly great either. Without that, there's no way I'm getting by.

Grrrrr. The odd thing is, my CC bills are due over the next few weeks and I have the cash currently to pay them. Although it seems like a stupid decision to do so, I can't help but feel like I should, be responsible and whatnot. I figure I'll pay the one's that are due before I can get in to see a lawyer and get advice about the others then.

[Trixie007]

If you are going to file, will it be in the next 6 months? IMHO - I would seriously consider using that money to catch up on necessities rather than throwing it away on cc's if you are going to file.