Personal Bankruptcy Debt consolidation or Bankruptcy?

[Dad1234]

My jurisdiction is: CA

Our household financial situation has taken a big hit with the current state of the economy. My job has cut back on hours and since I get paid hourly, this has reduced our monthly income significantly. Even working on a FULL schedule, we were just barely getting by on all our bills with a little left over. My wife also works full-time but we need our full combined income to keep up with our household bills.

However, with the current hours, we are falling further and further behind. To keep us afloat, we've been using credit cards and have various personal loans to cover things such as property taxes. Total unsecured debt at this time is over $60K. This has all caught up to us as we are now maxed out on everything and have nowhere else to turn.

We are behind on our credit card bill and have repeatedly asked our mortgage company to help us consolidate our two loans for a lower rate but it seems that unless our mortgage is in default and in collections, no one is willing to assist the consumer. We have been trying to be proactive with our creditors and have been honest with them about our financial situation. We have been asking them how we can work toward alleviating the situation and making sure they also get paid. So far, we have not received any real options that seem workable with our significantly lower income. Our mortgage isn't in default yet but we really make use of that 10-15 day grace period each month and are dodging calls from them each month. To top this off, we also owe the IRS over $8500 as our tax preparer made an error on our 2007 taxes (unbeknownst to us) and the IRS have now caught up with that mistake and want to collect.

So is the best route in my situation to file for bankruptcy and if so, would it be Chapter 7, 11 or 13? We don't have any other property other than our home. We have one car loan but we need to keep that car so the kids can get to and from school. We wish to keep our house. No savings to speak of.

I called one debt consolidation agency but the proposed amount of pay back they provided me was not significantly different than what our creditors expect of us now. We need breathing room.

Our credit union who we have our checking account, our credit cards and personal loans with is willing to help consolidate all our current debts with them into one BIG loan. However, the payment they want per month is still out of our budget by $400. The rules and regulations that came with the proposed loan document also had a clause in there about this debt still being our liability even if we file for bankruptcy or something. Not sure if I read that correctly but does that sound like something that is possible to do?

I am hesitant in going through with this loan consolidation as who knows what may happen in the future with our jobs and if (God forbid) one of us loses our job and we can't pay the loan back, isn't this clause making it so that we can't add this debt to the bankruptcy? I am worried that if we need to apply for bankruptcy in the future, that this would cause us to be in further trouble.

I would greatly appreciate any advice you might have on what I could do in my situation. I want to keep my family afloat but am having a very hard time.

Thank you for your time.

 

[tpajet]

Bankruptcy should be an absolute last resort. The problem is that you don't get to walk away from your debts anymore. Even with bankruptcy you still have to pay it all back.

The ultimate goal here is to get things paid down, with as little damage to your credit report as you can. But you may also have to take a couple black marks given your amount of debt.

So, here's where we are at. Don't bother too much with the mortgage. Unfortunately the banks are simply waiving a middle finger to the federal government these days with regards to the modification programs. Put simply they are still turning people away who are actually eligible.

What you need to do is work on your credit cards. The best thing to try first is see if they will simply close the account. Usually what they will do is close it, and you make monthly payments, but with no interest. Some will still put a black mark on your credit report, but it's not an overly horrible mark. Besides, you already own your home, so no need to apply for a mortgage. Maybe a car loan, but that is up to your situation.

Another thing to do is look for 0% interest credit cards, and apply. Even if you don't think you will get it, try anyway. Worst they can do is tell you no. If you do get approved, transfer as much as you can from your highest interest rate card, then DO NOT use that card you just transfered from. In fact, call and have them lower the limit if you don't trust yourself.

The next thing to do is really sit down and study your monthly expenses. Look at everything. And then see if you can trim anywhere. Even if you think you have cut back, see if there is anything you can do without for a while. It's time to start living like you are poor. It's going to suck, but there is simply no other options.