On the Brink of Bankruptcy

Sometimes Bankruptcy is the Only Way Out

Hi,

I'm not sure what to do. My husband and I have 7 credit cards we are not able to make the payments on. The balances total close to $40,000.

They have been turned over to collection agencies. Our house payments and loans are on time.

Should we file bankruptcy or work out a payment plan with our creditors.

The most we could pay at this time is $25.00 a month on each one. My husband is retired and I am unemployed.

Any advice, would be appreciated.

Thank You.

Ernestine

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I don't know how much leeway you have in the form of savings or equity in your home.

I assume you must be living on a pension and maybe unemployment insurance. How much you receive will determine if you are forced into Chapter 13 or not.

If you have equity in your house, you don't want to put that in jeopardy. Also you don't want to lose it, so keep up your payments.

I don't think a repayment plan at $25 per account would work. You can only pay $175 per month. Assuming the debt has an interest rate of 12.9%, your debts will never be repaid.

One thing you can try is to renegotiate your debts. You can do this yourself or hire someone, to help you. Explain your circumstances to each bank and tell them bankruptcy is your only other option.

You may get a substantial cut in the amount you owe and the interest rate. Lenders are learning that the Bankruptcy Reform Act isn’t working as well as they wanted. However, this will likely require that you have some cash on hand to make lump payments to your creditors.

If you have equity in your house you can use that to pay off your debts, but I don’t think you could afford it. A $40,000 second mortgage at 7% for 30 years ( which might be hard or impossible to get) will cost about $266 a month.

You could also look into a reverse mortgage if you’re over 62. This might ease your financial burdens since you don’t have to pay the mortgage back. However, there are high fees involved. See my article Reverse Mortgages for more information.

Otherwise, unless you and your husband wish to find some kind of employment, bankruptcy seems to be your only choice. You have to go through credit counseling before filing for bankruptcy. Try to get recommendations for a good counselor and see if he can help you negotiate your debt. If not and you qualify for Chapter Seven, bankruptcy seems to be your best choice. [Carefully consider going into Chapter Thirteen – it may be too restrictive for you. ]

Sometimes bankruptcy is the only way out and, if it is in your case, take it and put your financial misery to an end.

Make sure you use a good bankruptcy attorney to ensure your home and other assets are protected.

For a consultation with a local bankruptcy attorney, click here.

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