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Author Topic: So, who knows about settling debts?
Sopwith
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Man, this is embarassing to write about, but hopefully someone will have some advice here. Basically, my wife and I are looking at $30G in credit card debt.

I wish I could say that we built this up on living the good life, but the sad fact is that we didn't. When times got tough (my wife spending 18 months unemployed, my business falling through during that time, the birth of our child, the downsizing of my wife's next job and five more months of unemployment, and finally me losing my job two months ago), we went through our savings and started breaking the cardinal rule of credit cards -- We used them to buy groceries, gas and pay bills.

Once we got in deep, the interest rates started to climb, until they finally reached 29.99 percent. Now, we've gotten 52 days behind on one account and 35 days behind on another, both companies are calling a demanding collections. The cards have been shut down and both are saying we don't have enough income to settle.

What can we do? Can we lose our house (the mortgage payments are up to date)? Help, please. Anyone.

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Sopwith
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P.S. I do have a job interview next week, and I'm keeping up the search. We don't want to duck our debts, we just need some breathing room to get back underway.
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katharina
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I don't have a suggestion, but I feel for you, Sopwith. You're in a hard situation.
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El JT de Spang
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Call a debt counselor. Go over your finances with a fine tooth comb, to figure out exactly how much money you need to live on and how much you can devote to paying down debt. The conventional wisdom in your case is to transfer the balance of the debt to the lowest interest card(s). This may not be an option with that amount of debt; I really don't know.

If you racked up the debt during an extended bad spell, and it's not a permanent spending habit you might consider a debt consolidation loan. Another tip is that collection agencies will work with you. There job is to get the money, not bankrupt you. Explain to them that you want to pay down the debt, and try to set up a payment schedule.

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Lyrhawn
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I have a couple suggestions, just based on what family members of mine have done...

First, if you haven't already done so you can try calling the credit card people and explaining your situation. Often times if you ask, they really will lower your interest rate down to something more reasonable. My mom actually just did this the other day. She missed one payment by a day and they tripled her rate to 35%, so she called, explained, and they lowered it back down to 18%.

You can also try and work out some sort of deal with them. I know that parents of kids who run up big debts on credit cards sometimes call the companies and they work out deals so that the parents only have to pay like 60 cents on the dollar of the debt. It might make a large enough dent to help you out.

Another suggestion is to refinance your house and pay off the debt entirely. I don't know if that's an option, but it could save you a headache.

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Jim-Me
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We tried debt counseling and made great headway, but, unfortunately for us, we hit all the nasty stuff (divorce, layoff, etc.) *after* rolling up the unsecured debt so when we couldn't make *those* payments we were really hosed.

Basically there's debt counseling, apply for bankrupcy, or offer non-bankrupcy setllements. Ben Dover (yes, that's his real name) wrote a book called Life After Debt that is pretty much the standard for dealing with this... but it's been around a while so it might not be the most up to date info.

I'm pretty sure the only people who can take your house are the lienholders.

Good luck, man. I feel ya' big time, here.

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Noemon
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That's rough, Sopwith; I feel for you. Have you looked into the possibility of bankruptcy? I know that they've recently changed the laws in ways that are favorable to the lenders, so you'd still likely be paying off the debt, but you'd be doing it on more managable terms.

A prospective tenant of mine had some fairly massive credit card debt, and her credit card companies offered to write off half of the debt. I have no idea how she managed to get them to do that, and I'm not in a position to ask her now, but it might be something to explore.

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katharina
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I wouldn't refinance the house - if you can't pay your credit cards, collectors cannot take your house. If you can't pay the second mortgage, the bank can.
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Stephan
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Well, you already have your house, so your credit rating might not be your top priority. The most they can really do to you in collections is give you bad credit. Since you are already in the hole, ignore the collections agencies, keep sending in as much as you can, and once your situation is in good shape again with a job and all start paying them what they want.
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dkw
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See if there is a credit/debt program either through or endosed by your state government. A credit counselor can help you negotiate lower interest and reasonable payments, but there are also scams calling themselves credit counseling. Or talk to your bank -- some of them have a personal finance manager on staff whose services are free to bank customers. That person can either help you or refer you to someone who can.
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aspectre
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Careful, careful, CAREFUL 99% of the "debt counseling" services out there are pure and complete and total frauds that have no purpose for existence other than to rip off their customers.
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Nell Gwyn
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Sopwith, that's almost exactly where I was six months ago, only in my case it was closer to $20K. However, I'm a single non-home-owning grad student, so it's even more embarrassing. And all my credit cards were maxed out as well as overdue.

