We’re Crashing, Financially

Question: Dear Luise: Good morning – My husband and I are in a financial mess and we really don’t know who to talk to or where to turn. My husband bought our house in 2005 before we were married and he signed on for an ARM not knowing what this meant. Two years later our payments were scheduled to go up a few hundred dollars a month. We were married in June 05. I then found out my husband owed $35000 in student loans. I had credit issues from a divorce. We then found out we were having a child (i already had two from previous marriage) I stopped working to take care of my son. Our truck was repossessed. We refinanced our loan and my husband because of his debt to income ratio did not get a good interest rate (9.375%) and we also had added closing costs on to our loan so we now owed more than before. We are paying $1312 a month for a $122,000 home. I have some misc. medical and credit card bills on my credit report. We talked to a realtor. He said the only way to sell our house now is through a short sale. It’s worth about $89,900…obviously much less than the $122,000 we owe. We would just like to start over and find something more affordable, even if we have to rent for a while to build our credit back up. We have deferred the student loans three times. Eventually we will have to pay them. We are considering bankruptcy. What I am wondering is would it be best to file bankruptcy for everything including the mortgage or would it be better to file bankruptcy for everything else and sell the house on short sale?? We want to find the best option that will allow us to buy another house within the shortest amount of time. Thank you. U.

Answer: Dear U.: I think I would make an appointment with at least two bankruptcy attorneys and then decide which one makes the most sense. They usually don’t charge for the first interview. The last I knew, there were some debts that don’t come under the bankruptcy blanket and I think student loans may be in that category. I’m not sure about mortgages, either.

You need to know the legal ramifications of such a move and whether to include the house or not, if that’s possible. It certainly doesn’t make any sense to keep a house that has become an albatross around your necks. As you mentioned, bankruptcy may limit your options when it comes to buying again in the near future.

There are many sites on the web that offer bankruptcy information. See what you can find there as well. The more you know and the better informed you become, the wiser your decisions will be. It might even be a good idea to check out the web and study what you find there before you see an attorney. Blessings, Luise

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