Is bankruptcy REALLY my only option?

[ssmdem]

It's been a tough weekend emotionally - lots of other factors other than our financial mess. Just started having second thoughts and wondering if we're doing the right thing. Can anyone think of any other options for us with this? I know I've given our statistics several times but in a nutshell -

House is upside down $65k -- we absolutely DO NOT want to keep it at the current principal amount as it will never be paid off in time for retirement even if we can get a modification. If the house goes through foreclosure, and we DON'T file bankruptcy, can we be sued for the deficiency and will we receive a 1099 for the deficiency?

In addition, there is $50K in unsecured debt we want to discharge - broken up between two cards, both about $25K. What are our chances of getting the two companies to settle (Citi and Chase) for a lump sum payment? And yes, I know I would receive a 1099 on those amounts.

The rental property - again upside down about $35K, but really is the least of our worries. It stays rented consistently - no problems. If we're going to file anyway, we'll probably throw it in the pile, but not a big issue in the grand picture.

So, really, I guess my question is - is bankruptcy really our only option right now? If we can get the credit cards to settle AND a foreclosure (which is inevitable) of our house won't lead to a lawsuit for the deficiency amount, would we be better off going that route? I know our credit is shot either way - just wondering what will have the longest lasting effect on our future.

I feel like bankruptcy will be the cheapest, fastest way to get through this -- but is it really the best in the long run? Will bankruptcy give us more problems down the road than the foreclosure/charged off (settled) accounts?

[helpmeout]

I dug myself even deeper into the hole that I was recently discharged from by trying to come up with other solutions to bankruptcy. Now it's time to get tough.

Here is your reality:

1. The bank most definitely can come after you for any deficiency between what they get for the sale of the house and what you owe. Just so that we are clear on what you will end up owing, they will tack on ALL legal fees associated with the foreclosure and coming after you for the deficiency. In other words, you will owe more than the $65K you are underwater now. No, they don't have to come after and can forgive the debt, the IRS will tax you on the deficiency as income to you. You cannot discharge taxes.

2. If the credit cards don't settle, they can garnish your wages unless you are in a state that does not allow that. They can also seize your bank accounts. And if they do settle, the IRS will tax you on the difference. Again, taxes are not dischargeable.

3. Using a so-called debt relief agency is useless. I looked into it. The more reputable one said they couldn't help me because my income would not support the payment. The less reputable ones wanted me to pay them $1,000 a month. Which is more than the minimum payments on all of my credit cards combined. It even showed me with almost a negative $1K a month, they didn't care.

Why prolong the inevitable and end up with debt that you can't discharge (taxes) by settling ones that you can discharge?

Bankruptcy isn't your only option. But it is the only option that will get you out of the hole you are in. One where the creditors can't come after you and the IRS won't tax you on the canceled debt. Bankruptcy isn't the end of the world.

It's scary but it's reality. And the sooner you face it, the sooner you can start over with your fresh start.

[ssmdem]

1. The bank most definitely can come after you for any deficiency between what they get for the sale of the house and what you owe. Just so that we are clear on what you will end up owing, they will tack on ALL legal fees associated with the foreclosure and coming after you for the deficiency. In other words, you will owe more than the $65K you are underwater now. No, they don't have to come after and can forgive the debt, the IRS will tax you on the deficiency as income to you. You cannot discharge taxes.

That right there was what I was mostly wondering. If I can be sued anyway for the deficiency, then there is no option other than bankruptcy. I don't want that hanging over our heads. If we're going to have to file to eliminate that concern, then we're throwing it all in.

Oh believe me - we faced reality square in the face about two months ago. We hit a brick wall, and there was no going around it. Something drastic had to be done. My only concern was if I was not looking at other options because I wanted a quick fix. I know bankruptcy isn't easy (don't mean to look at it that way) - but I was just concerned that I was not entertaining other options that I needed to consider.