I ended up going with a debt management program, which negotiates with the credit card companies to lower your interest rates and monthly payments. I did a lot of research online before deciding on this company - if you decide to go this route, I'd definitely talk to several companies before deciding, because some of the others I talked to charge a "voluntary contribution" fee of $50/month, and some companies are complete scams (as aspectre noted). The one I chose charges $3 per account per month, which to me was a lot more reasonable. Basically, I pay the debt management company one payment each month for all the credit cards, which they then distribute to the credit cards. I think most plans have it so you'd be completely paid off within 60 months, and you're allowed to pay more than the regular payment amount if you're able to, which is what I plan to do when I get my finances in order.

I didn't learn about this until afterwards, but you can also do the negotiating with the credit card companies yourself and skip the middleman. Personally, even if I had been aware of this option beforehand, I don't think I would have wanted to do that - I was terrified of talking to the credit card people, so it was vastly preferable to let someone else do that for me. Plus all the phone calls from collections people were driving me mad - some days I'd seriously get twenty calls.

And as I think has already been mentioned, as a homeowner you could get a debt consolidation loan, but I have no idea of the details of that sort of thing.

(((Sopwith & family))) [Kiss] It sucks. It really does. But be glad that you're taking control of it, and eventually it'll get better.

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MightyCow
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I would recommend trying to avoid bankruptcy if at all possible. Living in debt is bad, but imagine living without being able to get credit for the next 7 years.

As several people have mentioned, call the credit card companies. They really do want to work with you. They would rather help you to pay your debt, than have you declare bankruptcy and they don't get anything. They can probably help you to lower the interest rate, and then lower the monthly payments, or possibly even lower the amount you owe.

Another thing to avoid: 2nd mortgage, particularly the interest only kind. They are happy to have you pay interest forever and never get out of debt, or to take your house if you can't pay. Having bad credit because of late payment on credit card bills is better than losing your house.

Credit counseling, you need to figure out how to better budget and keep from racking up more debt. A friend of mine had over 40k in debt built up, and with a counselor's help and a lot of budgeting and hard work, he got it paid off in 3 years. Now he's debt free, 8 years later.

Good luck.

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sweetbaboo
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I really like Dave Ramsey's Total Money Make-Over. He suggests selling everything (besides your house) that you can, literally everything to have cash to spare to get things paid down to managable amounts.

I also like the book The Four Laws of Debt Free Prosperity by Blaine Harris. It's an easy to read book that steps you through financial management without all the wordy jargon of other books I've read.

We're in the middle of following Dave Ramsey's program in combination with the principles from the Four Laws book right now and it is working for us. Good luck.

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Elizabeth
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Sopwith,

While the credit card people may say they cannot settle, that is total b.s. You are at the point in debt he** when they actually harrass you the hardest. We have been through this for years, and are still trying to climb out of trouble. However, my husband has done a huge amount of research, and has handled everything himself. We ended up getting a RE-mortgage, to pay off the debt, but even after that, he negotiates to the end.

Search online. there are many, many laws to protect you, and a debt counselor will not often have your best interest at heart. They have THEIR interest at heart. (or, just interest, you know, the money kind)

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Lyrhawn
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I should clarify, when I said refinancing, I was NOT talking about taking out a second mortage, that isn't what refinancing it. It's taking out a second loan, which pays off the first one, and gives you the leftover cash value you've paid into your home.

It's often done when interest rates go down. You don't necessarily have to get full value for the house, if you don't want to reset the mortgage, but if you have value in your house, and your mortgage IS up to date, and you CAN afford to pay the bill, you might want to consider this option. It could get you out of debt entirely, and consolidate your debt into a single payment.

