Where to go from here?

[Entrepreneur612]

I am in desperate need of some advice on what I need to be doing. Any help will be very much appreciated, please don’t hold back. This is a bad situation and I need to do whatever is necessary to get headed in the right direction.

My wife and I have racked up 65k in credit card debt over the last five years. Most of it (40k) went toward covering our expenses and start-up costs when I left my job three years ago and started a business.

Three months ago our first child was born and these added expenses have made it impossible to afford even the minimum payments. Until 90 days ago I had NEVER missed a payment on anything. At first I was trying not to think about my debt problem but now I have come to terms that I must face the problem. However I do not know what my best option is.

-My wife works full-time but now day-care takes over half of her paycheck. She does carry the health insurance for the family which makes it worth her working.

-I recently took a new job with a small startup company as VP and work 60-70 hours a week but my salary at the moment is only 60k. For my area this is decent money and not easy to come by so I do not think I can find a “job” that will pay better.

-With both of our monthly incomes put together we have enough to pay the following with NOTHING left over:

Mortgage, second mortgage, two car loans, insurances, utilities, college loans, day-care, gas and groceries…

-We stopped all unnecessary expenses months ago. No eating out, no entertainment besides Television.

I was considering a Debt Negotiating company but would still have to “find” $1,200 a month to pay them. Since I already work from 7am to 7pm I don’t see how I can make an extra 1,200 a month.

Our car loans will be paid off in 18 months which will give us an extra $600 a month but that’s 18 month away.

Am I destined for BK?

Do I let the CC’s go and save up money to try and negotiate on my own in the future?

I’m flustered… I know it will not be quick or easy but I need to get going in the right direction.

[swirlgirl]

BK should be a last resort. Try:

1. Contact your credit card companies to see if they have a hardship program.

2. Contact your student loan lender and see if you can put the loans in deferment/forebearance.

3. Contact your mortgage companies to see if you can do a mortgage modification. They may also have other foreclosure prevention programs.

4. Can you re-finance or sell one of the cars?

5. I know you will need to find extra cash. So, is there anything lying around the house that you can sell on Ebay or at a garage sell?

I'm sure others will chime in with more suggestions.

[willingtocope]

I agree that BK should be a last resort...but...here's a couple of other thoughts.

1. Before you contact your CCs, sit down and work out a complete budget. Determine how much you would have left AFTER housing, transportation, food. If the number is $0, then BK's your only choice. If the number is greater than $0, divide that up among your CCs. Have a number in mind before you call. If one or more won't play along, then again, BK

's your only choice.

2. The fact that the CC's were used for "business" means you do not have the protection of the FDCPA. OCs and CAs can get as nasty as they like, and there isn't much you can do about it. BK will put a stop to that.

3. With income, chances are you'll be forced into a BK 13...a repayment plan...but, with the protection of the BK court to make your creditors play nice.

So...do the budget...if it doesn't work, find a couple of BK lawyers in your area, and discuss your options.

[swirlgirl]

The fact that the CC's were used for "business" means you do not have the protection of the FDCPA. OCs and CAs can get as nasty as they like, and there isn't much you can do about it. BK will put a stop to that

Maybe the original poster can clarify, but I interpreted this as they used their personal credit cards to purchase items they used for their business. This is completely different than having a credit card issued in the business' name.

If they used their personal credit cards, wouldn't the FDCPA still apply? How would the credit card company know if you bought a printer on your CC and you used it in your home office?

[Robert Nashville/Savannah]

While you don’t specify what you wife is making, I’m guessing that before the child care expenses are taken out, you have a family income pretty close to six figures??? While I know Massachusetts isn’t the cheapest place to live, that’s at least a good platform to work from

Although it would great if you didn’t have them, your car payments don’t sound like a problem so if just your mortgages, utilities, insurances, college loans and day care are eating up the rest of your income, I’m guessing that something is seriously out of whack (between that “expense” and your income) - I’m guessing it’s your house/mortgages; meaning; it sounds to me as if you have a house you might not be able to afford any more.

I would hate to tell you to sell your house and I’m sure neither you or your wife wants to do so but that may be an option you need to seriously consider - even if you can hold on for 18 months until the cars are paid for and you have that money available, that still isn’t much breathing room and frankly, if you are that strapped for cash…you may end up loosing your home whether you want to or not.

