Is it time for bankruptcy?

Submitted by Obv_thrownaway111 t3_125fixb in personalfinance

Texas.

Income is 115k a year. Son has medical issues. One income for a while. Wife just started working more lately but it may be too late. She had to take off to watch our son. Since fall started realizing trouble and took some credit cards out under name. Today it has snowballed to about 80k. Mortgage is under me, but we’re on the deed together. Monthly payments stretching thin and I’m now looking for more cards. My wife’s credit is cleared and I intend to keep it that way.

Would it be the correct thing to do for me to declare bankruptcy and take more of a hit and preserve her credit? I would not rather have her score suffer. As of now just behind on the mortgage - march bill. But soon April will be late as well. If I go the bankruptcy route, I can easily pay for mortgage and bills less the credit cards.

Monthly expenses.

Take home after taxes - 6400

Mortgage - 3800

Listing all minimum payments. Only reason why I have so many, i signed up for a lot of them around the same time when my credit score was still in the 800s. They all come with high balances and are maxed tf out.

CC1 - 168

CC2 - 300

CC3 - 170

CC4 - 200

CC5 - 48 (no interest until Jan 2024)

CC6 - 500

CC7 - 400

Unsecured loan - 785

Utilities - 400ish

HOA (3 months at a time) - 300

Car insurance- 120 No car payment. Fully paid off.

Suggestions?

Edit: Texas home exemption is unlimited along with up to 100k in personal assets, Car: 1 per licensed driver in the house, 401k Retirement accounts.

Edit: Wife makes around $55/hr. She’s starting up around 30 hours a week soon.

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NBAFan71 t1_je4cspl wrote

That mortgage is way too high for that income level. Assuming you have had that for more than a year you are probably financing like 600-650k depending on rate and escrow and down payment. That suggests you financed 5-6x your annual salary in house.

It might not sound like fun but downsizing to a smaller house is probably a strong option especially if you have some equity in it that you can use to pay bills.

You also own the car free and clear. You can get a loan on that at a much lower rate and pay off the cc debt. That should get you some more affordable payments.

Bankruptcy at your income level isn’t going to get you much relief. Just a 5 year repayment plan that is still pretty onerous. You aren’t going to just wipe out that debt for free.

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Obv_thrownaway111 OP t1_je8bi5b wrote

I originally had about 100k in equity but once I foresaw issues, did a equity refinance and removed my wife from the mortgage. At that time, with whatever I had in debt, it was affordable. Things just piled after unforeseen expenses.

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innkeeper_77 t1_je606yt wrote

We have a smaller mortgage by hundreds of dollars a month, and larger income of over 10k/mo total- And it’s STILL way too tight and was probably a bad idea.

How many years are left on it? If that’s a relatively new 30 year, yes, people are right and you need to downsize.

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firefly20200 t1_je4bsfo wrote

Your mortgage is too much. You're at over 40% DTI just with the mortgage alone (when you factor in HOA you're at 40.7%). 61% of your take home is going to the mortgage! Your wife probably needs to make at least $30k/year to get into a more healthy range for just the mortgage (32-34% DTI), add in utilities and other stuff and she probably needs to be more like $50k/year.

The only reason I'm really focused on that is because things will be harder after bankruptcy. You won't be able to turn to credit or loans to bridge gaps. If you don't fix the problem, you could very well find yourself right back into the same situation you are now, except without the ability to stretch things out with credit and try to carry as long as possible.

You need to evaluate your son and his medical issues. What costs might still be coming (direct medical bills, items not covered by insurance needed around the house to help him, time off to care for him, etc) and come up with a really good estimate (as best as you can, no one can see the future) to understand what the next months and year or two might have in store for you.

You need to evaluate your wife's earning potential in a couple situations; partial caring for your son, fully recovered and back to work full time, etc. Then you need to come up with a budget and see how your situation could fit.

Look at this whole picture. Look at a couple road maps out of this, even if you pull the bankruptcy lever. You don't want to fall into a trap where 18 months later and you're back in a hole.

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Obv_thrownaway111 OP t1_je8bnzy wrote

She’s at 55/hr. She doesn’t have to pay for benefits. I cover that in my paycheck. Only tax withholding, etc.

After this week, we should see her first full 2 week check so it should be easier to navigate.