These are sometimes called consolidation loans too, but it is NOT a second mortgage. Though, if you DO do this, be very careful, there are a LOT of fraudulent mortage companies sprouting up all over the place. Trust only a long established mortgage company, and read all the fine print. And be wary of the interest only people too.

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katharina
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quote:
It's taking out a second loan, which pays off the first one, and gives you the leftover cash value you've paid into your home.
This is a second mortgage - that's what a second mortgage is. Using the house as collateral for a loan - without the house as collateral, you can't get that loan.

What that means is that if you ever cannot pay that second loan, they can take your house. Whatever the companies call it, it is debt secured by collatoral, as opposed to credit cards, which are unsecured debt. Very, very rarely do you ever want to swap unsecured debt for secured. Right now, no one can take your house. If you get a second loan using the house as collateral, then they can.

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Lyrhawn
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I have always been under the impression that getting a second mortage meant that you have TWO mortgages, and TWO payments between TWO different banks.

Also, regardless, if you have a mortgage, and you default on the loan, the bank can still take the house.

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katharina
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A mortgage is when you use a property as collateral to secure a loan. A second mortgage is when there are two liens against the house, and the second lien is subordinate to the first.

One of the insidious ways that banks make piles of money off of people instead of people making money off their property is by repackaging second mortgages as home equity loans. If it requires the house as collateral, it's a mortgage. [Frown]

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Lyrhawn
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Alright. He already has a mortgage. Refinancing is when you use a second mortgage to pay off the first one. It's not two loans, it's a single loan.

Besides, if the original loan uses the house as collateral, which all home mortgages do, then he already has a mortgage in which the house could be taken by the bank if he defaults, so how is this any different than a refinancing?

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Sopwith
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Well, we did look into a home equity/debt consolidation loan last year, but were flatly turned down by our bank.
We've also decided NOT to go the refinance route because our mortgage is at a fixed 6.25 rate. With our credit rating in a shambles, interest rates edging up and some predatory practices in the mortgage market, we're going to stick with what we've got. We've got seven years of equity built up on a twenty-year loan, plus the house is worth about 35G more than the amount of the original loan.

But sheesh, with this credit card situation, we've been through the mill. We've paid and paid, but made no headway. It's like once we hit a certain amount, the interest rate skyrocketed (it was still way before hitting the maxed-out levels). At one point, the interest (at 29.99 percent) was higher than the minimum payments. We always paid more, sometimes just $100, sometimes $200 or $300 more. But it just never put a dent in it.

And then, something would happen. We had no fallback money since we were sending it all to the credit card companies. Then a car would need new tires or have the clutch go out, or our heat pump broke, or the dog developed glaucoma. No cash reserves, boom -- the big expense had to go to the credit card.

We finally cut up the cards about a year ago, but they just had hit that critical mass and we couldn't make headway. We've literally sent thousands of dollars in payments, and trimmed hundreds off of the amount.

I feel like a criminal, I feel like a sucker, I feel like I've jeopardized my future, my wife's and my daughter's. And we wanted to work on having another child later this year...

Thanks for the advice so far, and please keep it coming. And most of all, thanks for letting me know that we aren't all alone out here on debtor's island.

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King of Men
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The traditional solution would be to sell a child into slavery; it may be just as well for your children that Bush will only be in power for two more years. But for non-hypothetical advice, can you perhaps rent out part of your house to raise money? Or are there maybe parents that could help you out a little? It is a rare parent who will take 30% interest (Yikes! 750 a month? Can I have done that calculation right? That's half my income!) from a child.
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aspectre
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Just used this Debt Repayment Calculator on a 5year payback (leaving MinimumPayment blank) and got
quote:
Loan Balance: $30,000.00
Loan Interest Rate: 29.99%
Loan Term: 5 years

Payment: $970.42
Number of Payments: 60

Cumulative Payments: $58,224.88
Total Interest Paid: $28,224.88

Note: The monthly loan payment was calculated at 59 payments of $970.42 plus a final payment of $970.10

Then compared it to a prime interest plus one percent home equity loan of 8.75% (which is as low as you are going to get from a legitimate*company) and got
quote:
Loan Balance: $30,000.00
Loan Interest Rate: 8.75%
Loan Term: 5 years

Monthly Loan Payment:$619.12
Number of Payments: 60

Cumulative Payments: $37,146.97
Total Interest Paid: $7,146.97

Note: The monthly loan payment was calculated at 59 payments of $619.12 plus a final payment of $618.89

Which means that you can save $970.42minus$619.12 or $351.40 per month in payments if you have enough equity in your home and otherwise can qualify for a loan.