Ultimately, problems like this come down to doing one of two things (or a combination)…either increasing your income or reducing your expenses…it doesn’t sound to me as if increasing your income is anything you can do in the short-term and if you are already living as cheaply as you can while meeting your current obligations then it may be time for some radical changes such as selling your home and renting the least-expensive apartment you can find until this is over. If you can make enough changes, and if you can get some “hardship” programs from these CC companies, you may yet find a better way through this than bankruptcy.

I absolutely agree that you need to do a real budget (not one for the “perfect month”) but one that really takes everything into consideration. I’m afraid, though, that even if Bankruptcy proves to be necessary, it won’t ultimately solve your problem…money will have to be found to make the payments (that you’ll likely be ordered to make since you likely won’t get a chapter 7) and living that close to the “edge” financially is like a magnet for additional bad financial things to come your way.

I do want to tell you that these problems WILL pass…things may be hard for a while but even $65K in CC debt isn’t the end of the world.

I do think that if these CC were issued as personal CCs, the debts are likely considered personal rather than business meaning the FDCPA will apply.

[willingtocope]

I do think that if these CC were issued as personal CCs, the debts are likely considered personal rather than business meaning the FDCPA will apply.

FDCPA 803 (5)

(5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

This one actually bit me in the behind. Personal credit cards used for anything that the CC company can construe as "business" related are not covered by the FDCPA. (There's an FTC opinion letter about that somewhere also).

[Robert Nashville/Savannah]

FDCPA 803 (5)

(5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

This one actually bit me in the behind. Personal credit cards used for anything that the CC company can construe as "business" related are not covered by the FDCPA. (There's an FTC opinion letter about that somewhere also).

I agree.

I do wonder, however, how would the CC cmpaies know for certain if an item was purchased for "business" or "personal" use?

I suppose if there was a sales tax exemption granted and that was apparent to the CC company would be one way but other than a significant investigation, I don't see how they would know the difference.

[AISLE4]

I used personal cards for business expenses and those debts are being treated as regular consumer debt by everyone who has ever contacted me about them.

[will35010]

I agree.

I do wonder, however, how would the CC cmpaies know for certain if an item was purchased for "business" or "personal" use?

I suppose if there was a sales tax exemption granted and that was apparent to the CC company would be one way but other than a significant investigation, I don't see how they would know the difference.

I don't see how they would know either.

[willingtocope]

They can check who the vendors were.....you buy 30 computers from Dell, 60 gallons of paint from Home Depot, boxes of paper from Staples, etc. Depends on who and how much they want to check.

[Robert Nashville/Savannah]

I agree that they can do a lot of checking if they wish to...although the OP doesn't say specifically what the funds were used for, I don't get the impression that we are talking about buying such items; especially in the quantities you mention (which would raise a red flag if they were looking for one).

In any case, I suspect it's unlikely the issue would even be raised by the OC unless they are already suspicious and I would suggest that since the OP used his personal credit cards for which he is personally liable, I certainly would at least take the position that it's personal debt and let a judge decide the issue should it get that far.

[Entrepreneur612]

Thank you for all your opinions. To clarify, my wife only takes home $1,200 a month after taxes and now $690 of that is going towards daycare and the most of the rest is now paying for formula, dipers and such.

After taxes I only take home $3,000 currently. My Mortgage is $1,200, our car paymentsis $700, Electric is $190 usually, car insurances are $195, cable/intrenet/phone is $130, trash pickup is $25, college loans are $400.

Then there is still food, gas and such. So what I am seeing is that I'm headed for BK. The only good thing is I should be making $500 a month more within a year and the cars will be paid off shortly after that.

I'm 27. Is BK going to ruin me for the rest of my life?

If I file BK without my wife can she still build her credit up? Everything has always been in just my name. Or will it affect both of us?

I'm really scared about this but I have to face it now.

Thanks!

[Robert Nashville/Savannah]

Something doesn’t add up here…on a $60K annual income you ought to be bringing home more than $3K a month unless you’ve got some significant voluntary deductions coming out for something (or your state has one heck of a tax burden).

In any case, your home is about 33% of your take home pay and while that’s substantial, it’s not impossible to cover…frankly, I don’t see why you aren’t making it with some left over to at least enter into some modest payments with these people.

I’m not trying to beat you up here or run your life…but I can say I’ve lived on similar numbers before and got by…I know it can be done.

In any case, bankruptcy is not the end of the world but you need to be mindful of what brought you to this place; if you aren’t, you’ll likely be back here before long.

I wish you well and please keep us informed of what you do/how things go for you.

[JustaTexan]

Wow do you know what I could do with 65k a year?

