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September 29, 2008

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It sounds like you have to sell the house if you can get out what you paid for it. Depending on where you're located, this may not be realistic.

Contact your bank again, and explain in very clear terms that you want to continue paying your mortgage, but that you can't afford it under the current terms. Tell them they have two options:

1) Don't help - you'll run out of money, be forced to declare bankruptcy, and they'll have one more house to sell.
2) Help by providing a refinance you can afford - they avoid repossessing yet another house they can't sell, and keep cash flow coming from your mortgage.

They'd have to be nuts not to help you.

What do you mean by 95-100% utilization? I take that to mean your credit cards are maxed out, and you're paying basically the minimums. Is this true?

Without more information, I would first take a look at a short sale of the home, defined here:

http://en.wikipedia.org/wiki/Short_sale_(real_estate)

You didn't give many specifics about your income or your house payment. If it is more than 25% of your gross income, I would try to sell or refinance. Explain your situation to your mortgage company and they may be willing to help get you into a fixed rate.

Otherwise, just try to reduce your expenses as much as you can. Get rid of cable, cell phone, stop eating out, don't buy as many new clothes, toys, etc. Your kids may be old enough to help with the cooking.

Don't panic and don't file for bankrupcy unless its your only choice.

I don't understand the statement "can't get out of it because of $25,000 debt and because of wages." Does that mean he is upside down on the mortgage balance?

I think it means he has $25K in credit card debt, and he doesn't have enough money to pay it all.

One thing to think about, as I understand, you usually can't lose your primary residence in bankruptcy, as long as you can continue to make the payments. So if this is true, and you'll end up declaring BK anyway, I wouldn't sell your house.

As always, I am not a lawyer, so speak with your BK lawyer over the details.

But really, the best thing is just to lower your expenditures. If you're a single father raising your children, do you get child support? Without knowing the details of your situation, this might help you out some.

Agree with above comment. See if bank will renegotiate terms of your mortgage. Current environment for this is tough and you may end up in bankruptcy.

I know you should never borrow against a 401K plan, but this situation seems to warrant an exception. This may not solve the problem, but may just keep you afloat a little longer. Keep paying the mortgage even if it is interest only, and like the other posts, see if your current lender will renegotiate a better loan for you.
Watch all your expenditures, especially the small day-to-day ones. They tend to add up much more quickly than you would expect.
Good luck and hang in there.

I agree with the "short sale" scenario. You can also miss a payment or two if you ask for forebearance. If you're paying interest only, you probably couldn't afford the house when you had the better paying job. Sell the things in your house that you don't need, or get a part time job if you can.

Having said that, short sales and forebearance will ding your credit scores as severely as not making your credit card payments. You can choose Chapter 7, but more likely if you have income, the court may decide to put you in a repayment plan under Chapter 13. Bankruptcy will drop your score to below 475 and you may end up still having to pay the credit cards with the risk of not being able to keep up with your mortgage.

You might get lucky with selling your house for what you owe on it now, but your primary concern should be feeding your kids, not worrying about a temporary ding in your credit score. Bankruptcy is not the end-all of credit. If you can get Chapter 7 approval, you get to keep your home, but the bad mark will be on your credit report for 10 years. Start fresh and pay in cash for the next 1-2 years, get a secured credit card, pay everything else on time, don't apply for new credit for at least 3 years, and your score will only go up. The credit card accounts that were in bankruptcy will come off after 7 years, and you may still be able to buy a modest house at that time when your score is above 620.

I declared Chapter 7 bankruptcy in 2001, and never looked back. My score is now above 740. Use whatever tools are available to help your family, even if it means hurting your pride a little.

It sounds like you owe too much on your house for your new income. Sell it ASAP, if you are in a poor real estate market try holding on until it upturns if you can continue to cash flow it for now, but if you have to try a short sell. Cut all other expenses to the bone. BK should be the very last resort.

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You said that you are divorced and raising your kids on your own. Does your ex pay child support? If not, and there is a possibility of getting some child support, meaning that ex can be found and has some income, that would help.

I'd go into emergency mode and try a few things before declaring bankruptcy:
1. get a boarder if you have room.
2. Send the kids to live with their mom until you get back on track, or get child support.
3. If you have a car, sell it and take public transportation.
4. sell anything that has value and isn't something you really need.
5. get rid of all nonessentials- phone, cable, etc. and just focus on what you really need to live: food and shelter.
6. ask relatives and friends for help.

Dave Ramsey will tell him:

Go on a diet of beans and rice, rice and beans
Get a second/third job delivering pizzas

How old are the kids? Any chance one of them could get a kid's job, like paperboy or something?

And I agree on getting child support from your ex, assuming you don't already.

Try not to spend more than you pay off each month in credit cards. Even if you pay only one dollar more than you put on it, you are making progress.

One word: MOVE

1) With that good credit score you should be able to transfer credit card balances to lower or 0% interest cards. At the very least call your card company and ask them to lower the interest rate (and threaten to move the balance if they don't).

2) Try to find a way to make up some of that lost income. Overtime? Second job? Or cut expenses to the bone.

3) Bankruptcy is expensive ($1500 minimum usually in lawyer and filing fees) plus it will ruin your credit for about a decade. Try to avoid it at all costs. Keep looking for a better job, enlist help from the kids, sell the car, whatever you have to do.

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