* Again, careful careful CAREFUL : There are LOTS of companies out there which engage in predatory lending, with clauses of eg a single 1day-late payment triggering an immediate balloon repayment of the entire loan, or similar nastiness.
If you are not extremely careful, you can be stuck with a debt of nearly the entire amount of whatever your primary mortgage holder is owed after sale of your home. Due to dirty dealings between lending companies and many?most state legislatures, home foreclosure sales tend to be advertised in obscure newspapers somewhere within the state. And after the lightly-attended "courthouse steps" auction, you can end up owing a LARGE percentage of your original mortgage loan for a long time after you've lost your home.

[ May 03, 2006, 06:18 PM: Message edited by: aspectre ]

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King of Men
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Oh, and btw, 'the dog developed glaucoma'. Is it perhaps possible that you could down-prioritise pets for the duration? The last thing you need is an expense that is, sorry, a luxury.
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Lyrhawn
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Shameful! Pets are members of the family.
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King of Men
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Fine, fine, perhaps it's possible to give the dog up for adoption? There is such a thing as a priority, and I'm sorry, but treating animals as though they were human is a luxury. It's not as though I suggested that the dog could be useful in saving on groceries.
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Dagonee
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quote:
Besides, if the original loan uses the house as collateral, which all home mortgages do, then he already has a mortgage in which the house could be taken by the bank if he defaults, so how is this any different than a refinancing?
If you refinance and pay off the credit card debt, you simply end up converting unsecured debt with secured debt. The problem being that it increases the amount of money that must be paid to avoid foreclosure, and it gives them more pennies on the dollar in a bankruptcy settlement.

They're much better off if you don't go into bankruptcy, so they should be willing to work with you if you can demonstrate the ability to trim it back with a new job.

30% is ridiculous, but I don't know what you can do about it except bankruptcy. You'd need to talk to a lawyer, and it would have serious effects on you, but it might better. (Emphasize "might" - I have no idea.) The alternative is to get a history of making the payments for several months and a well-planned out budget that will make it worth someone's while to let you transfer the balance.

KoM's calculation is correct, which explains why you're having such a hard time. The good news is that every payment will increase the effectiveness of the remaining payments. The bad news is that it will take a while to be noticeable.

I'm sorry you're going through this.

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aspectre
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"Shameful! Pets are members of the family."

Not in the sense of getting your human family kicked out onto the street for the sake of a pet's lifestyle.

Sorry, Sopwith, I was researching between my first and second responses. Then posted before seeing your intervening reply.
You may hafta put your house on the market and start fresh, ie begin renting. Cuz your current $750 per month in interest alone is killing your financial recovery.
Heck if you could rent and put away that $750 per month into savings, that would be $45thousand in 5years as down payment on a new house, even without interest. Which no lender is gonna turn down.

[ May 03, 2006, 06:09 PM: Message edited by: aspectre ]

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King of Men
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And - I assume you have done this already, but it never hurts to check the obvious - you have changed your buying and eating habits, right? Rice, potatoes, veggies, milk (or water); drop meat, ice-cream, eating out, sodas; turn every penny until it screams, and put it towards the debt if you possibly can. Don't go to movies; read a book instead. Cancel your cable subscription if you have one. Get DVDs from the library. Play chess.
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MandyM
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I second reading anything by Dave Ramsey or taking his Financial Peace University class. They are offered all over the country and you can find out more at his very informative (but very disorganized) website. He is AMAZING and taking his class has completely changed our lives. We started this year with about $10K in debt (from the same job issues as you have described) not including car payments and we will have that paid off by the end of this year even though we have very little income. We are still broke and we still have debt but we have hope since we can see a light at the end of the tunnel. We also had some tax issues and we used a reputable accountant off his site to help us fix it.

