Question Thinking about bankruptcy (Is it really the only option?)

[Diesel73L]

I am very glad to have found this site because I am looking for some anonymous advice. Googling "bankruptcy" of course brings up no shortage of bankruptcy attorneys because let's face it, they're looking for clients. I am afraid to talk to an attorney at this point because I don't want to be talked into bankruptcy if there's a way to avoid it, however, whatever that way is I haven't found it yet. My wife and I are headed off a financial cliff for a very simple reason. We have been living paycheck to paycheck since shortly after we bought our home nearly three years ago mostly because of the need to keep up with minimum payments. We thought that we would eventually get ahead by making more money, but the financial crisis took care of that. Now that we are on the treadmill with the minimums we don't have the cash we need to pay for food, fuel, etc...so those things end up going on the credit cards and the cycle repeats. I suppose we could have gone on like this for much longer except for one thing-my wife is a teacher and will lose her job at the end of this school year (her last check will be June 30th) due to budget cuts. This is especially devastating to us because she makes $17,000 more per year than I do, so her salary was really carrying us. Unemployment will pay here roughly the same as my salary, so essentially we are about to lose about $1200 a month in income. We will be able to keep up on the mortgage and my truck payment and the other bills (utilities, car insurance, etc...), and student loans since hers will go into deferment and mine is only $75 a month, but there is no way we'll be able to pay our credit cards.

I owe about $34K and my wife owes around $21K so we're nearly $60K in debt with the credit cards. Not sure how much on the student loans, but again its not really a concern and we know that they can't be discharged anyway. I am 11 months away from paying off my truck (the payment is $360 a month) but again, we can handle that. We own my wife's car outright. We have no equity in our home at the moment-at this point I'm not even sure we're at the breakeven point but we're likely close. We were in negative territory for basically all of 2009 and most of 2010 but home values in our area have been creeping up ever so slightly. Basically we are in a lot of debt with very little to show for it since a lot of what is on the cards is my wife's engagement ring, our wedding and honeymoon (foolish, we know now of course), and now lots of gasoline, food, car repairs, etc... We also did use the cards to make repairs and improvements to the house, but nothing so dramatic that we've increased the value by any great amount. Basically we took on these debts because we expected to able to pay them based on the fact that we were both college graduates and at the time the job market looked ok. At the time I was in an entry level job making $41K a year expecting to be able to move on to move on to something better. It's been five years and despite my efforts I have not been able to move up (there's no opportunity for advancement where I am) or find a better job.

So that is the situation. I have been reading furiously about bankruptcy and know a lot more about it, but I still have a lot of questions specific to my situation that I'm hoping I might find answers to here. They are as follows:

1. As I understand it, Chapter 7 probably makes the most sense for us and as far as I know, keeping our home should not be an issue (we have no equity to try to preserve either, so that's not a factor either), but what about my truck? It is probably worth about $10,000 and I owe about $4000 on it. The federal bankruptcy exemption for a motor vehicle is up to $3,225. Since there is $6000 in equity in the truck, what does this mean for me? Will my truck be sold? We own my wife's car outright, what about that?

2. I see that the allowance for jewelry is $1350-my wife's engagement ring and wedding band are each worth more than that (mine is not)-what about those? I realize that bankruptcy is a dire thing and drastic times call for drastic measures, but I would want to do anything possible to keep these items. I will admit that this is something that scares me away from bankruptcy. It would kill me to have these taken away from her.

3. What about jobs? I've read elsewhere that employers are doing credit checks on employees more and more these days. Has anyone here actually been denied a job because of bankruptcy? I could understand maybe a position in finance, but that's not my field, nor my wife's.

4. Obviously buying another home one day is a concern for many, but for us it's not as large a concern because in the 10 years it would take for the bankruptcy to be gone from our credit history we'll be lucky to have enough equity to sell and make a decent profit anyway, but (assuming we do all the right things post bankruptcy) what kind of shape would our credit be in in 15 years?

