Bankruptcy vs DMP

[JLM0706]

Hello, I am new to the forum. I am currently enrolled in a DMP but cannot keep up with the payments. I just did a voluntary repo on my seadoo and need to get a cheaper car payment ASAP. I am wondering if I need to suck it up and file chapter 7? I’m afraid of losing my house (have a 40,000 heloc and am behind on those payments). I also wonder about my car- will I lose it? Am I allowed to repo it and try to get a cheaper car payment?
i am so scared and constantly stressed.
anu advice??

[justbroke]

Welcome to BKforum JLM0706

You will likely need a Chapter 13 to fix arrears with payments on your home. Chapter 7s are not designed to deal with arrearages on homes, cars, and other secured property/debt.

You will need to sit down with a bankruptcy attorney during a free consult to see what is the best path forward. That could include getting a new car now, if you're going into a Chapter 13.

Don't fret that much. Most people that go into Debt Management Plans (DMPs) usually end up in bankruptcy. The DMP just prolongs the inevitable which is that the mounting debt and continuing rise in costs, will never allow most debtors using a DMP to ever survive. Not to get on a rant, but for most people, DMPs are an absolutely waste of both time and money.

Advice, you'll need to sit down and budget and figure out what you can do. Your HELOC is an issue, but if your home is worth less than the value of your first mortgage, then you may even be able to strip off the HELOC in a Chapter 13. This all requires some serious number crunching and the assistance of an attorney to see where you fit.

[JLM0706]

Thank you for the response. How do you select a decent attorney that won't mislead you? Also, will bankruptcy affect my son's ability to go to college? I don't want to jeopardize HIS future due to MY mistakes.

[justbroke]

We always recommend to do some research, find 3-5 local attorneys, and then schedule a free consultation with all of them. Find one that you feel comfortable talking with and that makes you feel okay. There's no magic formula and while some may seem to "mislead" you, it is really that they aren't very good at certain types of bankruptcy; e.g. Chapter 13 versus Chapter 7.

As for college, are you asking about your ability to borrow after filing? Filing bankruptcy and then discharging the bankruptcy won't affect your ability to, as a parent, seek loans from the Department of Education (DOE). Those are maxed at $10,500/year for freshman and sophomore years go to $12,500/year for juniors and higher (I may be off with the numbers).

The real question with college tuition is to not overspend on tuition. Your child should be doing their level best and concentrating on getting the best grades and scores. My friend's kid just received a full scholarship on a Year 0 Doctor of Pharmacology program (6-year program) at a top school, because she knew what she wanted to do and put in the effort. Scholarships are plentiful and are awarded for many reasons. In Florida, we even have a Bright Futures program offering similar scholarships based on performance.

College planning can be both fun and draining. While not everyone wants to go to Harvard, M.I.T., Yale or Georgetown, getting into your "choice" school can be competitive... and financially daunting. Education is expensive at private colleges and universities, even with some guaranteed tuition promises (which take form in grants).

Well, I went off on a mini-rant, but I hope you get my message. Even if the DOE denies you a loan through Parent Plus (if your child is not accepting loans personally), they will allow the child to obtain the regular loans.

[JLM0706]

Thanks, that makes sense. Any tips on my car situation? I’m paying 635/month and have negative equity in it to the tune of 15,000.
I really appreciate all your advice.

[justbroke]

Thanks, that makes sense. Any tips on my car situation? I’m paying 635/month and have negative equity in it to the tune of 15,000.
I really appreciate all your advice.

That is really bad negative equity. The best is, if you file Chapter 13, to get a new car and get rid of that car. That advice may be easier said than done, as secured lenders will look at your debt-to-income (DTI) ratio and likely require that you show proof of sale of the old car.

If you file Chapter 7, I would go with a redemption loan. I did a 722 Redemption loan, from US Bank, and trimmed over over $11K in negative equity on my SUV. It was a lifesaver. However, redemption requires most debtors to take out a new loan (e.g. the redemption loan) to pay. You must stil qualify for a redemption loan. I thought they gave just about any debtor a redemption loan, but I have learned over my 11 years here on BKForum, that they still otherwise credit-qualify the debtors (no repossessions, good payment history pre-filing, good DTI).

You have to speak to your attorney about the car. The chapter of bankruptcy will matter. Regardless of the chapter, that car is killing you slowly.