His strategy to budgeting and paying off debt just makes sense. Even if you think you are good with your money, there are things you can learn from him. The class also teaches how to bargain shop and invest for college and retirement. It meets you wherever you are; if you have money or you don't; if you are in debt or not.

Just from the class, I will advise that you NOT take out a loan to get out of debt, even if you could get one. Also just pay what you can right now. Get your phone number changed so they can't call and harass you. Pay your necessities like the house, the cars, food, clothing, childcare and bills first and send the minimum payments on the cards with whatever you have left. Don't worry about your credit score. You don't need to have any more credit right now anyway. Even if you are going to start using credit again, you won't do it in the next two years and that is all the credit history they really care about anyway. Besides, if you do Dave's plan, you will never need credit again anyway, so what do you care.

Dave's Baby Steps 1 and 2:
1. Get $1000 in a savings account for emergencies (we are almost there after just a few months!) He calls this Murphy Repelent and ensures that you stop having emergencies that cost you money and make you charge more on your credit cards.

2. Then start the Debt Snowball. Pay the minimum payments on as many cards as you can afford to. Have a garage sale. Sell some stuff on ebay or Craig's List. Apply all that money to the LOWEST credit card balance. When that card is at zero, cancel it and attack the next lowest with all the money you were applying to that last one. It builds up and by the time you are paying off the last one, it is with huge payments. Trust me, it's working!


3. Put 3-6 months of living expenses in the bank for the next emergency. It would not have kept you out of 18 months of trouble certainly but it would have helped. This looks like a long way off for us but everything else he has said is working so it will happen for us eventually.

I know I sound like a commercial for this guy but like I said, he is amazing! It is completely worth the $90 we paid to take the class. The week after the bargaining lesson, my husband saved over $100 on new tires and got $120 back from our bank in overcharged fees!
Good luck to you and God bless!

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David G
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If increasing the debt secured by your house by $30,000 still leaves you with a loan to value ratio of 80% or less (in other words, if after increasing your mortgage by $30,000, the mortgage divided by the value of the house is under .80), then I recommend refinancing your mortgage and cashing out $30,000 to pay off the credit card debt.

Your interest rate will be under 7% (if your credit is still good). The interest you pay will be tax deductible. And amortized over 30 years (if you get a 30-year fixed loan), it will only cost you an additional $200 per month to service the extra $30,000 in mortgage payments. After taxes, that is only about $140 per month.

If the loan to value ratio is above 80%, it still would work, but interest rates will increase.

You will have closing costs to refinance (which you can roll into your new loan), but this is far preferable to your current financial situation with outrageous interest rates and very high monthly payments. This is also preferable to bankruptcy.

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Earendil18
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I 2nd the Dave Ramsey Total Money Makeover. He also has a radio show.
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MandyM
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Also if this is just credit card debt, I advise not to touch the house if you can keep from it. You are in with a good interest rate and you are building equity and after a few years you could sell the house and have more to use to pay the rest of the debt off while still having enough for a down payment on a new house.

Also, with credit counseling, look for free or nearly free to avoid rip-offs.

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aspectre
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"This is also preferable to bankruptcy.

Only maybe. (Haven't looked at the new federal legislation closely enough, but) I think that even now depending on your state laws, bankruptcy may enable you to get (at least some) relief on interest payments, with (closer to) the full amount of payments being directly subtracted from your debts.
Seven years of bankruptcy-level credit ain't all that bad when compared to 5years of not having credit because you can't afford more debt than ya already have.

[ May 03, 2006, 06:11 PM: Message edited by: aspectre ]

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Sopwith
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On the pet issue, his glaucoma only affected one eye. We had to decide to simply have a shot into the eye that killed the orb and prevented it from terrible swelling. The expense was about $150 and it was something we felt we had to do. It was the least expensive option.

Right now, we have no intentions of attempting to get any sort of credit for the next seven to ten years. Our credit score is a shambles already, and the wreckage that can be done to it, honestly, isn't even punitive.

The reason that paying off the debt is even still on the table is that this was money we borrowed and agreed to pay back. To not pay it back, would, in effect, be stealing. I may be a debtor, but not a thief.