When you filled out your W-4, what was your witholding number? I know that is kind of personal, but those numbers you provided are not adding up. Either you have taken out a 401k loan that is eating up your paycheck, or are witholding WAY too much from your paycheck for taxes, or something is just not right.

Is your credit okay right now? Could you refinance your vehicles? What are your current rates? If you refinance that usually gives you about a month without a vehicle payment, that could be $700 extra dollards right there.

Or, you could trade your vehicles in for something cheaper. I've had to do it before-no shame. Back in 2006, I had to trade in my 05 Explorer because the payments were too much for me and the gas was killing my budget. I got me an 04 Malibu for half of the car payment and ¼ the gas. I also got quite a savings on car insurance.

Also, I would advise your shop around for car insurance as well. $195 is too much for what I am assuming is full coverage for two adults, unless you have a horrible driving record. I pay $105 for full coverage for mine and my ex husband's cars, both full coverage with decent limits.

Shop around on everthing that you have. Trust me, it pays off!

Good luck!

[JustaTexan]

Oh and as Robert said-please keep us informed of how things turn out. So many people come here and post and everybody gives advice, sometimes heartfelt and we never hear back. I like to know how things are going for some of these people.

[Entrepreneur612]

Thanks, and I will try and stop back to update. I've been reading as much information as possible on this site. It really is helpful.

Yes I did forget to add that I have a 401K deduction. Its 60k a year I make not 65k as someone stated and Its just over $750 a week take home.

I also did not list my quarterly water bill, our doctor co-pays for the baby, $25 a month to pay off our bill with the hospital for child birth and my $1500 a year I have had to spend on heating oil.

It looks to me like Chapter 13 BK might be my best bet. I'm just really scared that its going to make the rest of my financial life difficult but its my own fault for making some mistakes. I am trying to find the time to meet with a debt consultant to discuss BK and get the consultations out of the way.

Since my vehicles are worth more than I owe will they have me refinance them? It wont save much but I guess every little will count.

How long does BK typically last?

My last concern is that they will make me cut my cable package! lol

Thanks

[JustaTexan]

Thanks, and I will try and stop back to update. I've been reading as much information as possible on this site. It really is helpful.

Yes I did forget to add that I have a 401K deduction. Its 60k a year I make not 65k as someone stated and Its just over $750 a week take home.

I also did not list my quarterly water bill, our doctor co-pays for the baby, $25 a month to pay off our bill with the hospital for child birth and my $1500 a year I have had to spend on heating oil.

It looks to me like Chapter 13 BK might be my best bet. I'm just really scared that its going to make the rest of my financial life difficult but its my own fault for making some mistakes. I am trying to find the time to meet with a debt consultant to discuss BK and get the consultations out of the way.

Since my vehicles are worth more than I owe will they have me refinance them? It wont save much but I guess every little will count.

How long does BK typically last?

My last concern is that they will make me cut my cable package! lol

Thanks

That was me with the 65k slip up! My bad!

If you don't mind me asking what are your vehicles and how much do you owe? What is your current rate? You can refi. if you owe more that it's worth just as long as it's not ever a certain percentage, depending on who your refi with.

I know nothing at all about bankruptcy, but I don't even think you have to do it. I did a quick add up of your bills in my head with your incomes and seriously-I think you can make it, if you cut back. You would have to be willing to give up some things though. And the cable package might just have to be one of those things.

If you are going to have your cars paid off within a year, and be making more $500 more a month within a year, I see no reason why bankruptcy is an option. Think about it-that's a long time to pay for mistakes, when some serious budgeting could tremendously help this situation. I think you can work it out. I would start right now looking up the value of your vehicles and getting new insurance quotes. Try Travelers, Geico, Statefarm, etc.

Good luck!

[BTO429]

Call your bank on your vehicles and see if you can negotiate a lower interest rate with them.

Do the same with the mortgage company, ya never know.

I did this with my truck and they lowered the interest from 19% to only 9%.

my credit was bad when I got my truck, but it is now over 600 so it got me a better rate, I even got them to take off the repo on my cr because I paid what I owed and still have the truck.

IO would send the cc company something every month even if its 10 dollars.

Call the cc company and see if they can give you some help.

Or try refinancing the cars and the cc's into a consolidation loan, include the education loans also. It wont hurt to try at this point.

Who are your education loans with, Sallie Mae is pretty easy to work with if you call them, so is the U. S. Dpt of education. Most student loans can be put into forbearance for a certain time.