[JLM0706]

Yes it is. I cannot believe how stupid i was. 🤦🏽♀️

[justbroke]

No worries. You're in good company. I did it too... putting $8,000 of negative equity onto a $55,000 SUV.

[JLM0706]

Eek. Mine is Kbb valued at 26-30K as trade-in; I still owe 43K. Painful. And, my previous car was nearly paid off and very reliable. I just HAD to have the shiny red Jeep.
oh/ what happens to work bonuses, etc, if I file BK?

[justbroke]

Bonuses will depend on whether it's a Chapter 7 or Chapter 13. It will also depend, in a Chapter 13, how your plan is constructed. Typically, if the bonus is "disposable monthly income" (DMI) then it will need to be surrendered. However, if you depend on it to pay "allowed" expenses, the attorney may work out a plan that already includes it as "regular" annual income in the calculations.

[JLM0706]

That is really bad negative equity. The best is, if you file Chapter 13, to get a new car and get rid of that car. That advice may be easier said than done, as secured lenders will look at your debt-to-income (DTI) ratio and likely require that you show proof of sale of the old car.

If you file Chapter 7, I would go with a redemption loan. I did a 722 Redemption loan, from US Bank, and trimmed over over $11K in negative equity on my SUV. It was a lifesaver. However, redemption requires most debtors to take out a new loan (e.g. the redemption loan) to pay. You must stil qualify for a redemption loan. I thought they gave just about any debtor a redemption loan, but I have learned over my 11 years here on BKForum, that they still otherwise credit-qualify the debtors (no repossessions, good payment history pre-filing, good DTI).

You have to speak to your attorney about the car. The chapter of bankruptcy will matter. Regardless of the chapter, that car is killing you slowly.

When would I get the new car? Now? I have a consult with an attorney Monday at 11 am. I plan to ask him about this, but they've already said they do not offer legal advice until they are retained. Maybe I need a different attorney... I am so stressed today I can't function at work. I just got paid and already see I won't make ends meet, or anywhere near it. This will NEVER happen to me again. OH! Also, do I have to claim my SON'S PS4 as a "luxury" item to sell? I've already cut cable, I don't want to take every bit of joy from him. Do they actually come to your home and search it?

[justbroke]

Just so that you know, some bankruptcy attorneys will not outright tell you to go buy a car. They will likely say things like "it's not a bad idea" or "make sure your car is going to last." There are issues with bankruptcy attorneys telling clients to incur debt right before filing, which changes the definition of their services. So most skirt around that question.

Also, make sure you have free consults with more than 2 attorneys. We recommend 3-5. You may still like the first one, but you can learn from the others.

(If it's your son's property -- from a gift -- then it's not yours. Florida is about the only State where Chapter 7 Trustees, not. Chapter 13, have been known to send an appraiser to the home. It never happened to me because my schedules were pretty clear and accurate.)

[flashoflight]

If you give us some monthly numbers on income, mortgage payments, and the amount of the arrearage (or at least how many months you are behind on each mortgage) along with the current value of the house, it might give us a better idea of where this is headed. A comment on how stable your job situation is will help too. That Jeep is crushing you for sure and I think it will be a maintenance nightmare after the warranty expires.

[JLM0706]

Hello! Take-home pay (net) is around 4250- 3600 from my job and 650 of SSDI from my sons dad’s disability.
I only have a HELOC on my home- total is around 40,000, the payments are 400/month and I am behind 2 payments (800 bucks). My home is worth 55,000.
My job is stable. I work for a major oil and gas company. I do have 401K loans that take a chunk of my pay.
I need to get the Jeep gone. But- trading in woth that negative equity??? If I wait, I’ll have a bonus in February, that is usually around 5,000... but no guarantee.
Advice? I thought about applying without a trade in, and I thought about trying to take advantage of incentives and trade now with as much down payment as I can muster. But my credit is so bad, I’m afraid to even try.

[flashoflight]

401k loan payments don't count in the means test expenses for ch7 but does count in ch13.

Your arrearage on the house can be paid from the money you will stop paying the DMP. Usually folks stop paying credit cards months before the bankruptcy to pay for the lawyer as well. Money going into the DMP is like flushing money down the toilet if you're going to BK.

I would surrender the Jeep and get a fresh start with no payments on a used cash car. If you are borderline to qualify for a ch7, you might have to do a 722 loan to increase the expenses on schedule J.

If you can squeeze into a ch7, I think that's the way to go.