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jeniwren
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Sopwith, I don't have any advice beyond advising you to get several professional opinions before making any drastic decisions. You should call your credit card companies and politely but firmly negotiate better rates for your cards. Here's a link with ideas on how to have that conversation (yes, I know it's Oprah, but I like the practicality of her debt diet) http://www.oprah.com/money/debtdiet/steps/debtdiet_steps_03_b.jhtml

Beyond that, don't despair. Truly. You're doing the right thing by acknowledging you have a problem and are trying to get help. Do you know what a huge success that alone is? Imagine that you were still telling yourself everything was fine, no problem, and still going along without encouragement or help, maybe even hiding the bills so you just don't have to think about it. You're well on your way to fixing it, and that's big. And you're not alone...there are tons of very good resources out there for people in your situation. Be encouraged. You're doing the absolute right thing. You're a good husband and dad.

((Sopwith and family))

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Kwea
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I do know that more people lose their homes on refinancing to pull equity out than do defaulting on the original mortgage....by a considerable amount.

It is one of the things I learned selling mortgages up north, even though I didn't do it for long. [Big Grin]

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erosomniac
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quote:
You're a good husband and dad.
*nod* The fact that you're willing to admit you made a mistake and are working to fix it puts you MILES ahead of so many people. I really respect you for this.
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David G
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quote:
Originally posted by aspectre:
Seven years of bankruptcy-level credit ain't all that bad when compared to 5years of not having credit because you can't afford more debt than ya already have.

My recommendation for refinancing the mortgage was subject to an important factor: The loan to value ratio on the house not exceeding 80% after increasing the mortgage by $30,000. If this is the case, then why would Sopwith's credit be negatively impacted by the refinancing?

After the refinancing, Sopwith would have all credit cards paid off (presumably leaving him with $30,000 in available credit on credit cards), and he would replace a huge monthly payment to service the credit cards with an increase in the mortgage of just $200 per month. I would guess that the minimum monthly payment on $30,000 in credit card debt at 30% interest could exceed $1,000 per month by a wide margin.

Is saving yourself $200 per month (about $140 per month after taxes) worth suffering a bankruptcy for?

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Katarain
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Declaring bankruptcy doesn't make you into a thief. If you can manage Dave Ramsey's program then you should do that, but if you're honestly to the point where you can't climb out of this hole on your own, then that is what bankruptcy is for. It's not like you were out there buying luxury items--you were buying FOOD and other necessities. People fall on hard times--happens all the time.

There are two chapters you can file for bankruptcy. Chapter 7 is when you have no disposable income, and they sell all of your non-exempt assets to pay your debts. Your creditors usually don't get anywhere near what they're actually owed, and the trustee gets a nice portion of the money. Many people do a Chapter 7-no asset case. That means that all of your possessions, house, etc. are exempt. You get to keep them, and the creditors and trustee get nothing. Exemptions vary from state to state. Since you probably have more equity in your house than your exemption, then you should be able to reaffirm your house loan, and continue paying it as usual.

Your case sounds more like a Chapter 13, though. That's when they figure out your income and expenses, and how much disposable income you have. You have to have at least $100 in disposable income every month to be able to file chapter 13. Then, you pay that amount (whatever your disposable income is) every month for the next 5 years. (It used to be 3 years, but I'm pretty sure it is 5 now.) The money is split up between your creditors, the trustee, and your lawyer. After that, your debt is completely discharged. You owe nothing else.

The thing about bankruptcy is if your credit is already in deplorable condition from not paying your bills at all or on time, then bankruptcy can actually raise your credit score. It shows that you're taking responsible action to clear up your debt. Most people can get excellent credit ratings and low-interest rates after only 2 years. (Sometimes less.) You just have to slowly improve your credit rating, often by getting a secured credit card and paying off the balance every month, or by getting another small loan and paying it off every month. Buying a house with a good interest rate is absolutely doable by the second year, and often earlier. Since you already have a house, you don't have to worry about that.