5. Finally, how does the process work as far as evaluating what you own and how much its worth anyway? Do you have to submit to some kind of inspection of your home and property? We don't have much that is worth much, but is the trustee want going to want to take my tools (I am not a mechanic, just a do-it-yourselfer who does my own oil changes/minor car repairs) despite the fact that I didn't buy them with a credit card? Most of my stuff comes from yardsales, free ads on Craigslist, etc... I suppose it could be sold, but it would pale in comparison to what we owe. Same for our furniture and such-both of our TVs were given to us by friends, we having a dining room table that came from the trash. The only major furniture item we have that was bought on credit was our mattress and boxspring two years ago-would they want to sell that?

Basically we are looking for a way to start fresh here. If we can do this and get through it we're ready to lead a debt free lifestyle (obviously we'll still be in debt on our home, the remainder of my truck payments, and student loans)-I've read plenty of Dave Ramsey's stuff (which is another reason I'm scared of bankruptcy-he rails against it) and we're simple people. We don't need flashy things, new cars, or to keep up with the Jones'. We got into the situation we are in because we jumped into a wedding and a home too quickly and got in over our heads. We don't have an income problem really (well, it would be nice if my wife could find a job)-we just have a debt problem. Without the minimum payments on the cards we could have enough money to meet our bills and put away money for an emergency fund (the cards were what bailed us out in emergencies such as car repair before) and spend only what we need to. So, given all of this, does it sound like Chapter 7 is the right course of action for us? We are about to go into credit counseling, but I feel as though it's only going to postpone the inevitable. I would be grateful for any insight anyone can offer who has been in our shoes-thank you.

[ValleYum]

Welcome! There is lot of help to be had here!! I gotta say that reading about bankruptcy law to me was kind of like reading DVR instructions written in another language.

About the credit cards, wedding and honeymoon - it will kill ya to do the "shoulda, woulda, coulda" bit over and over again. Chalk it up to a learning experience and don't do it again!

NJ residents have no state homestead exemption so most bankruptcy filers use the federal exemption for a homestead ($21,625). If you don't have that much equity in your home to exempt, then you can use the unused portion - up to a set amount - of that federal homestead exemption as your "wild-card" - it is called this because just like a "wild-card" in poker, you can use this exemption to cover the value/equity in any property you want to keep in a bankruptcy.

An example of how this would be helpful: You have a $5k "wild-card" exemption. You own your car outright. The Kelly Blue Book says your car is worth $10k but the vehicle exemption in your state is only $8k. You could use $2k of the $5k "wild-card" exemption to cover the difference in value/equity that the Trustee might want you to pay for otherwise. Other things you can exempt are cash in the bank, future tax returns, jewelry, family heirlooms, etc.

New Jersey doesn't have a state "wild-card" exemption but they allow you to use the Federal Bankruptcy Exemptions that have a *very* generous "wild-card" (especially if you don't have equity in a home to protect).

Federal "wild-card" exemption amounts are:

* $1,150 of any property - 11 U.S.C. § 522 (d)(5)
* Up to $10,825 of unused homestead exemption amount, for any property - 11 U.S.C. § 522 (d)(5)

(Dollar amounts effective 04/04/2010)

The above amounts can be doubled for a married couple that files bankruptcy together.

Questions 1 & 2: That should help to cover the value of your car, truck and of your wife's engagement/wedding rings. BUT, on the value for rings - I believe it is how much they are worth to get cash money for right away like at a buy-it-back jewelry store, pawn shop or Craig's List - not how much you paid for them.

Question 3: I have not heard this but other posters here may have more input on pre-employment credit checks.

Question 4: I think in 15 years your credit should be just fine - if you do all of the right things after you file bankruptcy. I would make sure to have a nice down payment and a well padded emergency fund (6 months of expenses) before you apply.

Question 5: Honestly? It doesn't matter how you paid for it. The Trustee wants big ticket items he can recoup $$ from (for your creditors and the Trustee's cut!) if he liquidates them. The Federal bankruptcy exemptions allow you to exempt some household contents and the "wild-card" can be used to cover anything that exceeds the exemption amounts. Your attorney should give you an inventory form to fill out and price. Use CraigsList or yard sale prices and you should be just fine. My husband and I used the federal exemptions here and we were able to cover everything we needed to with the federal exemptions or the federal "wild-card".

