Be Intentional About Life

Older Couple wants to file Chapter 7 and Be Done. Need Advice.

I have recently taken on a new client, and I plan to begin this Wednesday with them.

They came to me in despair wanting to give up file ch 7 and move into a small apartment. I told them it's good to live within their means, but bk isn't always the first option. I suggested that we break each piece down and deal with each item bit by bit. So I want to get opinions before I help create a plan with them.

Here are the particulars...

Income is $3300 partial pension and S.S. They told me the husband was making $120,000 per year up until 11 months ago. I want to focus on that some.

He said he has been in this business for 22 years, but it surprises me that they have little set aside, but nonetheless.

He has $13,000 in Disney Stock, from when he work for Disney along time ago, but little other assets.

The Home has a First of $1335 and a second he told me about but didn't list on the budget sheet. He is current on the first not the second.

He has a 2 lines of credit from BOA and a couple of credit cards that total $57,000

And a Car Lease that has 28 months of payments left @ $295.

Obviously they can't afford the home at current income with the first and second. He has applied for a modification, but I feel short sale attempt may be in order.

Should they just stop paying on everything? Should they stop paying on the home because they can't afford it, try to short sell it, and pay the other debt?

Can they stop paying on the lines of credit with out immediate recourse? They have no collateral.

They have a paid for car, so they could let the lease go back also. I asked him to get a balance on the lease to see what options they have there.

Please share your thoughts. What would you suggest. I know their are no hard and fast rules.

I am looking forward to your thoughts. This couple want's to make sure they have done everything they can, but at the same time I don't want to waste their precious time.

Thanks Tony

Tags: Bankruptcy, Debt, Retirement

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Permalink Reply by GREGG PECHMANN on April 10, 2011 at 6:30pm

Hey Tony,

Thanks for asking.

OK, lets start with the house. The answer is yes, they need to do a short sale if they can not afford it in the budget (necessities). I assume the property is in Florida, so they have at least 12 mths, most likely 18-24 months before it goes to the courthouse steps for foreclosure. So they have time....they need to get an experience realtor and start getting contracts asap on this property. My philosophy on doing a short sale is that it is the least they can do because they signed the papers. It's not easy, but it's worth it.

I am not worried about the second at this point because the lender (2nd lien) would have to buy out the first to foreclose...that wont happen. Are the 1st & 2nd with the same lender? Important question...if different, then we need to find a way to pry the 2nd off of title

On to the $57k in cc/loc. Once again, if it's not in the budget, they need to stop paying. I had a client that had over $75,000 in cc debt, after 18 months of negotiating and battling, the cc companies eventually settled for $17,000. Does that always happen, of course not......but you fold your cards until you absolutely have to.....make sense?

Lease care: if they can not afford it, then they will have to give it back and then deal with difference. Once again they can try to negotiate when the time comes.

My point is that we have to do a realistic budget and solidify the 4 walls.

Once that is done, they we can come up with a game plan from there.......

There are many steps before they might have to pull the trigger for BK. Let your clients know that 97% of the people who file BK, never had to file in the first place....they simply filed too soon. They have a lot more time then they think

I hope this helps....let me know if you have any other questions....

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Permalink Reply by Justin Lukasavige on April 11, 2011 at 7:33am

I'm with Gregg. Once you have a budget in place they can see what's coming in vs what's going out. That might give them new hope to get everything paid off or settled.

Gregg is the expert when it comes to this. I've seen him work some miracles.

I think they're just overwhelmed at everything and it's eating them up. They don't have a plan, they just feel like they're done. You have to figure out if they're willing to fight or not.

Thanks for helping them!

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Permalink Reply by Tony Elam on April 11, 2011 at 10:54pm

Greg thanks for taking the time to break it all down. It's starting to come into focus.

I think we can deal with the car, either give it back, or sell it depending on some other variables. They need to sell the house, which leaves with some thoughts. If they stop paying on the 1st mortgage, and deal with the car, then should they keep paying the debt? Because, they could sell the Disney stock, which we could use for the gap on selling the car or giving it back. Then with not paying the mortgage we could start setting aside a reasonable amt for future rent, moving, and or short sale expenses (I assume there will be some.) If we stop paying on the loc, is it the same as not paying on cc's? Just making sure. Also is there any issue with have cash piled up in the bank from not paying on anything? Thanks for the help.

GREGG PECHMANN said:

Hey Tony,

Thanks for asking.

OK, lets start with the house. The answer is yes, they need to do a short sale if they can not afford it in the budget (necessities). I assume the property is in Florida, so they have at least 12 mths, most likely 18-24 months before it goes to the courthouse steps for foreclosure. So they have time....they need to get an experience realtor and start getting contracts asap on this property. My philosophy on doing a short sale is that it is the least they can do because they signed the papers. It's not easy, but it's worth it.

I am not worried about the second at this point because the lender (2nd lien) would have to buy out the first to foreclose...that wont happen. Are the 1st & 2nd with the same lender? Important question...if different, then we need to find a way to pry the 2nd off of title

On to the $57k in cc/loc. Once again, if it's not in the budget, they need to stop paying. I had a client that had over $75,000 in cc debt, after 18 months of negotiating and battling, the cc companies eventually settled for $17,000. Does that always happen, of course not......but you fold your cards until you

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Permalink Reply by GREGG PECHMANN on April 15, 2011 at 5:54am

The key is to figure out the 4 walls. Once you get that done, you can see what they can or cant afford.

I would have them start piling up cash for multiple reasons: negotiate with the credit card companies, moving expenses, rent (their credit will take a hit, so if they have a large chunk to put down towards a rental, they will have a much better chance of finding a place)

Everything is negotiable in this climate, especially in Florida

Make sense?

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Permalink Reply by Tony Elam on April 19, 2011 at 10:18am

Yes Gregg, thanks for the help so far. We are moving forward with some positive steps so far. We have a new twist however. They have lines of credit with BOA and the wife is a signatory with her Mom's accounts with Merrill Lynch (who is now owned by BOA.) She is afraid that BOA will wipe out her moms account if they default on their account.

So I am trying to find out the best way to researching if there are any cross default rules. Also, I think the accounts are in her husbands name only. Here mom has Alzheimer's and is not willing to move her mom's account to another brokerage firm.

Overall, we have faced reality, so now we can take some positive steps forward. I think we will come out ok :)