What you don't want is your credit rating to continue to fall because you can't make your minimum payments. If you can't work out deals with the credit card companies, and you can't make your payments, then bankruptcy just might be a good option. What you have to know is that sometimes even when you work out a deal with a credit card company, what they can put on your credit report can still bring your score significantly down. Also, when you work out deals with a debt counseling agency that is making your credit card payments for you, there is no guarantee that the credit card company will agree to the lower payment. You need to get it in writing from each credit card. I've heard many horror stories where a person faithfully makes their payments to the agency and either the agency mismanages the money and pays the credit card payments late, or the credit cards continue to report you as late because you're paying less than the minimum.

And remember, declaring bankruptcy does NOT prevent you from paying your debts in full after the fact. But it is a legal way to stop interest from piling up and to make it possible for you to make your payments. In the future, you can always pay those bills when it is possible--but on their own, those credit card companies and collection agencies will NOT wait. Once one of your balances for one account is over $10,000, you probably will be sued for it. And you'll probably lose. And having a judgement on your credit rating and perhaps even having your wages garnished or your bank account unexpectedly emptied is not fun. And it DOES happen.

People who spend and spend and plan on bankruptcy from the beginning are thieves. Other people who find themselves in situations where they have to file are not.

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Irregardless
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Sopwith, I sympathize. My wife & I have a similar level of CC debt, at similar interest rates, and for similar reasons. Right now we are right on the edge of being able to pay bills -- but one car repair or other unexpected expense, and everything's blown.
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Dagonee
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More on bankruptcy not making you a thief:

When a commercial establishment lends money, you can be sure that they know the commercial laws under which that loan will be interpreted. They know about the bankruptcy laws, and know that there is essentially an implied clause in the contract that brings in all the bankruptcy rules by reference.

I think it would be immoral to use the bankruptcy laws to avoid making payments that otherwise could be made, even if one technically qualifies for it. It would also be immoral to intend to invoke that clause when borrowing the money, or to intend to implement some obscure code section to avoid payment that the other party isn't aware of. But if the payments can't be made, then you are essentially invoking a clause in the contract that the other party knew was there.

*and just in case someone out there is confused, I'm making a moral argument based on the up-front reliance expectations of the commercial lending entity. When both parties are lay-persons, I think the moral arguments change.

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Troubadour
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From what I've seen, the bankruptcy laws in the US seem to be similar to here in Australia. If so, here's my hard-earned 2 cents:

1) There are non-profit companies out there to help you through this.
Not the debt-consolidation companies. I actually saw a zen-buddist harley-riding bikie financial counselour who offered his services through our local department of justice. He was recommended to us by the Salvation Army.

2) Over here there are basically three options:
a) Informal Debt Consolitdation
b) Formal Debt Agreement
c) Bankruptcy

From what I've been reading here, it seems like the options are fairly similar.

Now out of those, I would really only consider (a) or (c) - B is basically where you perform an 'act of bankruptcy' and reach a formal arrangement to pay a certain percentage of what you owe over a certain amount of time. Here it's administered by a government agency called ITSA - Insolvency and Trustee Service Australia.

The problem with this is that for all practical purposes you're still bankrupt - you still have the 7 year credit problem, along with the 3 year period of actual insolvency. Plus you have to pay money during that time.

So basically it's all the problems of a bankruptcy plus still paying money.

If you choose to enter an informal arrangement with your creditors then you can still have a credit problem, still have unweildy repayments - and they can force you into bankruptcy pretty much anytime they choose.

With bankruptcy you have (at least, over here you do) 3 years of actual insolvency. In Australia, this means that:
  1. You can't leave the country without permission (not hard to get)
  2. You must pay a portion of your salary to ITSA (at $50K per annum gross Salary, it's about $140 a month for the first year, then nothing after that.)
  3. Certain items of property may be sold
  4. Any extra money your might come into gets given to the trustee

But after those three years, you are free of any other obligation to your creditors.

You also have 7 years of bad credit.

On the plus side - no more debt, you get to laugh at the 'pre-approved' credit card offers you'll still get from the companies that you owed money to, and you'll learn how to live without a credit card - remember, you can still get a VISA debit card - which works exactly the same way, except with money you now actually have.