I hope this helps you. Others will chime in with more knowledge than I have - and always remember that your mileage may vary! Good Luck!!

[disconapper]

That was my initial concern, the evaluation of goods/things. I was pleased to know that they basically mean "resale worth" like yard sale prices. My attorney literally said "I don't care if you paid $200 for a shirt, at a yardsale, it would get 50 cents." (By the way, I certainly do not own a $200 shirt.) So I wouldn't be overly concerned about the jewelry. And no one comes in home and does an inventory, that does not happen or at least I've never ever heard of it happening.

As far as you car is concerned, you could re-affirm the debt and continue making payments until it's paid off or you could not re-affirm the debt, keep the payments up and simply ride-through on the loan for the next 11 months, that is of course unless your lender requires re-affirmation. I'm a fan of the ride-through option.

I think a lot of the pre-employment credit checks have to due with the industry in which you are applying. I live around a lot of military people, bases etc a lot of the civilian jobs require clearance and a pre-employment check. However, I could still get a clearance, as long as I was honest about the bankruptcy. Employers look at risk, someone with a lot of debt, behind on payments etc may appear to them as a higher risk for fraud or cohersion, etc. In my eyes, the bankruptcy solves a lot of those issues. You can also amend your credit to include a bankruptcy explanation.

This forum is great, I know there are plenty of people here that can answer your questions better than I have. There are also lots of threads that address your very issues.

Welcome!

[Diesel73L]

Thank for all of the helpful advice. Again, I'm really glad I found this place. I looked for advice on other financial forums that weren't bankruptcy specific and had people telling me that $60K in credit card debt was nothing, that we weren't in that bad of a situation, and that we should pawn our wedding rings, sell our dog, and live without electricity and running water before resorting to bankruptcy. I'll admit that I kind of felt the same way too until I learned more about it. Knowing that my in-laws went through it helped as well, granted it was in the 1980s when the laws were different. They were able to get through it and are now living nearly debt free 30 years later in a home living a normal life. Anyway, I've read through the "Tactical Bankruptcy Manual" (both volumes) as well as the 2005 changes to the laws and though I will most certainly use an attorney to file (I have asked an attorney friend to recommend someone), I have already begun to lay out a plan:

1. We will begin credit counseling with an approved agency prior to my wife losing her income-this hopefully will get payments down to a reasonable level that will allow us enough cash to buy food, gas, pay the utility bills, etc...

2. Obviously as a result of the credit counseling our accounts will be frozen so we won't be charging anything.

3. Once we're in credit counseling we will see how things go after my wife loses her income and goes on unemployment. No matter what we will keep current on my truck payment, the mortgage, and student loans, but that will probably be at the expense of the debt management plan.

4. We will evaluate the worth/equity of what we absolutely must keep-our rings, our vehicles, and our home. After becoming more familiar with the exemptions I'm fairly certain that what we will be able to protect these things as again, we don't have much that is worth much. We have no cash, stocks, bonds, land, etc...

5. Once all of this is in place we will consult an attorney and begin the process. We will stipulate that we will want to reaffirm the mortgage and truck payment. As I understand it this will ensure that the truck will not be taken correct? Or do I still need to make sure that it is covered under an exemption? There is probably about $6000 in equity in it. The house as stated before has zero to negative equity at this point.

Does all of that sound feasible? Is there anything that I'm missing? Of course I will be relying on my attorney to really look this over, I just want to make sure that I'm not going forward with unrealistic expectations. To us, a favorable outcome would be that we get to keep our home, our vehicles, and our wedding rings and start over with the $950 per month (yes, $950 per month!) we were paying in minimum payments just on unsecured debt as a surplus that we will use to first build a six month emergency fund and then live just below our means thereafter. One thing I have learned in all this is that wanting something you can't afford is not nearly as bad a feeling as having indebted yourself to buy something you can't afford.

