House in foreclosure, but in review for rate modification. Spouse served with lawsuit from creditor very recently, spouse laid off from employer several years ago and unemployment income is finished. I'm employed for only 10 months after being unemployed for almost two years. We have 40-60k in unsecured debt, with a third in collections but all delinquent and charged off. I gross 33k annually for three dependents(includes spouse). State garnishing my wages currently over 2010 tax adjustment. Credit ruined, no savings etc.
our loan modification is being handled by a third party that has postponed the sale date several times and our current file status is in underwriting. I'd rather request a refund if a decision is made instead to file a BK, specifically if I still have a chance to save my house. All responses are greatly appreciated.
Thank you for providing so much detail of your situation. You will want to consult with an experienced bankruptcy practitioner without delay. The personal full case review you can arrange, usually at no-cost/no-obligation, will much better meet your needs than what the good-hearted bankruptcy attorneys can offer. One statement in your question that is most significant in the "should we file" analysis is the current garnishment of your modest income. Nothing other than full payment or bankruptcy can stop a garnishment, and even when the tax garnishment is completed, the judgment creditors will fall in line and continue to disrupt your income. If you do not know experienced bankruptcy counsel, use the attorney-finder at www.nacba.org. I am a longtime and proud member of NACBA, and trust my colleagues to protect your rights.
Best wishes for a favorable outcome, and please remember to select a best answer.
Malcolm Wallace RuthvenBankruptcy AttorneySan Rafael, CA ·
You didn't say whether both of you are signed onto your debts. If so, I don't see a good reason to not file jointly. I recommend that you consult with a qualified bankruptcy attorney in your area ASAP.
As the point of bankruptcy is to give debtors a "fresh start", and given the situation you describe above, bankruptcy might be a viable option for you. The key to you decision will be what you want to happen to the house (and any other assets), In my experience, home loan modification rarely (if ever) work, so I wouldn't count on the bank doing anything to help your mortgage situation. It is likely other creditors will be lining up to get court judgments against you in the near future, and continue garnishing your wages. A bankruptcy will discharge and stop garnishments on unsecured debt (with a few exceptions, one of which includes taxes.)
First and foremost, kudos for seeking out information about bankruptcy. It is an important first step. Based on your facts, I strongly recommend that you should speak with an attorney - or at a minimum find pro bono counsel through a local bar association. That being said, filing for bankruptcy may be your best option. However, which chapter you qualify for (7, 13, or possibly an 11) can only be determined based on a review of all of your circumstances.
Consumers may file under three bankruptcy chapters 7 (liquidation), 13 (wage earner plan) or 11 (reorganization; this is a default chapter if your overall debt does not meet the statutory maximums of chapter 13). Each chapter has prerequisites, certain advantages and disadvantages. For example, in chapter 7, most debt is wiped out - but you may not keep you home. In chapters 13 and 11, you may keep your car and other assets so long as you can repay your secured creditors (ie the car lender mortgage co etc) and some amount to your unsecured creditors (ie credit card companies).
Under the bankruptcy code, most individuals file a chapter 13, as qualifying for a chapter 7 has become more rigorous. In some situations, individuals must file for chapter 11 because their debt is too high to "stay" in chapter 13.
Assuming you wish to go forward with filing for bankruptcy, I strongly suggest planning your strategy. Some questions to consider are below. This list is not all inclusive, but should help get you started on planning your short term and long term strategies. (1) Do you want to keep your home? Is renting an apartment or living with relatives for an interim period an option? You may consider renting before filing for bankruptcy since many landlords may not consider you a good credit risk. (2) if your credit card accounts were closed, could you still purchase day to day living expenses (food, gas etc)? Once you file for bankruptcy, getting new credit on decent terms will be difficult. (3) How are your budgeting and other money handling skills? If you have never created a budget or need a refresher, seek assistance now. (As an aside, I didn't create my first budget or learn how to balance my checkbook until I graduated from law school.) Ask your librarian for books and look online for free classes. The key to using bankruptcy to your best advantage is also learning skills to help yourself manage your resources going forward. And, depending on what chapter your qualify for, a budget will become very important. (4) Are you mentally prepared to repay some amount to creditors upon filing a bankruptcy petition? For example, chapter 13 requires a plan of "reorganization" to be filed with the petition and for payments towards that plan to be paid to the chapter 13 trustee(typically) the following month. For some, this can be a huge hurdle. And, not following through with a chapter 13 plan (if that is the chapter you qualify for) has huge negative repercussions. (5) What are you plans once you file? And, after you file? As you mentioned your credit is not in good shape but that doesn't mean you do not have choices. While your current circumstances are difficult, they will not remain this way forever.
There are more questions to consider, but these will get you started. I attached a link to the US Bankruptcy Court for the District of AZ's website which provides a straight forward guide and answers basic questions. I realize your live in CA, but the site is well done and will help you educate yourself on the process. Please note, this site is not a substitute for legal advice and I strongly urge you too seek professional advice.
Best of luck
Please be aware that California is a community property state, therefore you and your spouse may be liable for the debts of the other. So, even if only one of you files, the liability may then fall on the other. You might want to consider joint filing of your bankruptcy. Please speak with an attorney.
