 Deep in debt again 6 years after bankruptcy
|  Dear
Bankruptcy Adviser,
We filed for Chapter 7 bankruptcy in March of 2001, and it was discharged.
It only took six years to get back in, even worse, financial trouble.
I need help. I need a plan. I have a first mortgage at 8.5 percent
for 30-year fixed, and a second mortgage at 11.5 percent, 30-year
fixed. The total is $139,000 owed on a home appraised at $121,000.
I have accumulated about $34,000 in credit card debt. I have a $21,000
401(k) loan. I am currently financing four cars, two
of which my kids have failed to pay, so we are attempting to sell
them for payoff only. My auto insurance runs about $500 a month.
We make approximately $46,000 yearly total income. I have no cash
reserves. I don't know what to do.
-- Vernon
 Dear
Vernon,
Even someone in your difficult position has a way out -- and
the best time to start is right now.
Vernon, you're
living the American nightmare, and you're not the only one. Still, you gross $3,800
monthly and your mortgage is about $1,200. That's not unreasonable. It means that
you have the capability to financially bring yourself back to life. All you have
to do is recognize the following fact: The best way to take care of your kids
is to lead by example.
You're financing two cars for
your kids, who can't pay. You're also paying the auto insurance and I'll bet that
a lot of your credit card debt was created by purchasing things for the benefit
of your kids. Your mission is to help your children and that's admirable. It's
a mission that requires sacrifice. But if you sacrifice yourself completely, no
one will be there to help your children. That's what you are doing by overextending
your financial position. You are sacrificing yourself in a way that makes it impossible
for you to fulfill your mission. Here's how I read your situation.
First, your house is safe. Even if creditors sue you they will not have much recourse
against any equity in your property. The reason is because you owe more than the
house is worth, so it is unlikely any creditor will place a lien on your house.
They can, however, go after your wages. Their ability to garnish
your wages depends on the state in which you live. I recommend that you call a
bankruptcy attorney just to ask that one question: "Can my wages be garnished
or bank account be levied in our state of (___)?" Second,
let the two cars and additional car insurance go. Sell them for what you can and
get creative about helping your kids to get places. If possible, perhaps it's
time to learn how to take public transportation. It's better than having your
wages garnished. Third, you need to know if you can sell the
property. You owe more than it is worth, but the bank may accept a short
sale or deed
in lieu of foreclosure. If you tell them proactively that you cannot afford
the property and that the bank can have it back, you will be saving them money
and you'll protect your credit as best as possible. However,
I believe you can afford the property; but, you cannot afford the lifestyle you
are trying to live. You could eliminate three major expenses: the two car payments
and extra car insurance.
Finally, if you live in a state in which your wages
can be garnished, you ought to check to see what your payment would
be in a Chapter 13 reorganization bankruptcy. You will need to pay
off a percentage of the credit card balances and the automobile
deficiencies (if any exist after they are repossessed or sold).
However, you might only need a three-year plan.
You can also contact a local credit counseling agency
to see whether it has an affordable monthly payment. Make sure that
if you go this route that all creditors are included in the credit
counseling payment program. It will not be possible to pay some
creditors through the credit counseling plan and others on your
own.
Vernon, I know these are hard
choices. However, your mission of helping out your children and your family is
a good one. If you make some good decisions and are financially proactive, you
can fulfill your mission in a long-term way.
Justin Harelik is a practicing attorney in Los
Angeles. To ask a question of the Bankruptcy Adviser, go to the
"Ask the Experts"
page and select "bankruptcy" as the topic.
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