A should I file question...

[sirius]

Hi all, I've been here before, but I'm still not sure about what to do and things have changed a bit as well.

I'm recently on Social Security and received a decent amount of backpay. I'm debating whether I should pay off my credit card debt or not. I could with the backpay, but that would take all of it and now that I'm low income that's the only time I will see that kind of money for the foreseeable future.

The other thing is I want to purchase a home in a couple years after I get a housing voucher and start saving and finding out about grants and money matching programs.

It's my understanding that they can't touch SS money in a BK or even if you just default, even though they often do.

So I have some questions about the different options I have.

-I file BK and I can keep everything? Even money from current monthly checks?

-How negatively would this affect my mortgage options? I know they are much stricter nowadays, but they would also see that before BK my score was in the mid 700's. I would also have a bigger down payment available to me and no debt. I won't be buying a house for a couple years so I will have some time to re-establish credit.

-Don't file at all since they can't take SS money? Can they take interest earned on that money? Some people are recommending me not to file, but it seems like it causes a lot of hassles.

-Settle with the cards? It still ruins my credit and would cost me something which seems like I'd be basically throwing that money away since the other option affords me the right to keep it. I also heard that even if you settle they may not do everything properly and your debt still gets sold, etc...

Would my loan options be that much better if I kept my credit A1?

The thing is as a disabled person and low income there seems like there are some programs that would give me some attractive options even with bad credit. I'm not really sure though as I'm having a hard time findind someone who really knows this stuff and can advise me.

I need someone who knows BK and Lending for people like me. The typical lender doesn't know much about the programs that are out there.

Part of me wants to just pay off the cards and be done with it, but another part fears that is foolish and I should maximize my opportunites with the cash I got.

Thanks much for reading!

[flyinbroke]

Your credit with nosedive the second you stop paying. BK will do damage, and so will settling. Settling has the triple whammy: dead credit score, tax liabilities, AND the possibility of them reneging on their agreement and suing or sending the rest to a CA. The only way you can keep A1 credit is to keep on trudging along and pay those cards.

Or you can bite the bullet, file, and get all sorts of offers in the mail within days of discharge (since you have no money owed anymore). Within a couple of years, credit score will be up. Frankly, the whole credit score thing is bogus. It is a marketing ploy to sell a product that is not even that reliable (my mortgage credit score was 50-70 points LOWER than the ones I bought.) They play on consumer fears, but I read here every day. People fresh out of BK getting credit. Getting cars. Getting jobs in the financial sector...at places they BKed on.

[sirius]

Your credit with nosedive the second you stop paying. BK will do damage, and so will settling. Settling has the triple whammy: dead credit score, tax liabilities, AND the possibility of them reneging on their agreement and suing or sending the rest to a CA. The only way you can keep A1 credit is to keep on trudging along and pay those cards.

That's my understanding as well, but I'm writing here for the more specific questsions. Like would interest on the disability money be in jeaopardy if I defaulted?

Settling sounds like a bad idea.

I'm thinking though, that if I want a mortgage my only 2 options are to pay off the cards or to file BK right?

Or you can bite the bullet, file, and get all sorts of offers in the mail within days of discharge (since you have no money owed anymore). Within a couple of years, credit score will be up.

Sounds like you think I should file?

I actually wish I would have a long time ago. I was really struggling when I couldn't work anymore. I used all my savings to maintain my payments and then had family help. Now I finally get on disability, have some back pay and a monthly check, but I'm faced with the reality of being low income and need a place to live and having the opportunity to get a housing voucher that can be applied to a mortgage. These are all good things, but it made me think that maybe I should protect that money with a BK and use it for a downpayment because I will only qualify for a very modest house and the only way for me to get more house is with a large down payment.

The flip side is I struggled through the worst of it and through it all maintained a credit score in the high 700's. If I come to the conclusion that I should file BK it means I wasted all that money on the minimum payments. Although I did use them as well, because I had to and got something out of them I guess.

Frankly, the whole credit score thing is bogus. It is a marketing ploy to sell a product that is not even that reliable (my mortgage credit score was 50-70 points LOWER than the ones I bought.) They play on consumer fears, but I read here every day. People fresh out of BK getting credit. Getting cars. Getting jobs in the financial sector...at places they BKed on.

Not sure what you mean about the mortgage score was lower than the one you bought? I don't know anything about that.

Yes, I agree, to some extent it is a big game.

I wish I knew enough to make a proper decision, but I have noone to help me. I've talked to a BK lawyer in the past and got some good info, but they can't advise on what's best to do.

It kind of comes down to this. If I don't file will my mortgage terms be significantly better than if I do? If so then I make that money back in a sense by paying less interest.

Will not filing also allow me to lend a little more?

Of lesser concern is other credit issues. Right now, I have good interest rates and high limits. How long after BK before I can have reasonable credit? I know I probably won't ever have what I do now, but things have changed with how strict they are. If I had to buy a car in a couple years would my credit be decent enough by then to get a decent rate?

I don't plan on utilizing credit much anymore, so those aren't as big of issues, but things do come up and I would want some cushion. Especially if I'm going to become a homeowner.

[flyinbroke]

What I mean about the score is this: Banks pull up a score that in no way resembles the one you buy off of freecreditreport or whatever service Ben Stein is hawking this month. For example, my "purchased" score had me in the low to mid 700s. The score pulled up by the mortgage loan officer pulled up a range from 671 to 693. Quite a difference between the bank version and the marketing ploy version. As for high limits, I used to have them and then the banks started shutting me down. First they slash off a thousand. Then another thousand, then several thousand, down to what I owed. They still have a couple of days to play with this since the new rules go into effect Monday. I paid off one card last year, a month later they closed it. I figure my credit is in the crapper at this point and BK won't do that much damage.