[AngelinaCatHub]

Welcome 'deisel73L'. I too am a diesel lover. Jetta TDI 43 mpg.

A tip for your posting style. It would be better as your "book" is in my opinion, less likely to be read by more posters. Break up your questions into smaller threads and you will get more results. Make your question succinct with information to that item with as little rhetoric as possible. I could not absorb your whole question as it requires multiple answers. I also get fatigued and lose the message of the whole. Just my opinion. 'Hub

[IamOld]

Welcome Diesel - There are so many great people here. I'm right there with you my friend!

Re employment checks - teachers are one of the few professions still out there that don't have credit checks at all, so your wife, at least as far as that is concerned, I think is fine (Can you imagine if you banned all teachers with bad credit? Classrooms would be empty! :-)

The other suggestion I have is this - do NOT!!!! wait until it is too late - my BK atty said that most people wait until the last minute to go see a BK atty - I think that is very very right. We did the same.

As others here would tell you there is NO harm done in seeing a few (or more than a few) for consults or even to fill out their forms, etc., and see what they tell you - you might as well...!!!

Good luck to you and your wife - as an aside, it is absolutely insane that we are laying off teachers - insane.

[woeisme]

I wouldn't waste $ in a debt management plan, but that's just from having been there- done that- and now wish I hadn't thrown $ down that rabbit hole. But that's just me!

[BKAttyMI]

You have some good answers here, but as an attorney, I always recommend speaking with an experienced bankruptcy attorney in your area that knows the laws inside and out for your state. From a first glance, it does not look like you have another option at this point and are probably in way over your heads with your mortgage. With both your salaries, you may be over the median income at this point, but with your wife losing her job, this will easily put you below the median and allow you to qualify for a Chapter 7. A free consult with an experienced attorney in your area can give you some good information.

[Diesel73L]

Welcome 'deisel73L'. I too am a diesel lover. Jetta TDI 43 mpg.

A tip for your posting style. It would be better as your "book" is in my opinion, less likely to be read by more posters. Break up your questions into smaller threads and you will get more results. Make your question succinct with information to that item with as little rhetoric as possible. I could not absorb your whole question as it requires multiple answers. I also get fatigued and lose the message of the whole. Just my opinion. 'Hub

Sorry about that-I broke it up a little and posted some in the exemptions forum.

I wouldn't waste $ in a debt management plan, but that's just from having been there- done that- and now wish I hadn't thrown $ down that rabbit hole. But that's just me!

Sure I get what you're saying. We know full well that the credit counseling won't help us. It could have if my were going to be employed next year, but with the hit we're going to take from her being laid off there is no way we would be able to keep current on everything. My FIL who went through this years ago basically said what everyone is saying here-don't wait until it gets really really bad. However, enrolling in counseling is pretty much a mandatory first step, correct?

You have some good answers here, but as an attorney, I always recommend speaking with an experienced bankruptcy attorney in your area that knows the laws inside and out for your state. From a first glance, it does not look like you have another option at this point and are probably in way over your heads with your mortgage. With both your salaries, you may be over the median income at this point, but with your wife losing her job, this will easily put you below the median and allow you to qualify for a Chapter 7. A free consult with an experienced attorney in your area can give you some good information.

Thank you for the advice. I am searching for an attorney now. I am lucky enough to be in a profession where I know many attorneys-none of them handle bankruptcy, but they are people that I trust to recommend a good bankruptcy attorney that they know of.

[LadyInTheRed]

You do have to get bankruptcy counseling before filing, but you sound like you are talking about getting into a debt management plan. That is different from pre-bankruptcy counseling and is not required. If you are going to file bankruptcy anyway, getting into a debt management plan is throwing money away. I suggest you consult with a couple of BK attorneys before you get into a debt management plan. Don't be suprised if they tell you to skip debt management and stop paying all credit card bills. In fact, if you can't cover your living expenses and pay your minimum payments, paying necessary expenses without the use of a credit card should be your first priority.

