Months away from Bankruptcy?

[dano100]

I'm glad I stumbled onto this forum and hope someone here can help.
My wife recently lost her job after 26 years. Her income was approx. 35%-40% of our total income. She will collect unemployment for the next 6 mos. then will receive "sub pay" equal to 70% of her wages from her employer for another 4 mos.

We will be able to meet all our obligations as long as she has those 2 sources of income. Our dilema is employment in our area is depressed and the likelyhood of her getting another job that pays as well as the one she had is slim.

Our current financial situation is this: a first mortgage of $144K and a second mortgage of $65K. We owe $31k total on both our cars and have no credit card (unsecured) debt. Our total debt for the house and cars is $240K. Our house is valued at $280,000 and the cars are probably worth $55,000 total.

Our budget is approx. $3500- $3800 a month. My average take home pay can range between $2400- $3200 a month, depending on the amount of overtime that is offered. My wife's unemployment is $1200 a month, thus we are making ends meet at this time. We also have about $13,000 in an "emergency" fund that we can tap. We have an excellent credit rating of 770. Our only savings is our 401Ks, valued at $250K.

We currently have our home for sale, hoping it sells before her unemployment checks run out but with the depressed job market in our area we are not confident it will. In our small town a house like ours is only affordable by about 2-3% of the citizens here, according to our realtor.

My fear is our house won't sell, my wife runs out of unemployment, she doesn't find another job, my overtime dries up and we end up with a monthly shortfall of over $1200.

I guess my questions are: should we, at this time, notify our mortgage companies and auto finance company of our situation and the possiblity of not being able to meet our obligations in the future and ask for some kind of arrangements? Or should I contact a bankruptcy attorney now, explain our situation and hopefully head off any bankruptcy or forclosure? (We would love to keep our house and cars as they were the last we were going to buy until reirement in 7 years).

We have spent a lifetime building an excellent credit history, have always received the most preferred rates on loans and it is just killing us that we could loose it all this late in life because we were not prepared to handle the loss of one of our incomes. After 26 years of employment we never thought my wife would lose her job at one of the largest companies in the world, a company that just this past year invested millions of dollars in her plant on new equipment supposedly insuring her future was bright.

Any advice will be greatly appreciated!

[anonymuse]

Sounds like your financial planning--especially savings, has been exceptional in the past. Sounds like you're safe for about 10 months (not sure how far into that 10 months you are in.)

BK is good for getting out of unsecured debts--credit cards, which you don't have any. You're not behind in any debts which is an excellent thing. Don't touch your 401K--that's protected by BK.

Sounds like a time for some serious belt tightening until that next job comes along--which I'm sure you are doing. Do you need two cars? Or can you sell one and get another that is inexpensive?

What state do you live in?

[dano100]

Sounds like your financial planning--especially savings, has been exceptional in the past. Sounds like you're safe for about 10 months (not sure how far into that 10 months you are in.)

BK is good for getting out of unsecured debts--credit cards, which you don't have any. You're not behind in any debts which is an excellent thing. Don't touch your 401K--that's protected by BK.

Sounds like a time for some serious belt tightening until that next job comes along--which I'm sure you are doing. Do you need two cars? Or can you sell one and get another that is inexpensive?

What state do you live in?

We live in Ohio.

Yes we thought our financial planning was right on track. Most planners tell you to have 3-4 months emergency funds available, which we do. Our 401K money will help in retirement and with 7 years to go will hopefully double in value even tho my wife will not be contributing much if any in the future.
For the time being I have reduced my contribution from 12% to 1% to free up about $450 a month so we can make ends meet.

We no longer go out to eat and I only drive the car when necessary (to work, run errands, etc.) to save on gas. I have raised the deductibles on our house and car insurance. We could sell one or both of the cars and pay cash for older ones but that would only lower our budget by $350 or $650 a month. We will still have a substantial shortfall if the house doesn't sell and she can't find a job.

I have read where the new BK law doesn't allow creditors to go after your 401K but my wife wants to tap into it to keep us out of BK. I know that is probably not a wise thing to do but which is worse, BK at 54 years old with $250K in a 401K or posssibly staying out of BK with a depleted retirement savings?

[bkbiker]

Most of us file bankruptcy here to shed over whelming unsecured debt, if all you have is secured debt; all bankruptcy can do for is re-organized your debt and payments with added expenses or liquidate your assets for you.

I am not sure what filing bankruptcy would do for you at this point or for that matter in the near future.

Yes, retirement’s accounts up to 1,000,000 are exempt

Hope your situation improves for the better
bkbiker

[anonymuse]

Do you have a financial planner to work with?

I'm **guessing** that you have the second mortgage (maybe a HELOC) to pay for things that most of us would have put on a credit card. Unfortunately, now it's a secured debt.

I'm sure others will have suggestions when the board gets busy again on Monday; but right now I'm a little stuck since you only have secured debts and you are not behind on the mortgages. BK will only be an option if you've been behind on the house and then the BK would allow you to keep the house and pay the arrears over time.

Don't jump into the 401K until absolutely necessary (a big mistake I made); and if you're company does matching funds, try to keep contributing to the amount they match. Otherwise, in a sense, you are shorting yourself some of your income/benefits.

