BK or Not to BK? Advice please.

[Ebates]

I have a delima and this seems like the right place to ask this question.

I have a home in Las Vegas which I am trying to short sale (not my primary home), which I believe will ultimately end up as a Foreclosurer. I lost my job 10 months ago when my industry took a crash due to the economy and have been burning through my savings to support my family.

Now that I am working again my payments are the same but my pay check is 1/2 of what I use to make, so its a struggle. I have almost depleted my savings and come to a fork in the road. I have about 25K in credit debt and my credit card company just raise my interest rate so high I can't possibly afford the new monthly payment. I have tried to get them to help and they said thats the way it is and when I check the internet, this is happening to millions of people.

So here is my question.

Since I will have a foreclosurer on my record, is it worth trying to work to pay off the credit card company or just file for BK and start over.

I have always have perfect credit (790) and this is really bothersome to me. I buy cars every 2 years and always got the best rates, so I want to try and save my credit, but with a foreclosurer on there, will it really matter if I pay off the credit card or not?

My credit is already shot and need to get on the road to rebuild it and I can probably get $25,000 to pay off the card, but that will be my entire savings and would leave me in a more volerable state.

Sorry to ramble on and advice would be appreciated!

[keepmine]

You don't give the source of the $25K you might get but, if it's an ERISA qualified retirement account, it's exempt from creditor seizure.
Personally, if your primary home's equity is below what your state exempts I'd file bk and be done with it.
Also, why buy a car every 2 years? Unless you put down a hefty downpayment, you're upside down in the car.Are you rolling over negative equity into the new loan?

[Ebates]

Yes the funds to pay off the credit cards would come from a 401K, so don't know if its worth trying to save my credit, if its already screwed up by the foreclosurer.

I wounder if it would it be easier to rebuild my credit after a bk or credit with a foreclosurer on it?

[JoeBankrupt33]

Foreclosure is bad on your credit. I don't know how bad related to BK, but they both stink and they both take a lot of time to recover from. Given your situation, I think I would file BK before a foreclosure and give the house back during the process. This way, on your credit, it looks like one big setback and not two. As for the 401k money, I wouldn't touch it to pay creditors since it is exempt from seizure.

[HakunaMatata]

Oh, I understand that interesting fork in the road! I'm in a similar situation. I experienced job loss, depleted my savings, accumulated credit card debt, regained my worker status (for less money and more hours), and decided to jump on the foreclosure bandwagon (due to a money pit house). I consulted with countless individuals (CPAs, mortgage bankers, attorneys, and average Joes). The consensus was to file BK. I recognized I could pay off the $20k in credit card debt in time; although, my biggest concern was a potential deficiency judgment on the house (which would place me in a truly insolvent state). I selected BK path instead of strict foreclosure. My credit would plummet either way (like you, I was in the high 700s prior to missed mortgage payments). The bonuses of BK...I don't have to fear a large DJ, I will be debt-free, I have the ability to save for my future, and I can purchase a house more quickly with BK rather than a strict foreclosure.

Either way, BK and foreclosure are obviously hard hits to credit. In many cases, BK will affect your score more harshly because it typically involves multiple accounts. BK can legally stay on your report for ten years and foreclosure for seven years. Regardless, credit can be rebuilt. As time passes, the impact of either lessens.

Both bankruptcy and foreclosure will damage your credit score. However, sometimes bankruptcy is the preferable option when trying to rebuild credit. Here's why:

A foreclosure will damage your credit score for many years, will not get rid of your other debt, and is particularly harmful if you are house shopping.

In contrast, discharging your debts in bankruptcy will harm your credit score, but can help you rebuild your score quicker than after a foreclosure. This is because bankruptcy will leave you solvent and debt-free--and therefore able to start rebuilding good credit sooner.

http://www.nolo.com/legal-encyclopedia/article-29631.html

In these challenging economic times, we need to be less concerned with FICO and more concerned with our futures. You've already established retirement savings and I strongly suggest keeping these funds intact.

Deciding between BK and foreclosure can be challenging. In my situation, I selected the immediate solvent solution; and, I'm regarding BK as an investment in my future.

Best of luck to you!