Now as to losing your house - it really depends on how much it's worth and how much trouble it would be for them to take it off you and auction it. I owned plenty of gear, but no property. I lost absolutely nothing, so I can't attest to how a property owner would go, but again my zen-buddist financial counselor (who was right on every single count for both myself and the friends I've since referred him to) said that in many cases it's just too much trouble to take the house. It just depends on your individal case.

So, that's pretty much it. I don't know the laws in the US, but everything I've read here and on other forums seems to indicate that many of the laws are quite close, but only a non-profit and caring counselor can give you truly accurate info. I favour bankruptcy myself - it gave me a new lease on life after decades of crushing debt. I feel like life has gotten infinitely better for me. Fortunately my partner is solvent, so we can use her credit cards when necessary, but it's had virtually no negative impact on my life.

Hmmmm.... this wasn't meant to be a bankruptcy-coming-out-post, but there you go.

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Katarain
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Well, there are a few differences. For example, if I understand insolvency correctly, you're not insolvent after declaring bankruptcy. You can still get credit if companies want to give it to you, you can leave the country, you can win the lottery or receive an inheritance (as long as you didn't know you would be getting it before filing) and keep all the money (either after the discharge or after filing), you only pay a monthly fee if you filed chapter 13, and you only sell non-exempt assets in chapter 7.

Since you came out, so will I. We filed a few months ago. I held out for over a year (almost 2), hoping that I would be able to get extra income and start paying the debts off. But they didn't want to wait, and I got served with papers for a suit for the largest debt--which at the time was over 3 grand above the original debt because of interest, charges, etc. Ours was a result of medical bills and underemployment. I don't feel like a thief at all. But it is a LAST resort sort of option. And I have no doubt that my credit score will be going up.

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erosomniac
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quote:
On the plus side - no more debt, you get to laugh at the 'pre-approved' credit card offers you'll still get from the companies that you owed money to, and you'll learn how to live without a credit card - remember, you can still get a VISA debit card - which works exactly the same way, except with money you now actually have.
Oddly, bankruptcy victims are prime targets for credit card companies.
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Katarain
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Well, it's not so odd when you realize that you can't declare bankruptcy again for many years. (6-10--I'm not sure exactly how long.) They know that if these new customers don't pay their debt, they can take all sorts of action to get the money--bankruptcy simply isn't an option again.
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Kwea
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One of the best arguments against refinancing is that life doesn't always wait for everything to work out.

If you refinance, it opens all that credit up again, and most people end up using it. Sometimes for emergencies, like what happened with Sopwith the first time, sometimes not, but either way the result is the same......they now have more debt AND a higher mortgage amount.\


THAT
is how people lose their houses, more often than not.

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Katarain
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Yeah. It makes no sense to convert unsecured credit to secured credit. No sense at all. The weird thing is, if I had owned a house, that's probably exactly what I would have done. I'm glad I didn't.
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erosomniac
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quote:
Well, it's not so odd when you realize that you can't declare bankruptcy again for many years. (6-10--I'm not sure exactly how long.) They know that if these new customers don't pay their debt, they can take all sorts of action to get the money--bankruptcy simply isn't an option again.
Still odd when you consider that the second an account goes to collections, the bank is losing a truckload of money - hence why most are willing to offer you settlements of as low as 50% of the total debt.
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Kwea
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Katarin, it DOES make sense for some people some of the time. My point is that a lot of people automatically assume this is a good way to go, but unless a lot of things have changed for the better recently it usually isn't.


Say I had been out of work for a long time, and had accrued a lot of bills. I then find a great paying job...but my bills have accumilated to the point that I can't pay all of them, or ever a reasonable portion of them, even with my newfound salary.

If I was reasonably responsible, and had a house with a lot of equity, it MIGHT make sense for me to refinance. Not to the max allowed, but enough to get back on my feet.


But that only works if I am POSITIVE, beyond any doubt, that I can meet all my bills and not continue to accrue new debt. If I continue spending at the same level I will probably lose my house as well as default on the rest of the bills.
If I lose that new job, I am humped, and not in a good way.


Refinancing can be a wonderful tool, but for a lot of people it is not a good option.

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