And no, I am not suggesting BK; only you can make that call. I would take advantage of the free consults lawyers do because they can answer questions regarding exemptions far better for your state laws than I can. Visit several lawyers and make a decision based on them and what you learn here. BK is not for everyone.

[sirius]

What I mean about the score is this: Banks pull up a score that in no way resembles the one you buy off of freecreditreport or whatever service Ben Stein is hawking this month. For example, my "purchased" score had me in the low to mid 700s. The score pulled up by the mortgage loan officer pulled up a range from 671 to 693. Quite a difference between the bank version and the marketing ploy version. As for high limits, I used to have them and then the banks started shutting me down. First they slash off a thousand. Then another thousand, then several thousand, down to what I owed. They still have a couple of days to play with this since the new rules go into effect Monday. I paid off one card last year, a month later they closed it. I figure my credit is in the crapper at this point and BK won't do that much damage.

And no, I am not suggesting BK; only you can make that call. I would take advantage of the free consults lawyers do because they can answer questions regarding exemptions far better for your state laws than I can. Visit several lawyers and make a decision based on them and what you learn here. BK is not for everyone.

Thanks for clarifying. I actually got my score from a mortgage lender. I was considering buying a home before the 8k rebate is over. I hesitate to do that because a housing voucher from being low income will pay the majority of my mortgage for the entire loan. I would only pay 276 a month. I'm not allowed to purchase a duplex under that program, where if I buy on my own I could do that and have a renter pay some of my mortgage.

Do you have any thoughts about me getting a mortgage 18-36 months after BK? Will it really be much different than it would be if I had A1 credit. I think my scores were all around 750-760.

Was your credit bad when they closed your account after paying it off? It's kind of a slap in the face. What if I pay off my card with my backpay and then they close it? I'd be losing one of the benefits I'm considering if I don't file BK.

Yeah, I definitely understand you can't advise me what to do exactly, but neither can the lawyer. I wish I knew someone who knew BK and mortgages. Also, that mortgage person would have to be knowledgable about all the lower income options and many aren't.

I just feel frustrated not having all the info I need to make a decision. I just paid my monthly payment again because it was due and feel like I just threw away another 260...if I end up going BK.

Thanks much for your thoughts.

[flyinbroke]

I can't predict mortgages. Hell, with this economy anything can be possible in an 18-36 month timeframe. We have several houses sitting vacant that are now "for lease" because they are not moving. Banking is cyclical in nature. They are tight now, and won't be once the storm passes.

As for my credit, it was great when they started shutting down my cards and slashing my limits. Probably not so much since I stopped paying five of them (mostly in retaliation but more because I wanted to free up my cash.) They cannot touch my wages in this state, and all other income is exempt as it is VA disability and military retirement.

Talk to several lawyers. I was not happy with the results of my first one, but think he would fight for me (I think almost all of his business is BK) so not ruling him out. I am talking to more, and putting off filing for as long as possible.

[forgotten]

Do you have any thoughts about me getting a mortgage 18-36 months after BK? Will it really be much different than it would be if I had A1 credit. I think my scores were all around 750-760.

Hard to say... people have certrainly gotten mortgages a year or two out of bankruptcy. No one knows if lending will be easier or harder at that time. You can be guarenteed to pay a higher interest rate than if you had good credit.

Was your credit bad when they closed your account after paying it off? It's kind of a slap in the face. What if I pay off my card with my backpay and then they close it? I'd be losing one of the benefits I'm considering if I don't file BK.

Your regular FICO score will go down if your credit cards are closed. Your number of open good standing accounts as well as your available credit are factors in your score. However, the mortgage companies use a different scoring system, available credit and number of open accounts are not given as much weight. Either scoring system places a bankruptcy as an extremely negative mark.

Personally, if I had the money to pay off my unsecured debt and avoid BK, I would have done it in a heartbeat. Than again, i'm in a 13 which seems more of a "fight" and i'm paying back $60k over 5 years anyway... Maybe I would feel different if I could do a 7.

[flyinbroke]

Forgotten, I am with you. If I do this, I will have to do a 13. The positive is one can be approved for a VA or FHA mortgage a year out, whereas 7s have to wait 2. however, the mortgage companies use debt to income ratio. 7s have no DTI....13s may have too much to qualify. Ah, catch 22.

Wish I could win Lotto and forget this mess....

[sirius]

Personally, if I had the money to pay off my unsecured debt and avoid BK, I would have done it in a heartbeat. Than again, i'm in a 13 which seems more of a "fight" and i'm paying back $60k over 5 years anyway... Maybe I would feel different if I could do a 7.

That's the thing. I don't think mine would be much of a fight. I don't have anything and what I do have can't be touched.

If I was working and fell into the chunk of change I got I would gladly pay it. However, things are different and I have to consider everything. I will be really low income, maybe forever and I may never have that kind of cash on hand. So I could file BK, credit score drops, but I think the lender would like the large down payment I have. Also, they would see my history being excellent before BK. If I don't file and pay everything off, I'm not sure that the better loan terms would make up for losing the cash.

Maybe I'll give HUD a call and see if a housing counselor might have some thoughts.

Even if I didn't get a house, I'd have almost over 15k that I could invest. That could be a lot of money in my later years.