[Diesel73L]

You do have to get bankruptcy counseling before filing, but you sound like you are talking about getting into a debt management plan. That is different from pre-bankruptcy counseling and is not required. If you are going to file bankruptcy anyway, getting into a debt management plan is throwing money away. I suggest you consult with a couple of BK attorneys before you get into a debt management plan. Don't be suprised if they tell you to skip debt management and stop paying all credit card bills. In fact, if you can't cover your living expenses and pay your minimum payments, paying necessary expenses without the use of a credit card should be your first priority.

Thanks for the clarification-I meant counseling-it was just a semantics issue. One the one hand, stopping payment of our credit card bills sounds scary, but on the other hand, it means we'll definitely have enough cash to live on frugally.

[Freddy03]

Thank for all of the helpful advice. Again, I'm really glad I found this place. I looked for advice on other financial forums that weren't bankruptcy specific and had people telling me that $60K in credit card debt was nothing, that we weren't in that bad of a situation, and that we should pawn our wedding rings, sell our dog, and live without electricity and running water before resorting to bankruptcy. I'll admit that I kind of felt the same way too until I learned more about it. Knowing that my in-laws went through it helped as well, granted it was in the 1980s when the laws were different. They were able to get through it and are now living nearly debt free 30 years later in a home living a normal life. Anyway, I've read through the "Tactical Bankruptcy Manual" (both volumes) as well as the 2005 changes to the laws and though I will most certainly use an attorney to file (I have asked an attorney friend to recommend someone), I have already begun to lay out a plan:

1. We will begin credit counseling with an approved agency prior to my wife losing her income-this hopefully will get payments down to a reasonable level that will allow us enough cash to buy food, gas, pay the utility bills, etc...

2. Obviously as a result of the credit counseling our accounts will be frozen so we won't be charging anything.

3. Once we're in credit counseling we will see how things go after my wife loses her income and goes on unemployment. No matter what we will keep current on my truck payment, the mortgage, and student loans, but that will probably be at the expense of the debt management plan. 4. We will evaluate the worth/equity of what we absolutely must keep-our rings, our vehicles, and our home. After becoming more familiar with the exemptions I'm fairly certain that what we will be able to protect these things as again, we don't have much that is worth much. We have no cash, stocks, bonds, land, etc...

5. Once all of this is in place we will consult an attorney and begin the process. We will stipulate that we will want to reaffirm the mortgage and truck payment. As I understand it this will ensure that the truck will not be taken correct? Or do I still need to make sure that it is covered under an exemption? There is probably about $6000 in equity in it. The house as stated before has zero to negative equity at this point.

Does all of that sound feasible? Is there anything that I'm missing? Of course I will be relying on my attorney to really look this over, I just want to make sure that I'm not going forward with unrealistic expectations. To us, a favorable outcome would be that we get to keep our home, our vehicles, and our wedding rings and start over with the $950 per month (yes, $950 per month!) we were paying in minimum payments just on unsecured debt as a surplus that we will use to first build a six month emergency fund and then live just below our means thereafter. One thing I have learned in all this is that wanting something you can't afford is not nearly as bad a feeling as having indebted yourself to buy something you can't afford.

Just my 2 cents (for what it's worth) I would never never use a credit counseling service. I did it twice and never made a dent in any of by debt and I'm still filing Ch 7 anyway. It was wasted money.

[LadyInTheRed]

Thanks for the clarification-I meant counseling-it was just a semantics issue. One the one hand, stopping payment of our credit card bills sounds scary, but on the other hand, it means we'll definitely have enough cash to live on frugally.

Based on what Freddy03 bolded from your post, you are talking about a debt management plan which is one service credit counseling organizations offer. The credit counseling org negotiates payment plans with your creditors. Some creditors cooperate, other's don't. You pay the credit counseling org money each month, they take a fee and then distribute money to your creditors. That is not what is required before you file BK. Debt management is not something you do to prepare for BK. It's something you do to avoid BK. Many people post here after trying debt management and regret it.

The course required before filing BK guides you through an evaluation of your financial situation and educates you on your options. It does not result in lower payments or frozen accounts.

[iswmle]

If you are going to file BK, anyway, why bother with the debt management plan? You'll be throwing money away.