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Knipfty t1_je4getw wrote

What if you just stopped paying the CCs and pile up cash? Your credit would be wrecked either way but now you can negotiate with the CC companies.

You call them up one by one as you have some cash and offer them, say 50% or 25%, and if they refuse, tell them you are moving on to the next CC. You'll get back to them when you have some cash again. Rinse and repeat.

It won't be easy, and will take time. But it could work.

BTW, you have too much house unless your wife and you double your income.

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GeorgeRetire t1_je4ywvi wrote

>Would it be the correct thing to do for me to declare bankruptcy

The correct thing is to get a second job and pay your debts.

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>Mortgage - 3800

Consider selling and living in a place you can afford.

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nip9 t1_je41est wrote

This is all dependent on your state whether or not you can file alone or must file jointly(community property states normally force joint filing). Your state laws would also dictate how much home equity is exempt; some states have unlimited homestead protections while in others creditors can go after all but 15-25k of your homes value.

With 80k of debt you should get a consultation with a local lawyer who can tell you the specifics for your state.

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Reddituser4866 t1_je42sya wrote

Yep, this is local lawyer not Reddit territory.

One little difference or minor law change in your local Jurisdiction can be the difference between say you just wrecking your credit or you losing your house. Best to talk to a professional.

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Obv_thrownaway111 OP t1_je41mmt wrote

Texas.

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nip9 t1_je4pgzo wrote

Texas is a community property state. So all debts incurred during the marriage belong to both spouses. You both would have to file together.

Upside is Texas has some of the best protections from creditors. As you noted your homestead exemption is unlimited. You can each exempt your vehicles and combined can protect up to 100k in crs and other assets. Your income cannot be garnished for consumer/medical debts.

So even absent filing for bankruptcy the only thing at risk would be large amounts of money sitting in a bank account that could be levied after a creditor would sue you and win a judgement against you.

You do need to really prioritize your budget. You should never be paying a cent toward credit cards or unsecured loans before ensuring your mortgage is fully paid.

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Scared_Entrance_8180 t1_je7o4dh wrote

How much do you have in your 401k?

At this point I would take out the money out of my 401k and pay off the credit cards or pay the mortgage and some credit cards.

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Obv_thrownaway111 OP t1_je7o7ja wrote

It is more than enough to pay off all credit cards

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Scared_Entrance_8180 t1_je7ojlu wrote

I would take it out tbh and pay off the credit cards.

The credit cards are probably eating most of your income at this point than your actual mortgage. Pay the month that you're behind in mortgage and pay off your credit cards.

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I am no financial advisor but at least that's what I would do.

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grandoldtimes t1_je8aqym wrote

You are likely over the median income for Texas so you would be in a chapter 13 case with payments of 5 years, the nice thing is your plan payment would likely be significantly lower than all your debt servicing.

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Obv_thrownaway111 OP t1_je8bbrw wrote

So I guess don’t go with some debt consolidation company. I saw their fees 15-25% of whatever is paid off after the program is over. Ends up being almost the same amount… I got quoted for $1600/mo for 48 mo then fees at the end.

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grandoldtimes t1_je8ceq5 wrote

Oh hell no. I would find a good bankruptcy attorney and have a consultation - and they usually are not the ones you see advertised on TV. You can also look thru the Form 22c-1 and 22c-2 to get an idea of what you should expect, chapter 13 is based similar to the Internal Revenue Manual collection standards. You can read thru that as well.

I don't know much about Texas, another comment said community property state which does mean you likely will need to file a joint case. Start keeping receipts for things like medical expenses and transportation. I also don't know if Texas circuit allows the 401k deduction to be excluded on the means test, that is would impact the Line 45 number. In this situation, owning your car outright actually eliminates a form 22c deduction, but you may be able to claim "old car expenses" borrowing from the IRM. The means test is a very mechanical test, sometimes not based in reality. Somethings have national standards regardless of expenses (food, clothing, personal care, entertainment, misc) and some local standards (utilities, vehicle operating costs).

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selfmadebus t1_je47gkh wrote

My understanding bankruptcy is still a federal process, not local or state bearing. Especially when you have to go to a “federal” court to finalize it. Granted local attorneys do it. 99% sure you’re going to have to file jointly unless you’re filing you’re taxes differently.

Would definitely talk to a pro! And stop looking for credit cards, it’s only going to bury you more.

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