[blockhead]

"there is $50K in unsecured debt we want to discharge - broken up between two cards, both about $25K. What are our chances of getting the two companies to settle (Citi and Chase) for a lump sum payment? And yes, I know I would receive a 1099 on those amounts"

I got agreements from Citi and Chase and decided to file anyway. Around 50% of the current balance at the time - which was after 6 mths of not paying them so they'd been charging 29.99% interest. They were high balances too. So your chances might be pretty good. Also if you're insolvent you don't have to pay tax on the forgiven debt. Warning, Citi sued me but were prepared to deal anyway. You said the magic word "lump sum".

[bkinparadise]

What I tried doing before I filed bankruptcy was:

* Sell all what I had of value to see if I could stay afloat but that didn't last very long
* Get two part time jobs but one was only seasonal and the full and part time jobs couldn't help sustain my quality of living and paying my debt
* contemplate suicide but the thought of burning in Hell for all eternity sounded worst than the 7 or 10 years the bankruptcy would stay on my credit record
* Trying to work out a better pay back plan with my creditors but only a small fraction would work with me and the rest said "no way"

What finally is working is coming clean with my wife about my financial issues and filing individually for Ch 7. Got my 341 meeting in the near future and the future looks much brighter at the moment.

[rck3]

Yup about the same here. Sold some things are realized it made zero impact, waiting hoping something would change (Denial), thought about asking for hardship but even then I was not sure I could make things work for those 12 months and then I'm back in the same situation, or BK. BK is the only real option but I still am not 100% just because of the mental aspect even though I know there is zero choice. Reality is I go BK now or throw more money away and end up in BK later.

[mikeinsurpri]

Our situation is similar. We had about $80k in credit card debt in 2009 so I took out a 401k loan and paid about $20k of the debt off, thought we'd be able to get back on track, it turned out that we still had about $55k on credit cards each with an interest rate in the high 20's. Nothing we did made a dent in our debt. Like others we are about $100k underwater on our mortgage (Arizona) and now help on that one either. Finally after a lot of sleepness nights and fights with the wife and generally unhappyness we came to the conclusion to look at bankruptcy. We interviewed about four lawyers and went with the one we were most comfortable with. Since we made that decision it has been easier for us to come to terms with everything. Some people suggest looking at it as a business decision others say do whats best for the family. As for the house it depends if you are in a recourse or non-recourse state whether they can come after you for the deficiency. Also like helpme out stated, if you settle or get foreclosed on in a recourse state then Uncle Sam will be looking to tax you for the "capital gains". There's plenty of information on this website along with other lawyer's blogs that talk about the bankruptcy and what to expect, etc. Best of luck!!!

[ssmdem]

"there is $50K in unsecured debt we want to discharge - broken up between two cards, both about $25K. What are our chances of getting the two companies to settle (Citi and Chase) for a lump sum payment? And yes, I know I would receive a 1099 on those amounts"

I got agreements from Citi and Chase and decided to file anyway. Around 50% of the current balance at the time - which was after 6 mths of not paying them so they'd been charging 29.99% interest. They were high balances too. So your chances might be pretty good. Also if you're insolvent you don't have to pay tax on the forgiven debt. Warning, Citi sued me but were prepared to deal anyway. You said the magic word "lump sum".

At what point did Citi sue you? I've only missed one payment so far - hoping to file soon - but wondering how long we might could have before a lawsuit is filed.

[blockhead]

At what point did Citi sue you? I've only missed one payment so far - hoping to file soon - but wondering how long we might could have before a lawsuit is filed.

I think it was 6 months of not paying them.

[jadams]

1. The bank most definitely can come after you for any deficiency between what they get for the sale of the house and what you owe.

Unless you know the OP's state of residence and type of loan (original purchase, refi, equity, etc) -- you can't say that.

In many situations you wouldn't be responsible for the deficiency.

[ssmdem]

Unless you know the OP's state of residence and type of loan (original purchase, refi, equity, etc) -- you can't say that.

In many situations you wouldn't be responsible for the deficiency.

Well, we're in Florida. And it's an original purchase. We converted from a construction/perm loan when we finished building the house.