Having $350-650 freed up from the cars would mean a big deal when finances got tough. Take a magnifying glass to your expenses and see everywhere you can cut expenses (which it looks like you are doing). Just try not to live beyond your current means.

Good luck on the selling the house and finding a new job. Sounds like you are really on top of things--doing a lot of pre-planning way in advance for all the contingencies.

I know looking for a job is a full-time job. And its also easier to land a job while you are employed. Accept anything--fulltime or parttime--since any salary is better than $0.

I'm surprised that your wife was able to get unemployment BEFORE the sub-pay payed out. Here, you'd have to get the sub-pay first, then unemployment. While collecting unemployment, there is a minimum amount you can make while still collecting the payment. Maybe there is some parttime opportunity.

I'd rather be in a smaller house, with a modest car, and a secure 401K, than be in BK.

Best of luck to you and your wife--you'll get through this!

[dano100]

Do you have a financial planner to work with?

I'm **guessing** that you have the second mortgage (maybe a HELOC) to pay for things that most of us would have put on a credit card. Unfortunately, now it's a secured debt.

I'm sure others will have suggestions when the board gets busy again on Monday; but right now I'm a little stuck since you only have secured debts and you are not behind on the mortgages. BK will only be an option if you've been behind on the house and then the BK would allow you to keep the house and pay the arrears over time.

Don't jump into the 401K until absolutely necessary (a big mistake I made); and if you're company does matching funds, try to keep contributing to the amount they match. Otherwise, in a sense, you are shorting yourself some of your income/benefits.

Having $350-650 freed up from the cars would mean a big deal when finances got tough. Take a magnifying glass to your expenses and see everywhere you can cut expenses (which it looks like you are doing). Just try not to live beyond your current means.

Good luck on the selling the house and finding a new job. Sounds like you are really on top of things--doing a lot of pre-planning way in advance for all the contingencies.

I know looking for a job is a full-time job. And its also easier to land a job while you are employed. Accept anything--fulltime or parttime--since any salary is better than $0.

I'm surprised that your wife was able to get unemployment BEFORE the sub-pay payed out. Here, you'd have to get the sub-pay first, then unemployment. While collecting unemployment, there is a minimum amount you can make while still collecting the payment. Maybe there is some parttime opportunity.

I'd rather be in a smaller house, with a modest car, and a secure 401K, than be in BK.

Best of luck to you and your wife--you'll get through this!

Actually the HELOC paid off 2 student loans for my kids, built a 3rd garage and deck on our house and remodeled our kitchen and family room. We got off the credit card merry-go-round BEFORE the kids went to college (9 years ago). We still use one for small purchases, mostly gasoline and a couple utility bills, but pay the balance off every month.
Thanks for wishing us luck. There are times I feel so depressed by the negative things that could happen that I lose sight of the positive things that may happen.

[SinkingFast]

We live in Ohio.

I have read where the new BK law doesn't allow creditors to go after your 401K but my wife wants to tap into it to keep us out of BK. I know that is probably not a wise thing to do but which is worse, BK at 54 years old with $250K in a 401K or posssibly staying out of BK with a depleted retirement savings?

Whatever you do,.............. DO NOT touch the 401K! It is exempt under the New Law so leave those funds right where they are!!

A house and a couple of cars now are not worth how you may have to live for many, many years in retirement.

Like I said in your other thread, dump your current secured debts and then you can adjust your lifestyle around to your new level of income.

Definitely starting out of BK with depleted savings is the worse alternative. I know. We're there with you. Roughly same age as you and we are BROKE!

[mountanddo]

I don't see why you are contemplating bankruptcy. Are you looking to give up your house? You have a home that isn't underwater and two nicer cars and no credit card debt. Sounds to me like you are just living. Plus you have an excellent credit score. It looks like she has 10 months to find a comparable job but even if she didn't your shortfall is only $1200/month. I assume that is continuing to live as you are living now. If you sold one of the cars and bought a less expensive one, one of those payments could go away. That would make that $1200 shortfall a lot less. Is there no way you can cut down on expenses? You have 250k in your 401k so even if you took out 24k to last 2 more years if she doesn't find something it isn't something that would adversely affect you and when she does find something you can make that up in no time with the right financial plan. I would think about the ramifications of BK for someone that has debt but isn't IN debt. A foreclosure would make it difficult to purchase something in the future unless you are planning on renting from now on. You've done excellent financial planning for this very scenario. Why wouldn't you just ride it out? Maybe I'm not understanding something but it doesn't seem that you are in that bad of a position yet.

If you can negotiate with your mortgage and car company to make some sort of arrangements I would try that but it seems to me that until you are actually in that position and late or missing payments that they aren't going to have an incentive to work with you.

Am I missing something here?

[keepsmiling]

Hey mountain-- this is an ancient thread--- I think it only got dredged up due to the latest spammer. I don't think you'll get an answer.
You did give some logical advice tho

[mountanddo]

Hey mountain-- this is an ancient thread--- I think it only got dredged up due to the latest spammer. I don't think you'll get an answer.
You did give some logical advice tho

Ah, darn it! The one time I don't use google chrome to come here. Since IE for some reason doesn't show me dates anymore. I put so much thought into that post too, HA! Oh well, I am hoping after 5 years the OP's wife found a job and they are doing well. Damn spammers....