I lost my job several years ago and my income was dramatically reduced. Since then I have: consolidated loans through a second mortgage; refinanced the house almost equal to it's value; and enrolled in a credit counseling service to reduce the credit card interest. I was paying down the credit cards, but my mortgage started falling behind because the adjustable rate caused my payments to exceed my earnings. If I file for bankruptcy it will have to be Chapter 13 which won't reduce my payments enough for me to cover my other expenses. Is there an alternative?

First why will it have to be a chapter 13 and not a chapter 7. First how do you know it won't reduce enough. Since it lowers the non secured debts down to almost nothing if you don't have the income for it. And of course it does put you on tight budget that is is something you have to learn to live on.

I would say one error was consolidating loans under a home mortgage. Since that merely puts the house at greater risk.

But even under a chapter 7 it is possible at times to keep your house.

Thank you for your reply. Well, hindsight is always 20/20. The damage is done. I wish that I had found this website 5 years ago. The reason for filing chapter 13 and not 7 is that my income is $30k more than the states median income, thus I must reorganize under chapter 13. In some instances the princple can be negotiated down, but my debt ratio isn't high enough to do this. The credit card and unsecured loan debt is approximately $30k vs $83k in income. I have over $250k in total debt including $41k in college loans(now deferred until Oct). If I had filed last year the scenerio would have been much different because my income was less than $40k. I have cut expenses to the bone, but I am not reimbursed for my business expenses($700/mo) and have had an increase in medical expense($170/mo). The adjustable mortgage was increased by $300/mo. Right now my debts and living expense exceed my income by approximatly $800/mo. I hope this gives you a better snapshot of the situation.

Have you went back to adjust the chapter 13 payments with your additional payouts ? You are allowed when payments change to do this.

Also you can petition a court to change a 13 to a 7. if you meet the guidelines now.

I'm currently reviewing my situation and chapter 13 with my attorney. His preliminary review looked like there will be relief on the interest and not the principle. Some of my other obligations such as my mortgage, vehicles, student loan, utilities, travel expense, etc are eating up my working capital. I'm going into this a little more cautiously than when I made the previous decisions. My main concern is the 10 year blemish on my credit report. Then I need to weigh the odds of proceeding vs any other alternatives if there are any. I'm 58 and healthy now so if the good Lord is willing I can work another ten plus years. I am exploring some options with contacts in my field of employment that could change things dramatically for the better, but they are at least six months out. The one position would allow me to work full time and scale down to part time when I want to retire. Right now I want to deal with the reality of now and control the crash.

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Originally Posted by consult01

I lost my job several years ago and my income was dramatically reduced. Since then I have: consolidated loans through a second mortgage; refinanced the house almost equal to it's value; and enrolled in a credit counseling service to reduce the credit card interest. I was paying down the credit cards, but my mortgage started falling behind because the adjustable rate caused my payments to exceed my earnings. If I file for bankruptcy it will have to be Chapter 13 which won't reduce my payments enough for me to cover my other expenses. Is there an alternative?

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Since bankruptcy laws have changed in very recent years, consult an attorney for alternatives. Also, check with a mortgage broker to see if you can refi to a fixed mortgage rate. Tell the broker everything and tell him to break down everything to you in terms of options. You don't want to lose your home if you don't have to. Last, sometimes, credit consolidating companies don't do an excellent job of negotiating for you. Call your creditors yourself and see if you can get a settlement from them. Sometimes they will write off up o 70% of the balance. It never hurts to ask. And don't ask the front-line customer service rep. because they are only taught to say "no."

Hope this helps

Thanks for the tip. I'm consulting with an attorney now. I tried to refinance, but I'm not current on the payments(+60 days). What level of contact do you need to negotiate with the credit card companies? Do they have to be paid immediately after negotiating a price or can you negotiate terms, also? Can you negotiate with banks that carry unsecured loans and how? Can you negotiate on a student loan that has been consolidated(Citibank)?

Every credit card company has a credit accounts department (forgive me on forgetting the official name - I think that is the name of it. I have jet lagg right now). It is the department that is after the customer service department and before the collection department. The individuals in this department negotiate payoff terms. Continually, but politely ask to speak to a supervisor. They will put one on the phone with you. Always ask their name and associate ID # so you are able to reference them in future conversations in the event information isn't communicated to the next person. (Also, write date and time of each conversation and a brief of what the conversation was about and resolution) This will also be documentation that you will need to keep until you pay off the debt. So make a file for each company. To answer your other questions, you can negotiate ANYTHING. The reason so many people fail to get what they want is because they don't ask. And don't accept the first "no." Remember, financial institutions are designed to make money. I always use 4 as the magic number for "no." Call on different days if you must and continue to ask for the supervisor because they are the only persons that have the ability to give you what you want. And you don't want a shift supervisor, you want their manager. The shift supervisor has limited authority. Don't give up. You know what you need as the result. Also, always go in with a solution to your problem. Meaning, be able to offer a payoff amount and payment schedule. They are more receptive when you tell them what you have to offer and give them dates of receipt. They will sometimes counteroffer. If you get a 4th "no" to your proposal and it goes to collections, then you can negotiate there. Or tell the collection company that you will deal with the creditor directly and to cease and decist from contacting you, which they will have to do at that point.

Let me know if this helps.

Thanks again. Contacting the credit companies may be premature at this point. The only account that is delinquent now is my mortgage(+60 days). Unfortunately they have stopped calling so they may be starting foreclosure proceedings. I will contact them and try to set up arrangements for catching up. The only way to do this is to let the credit cards and unsecured loans become delinquent. The problem is that there isn't enough to go around.

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Originally Posted by consult01

Thanks again. Contacting the credit companies may be premature at this point. The only account that is delinquent now is my mortgage(+60 days). Unfortunately they have stopped calling so they may be starting foreclosure procedings. I will contact them and try to set up arrangements for catching up. The only way to do this is to let the credit cards and unsecured loans become delinquent. The problem is that there isn't enough to go around.

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Do you have someone that you trust who can do a quit claim deed on your mortgage to avoid foreclosure? Then when your finances turn around repurchase the property from the individual. Talk to the mortgage company or bank and ask for options to avoid foreclosure.

I arranged a payment plan that would allow me to catch up on the payments in 8 months. This will cause the credit cards and unsecured loans to fall behind so that I may have to negotiate a settlement in June or July. I'm still discussing the option of filing chapter 13 with my attorney.