Financial Advice

Got Divorced and Can’t Afford My Credit Cards and Mortgage. What Now?

Question:

Dear Steve,

Went through a divorce in 2013 and lost my job. I could not pay the house payments, 1st and 2nd, or my credit cards. I have since restructured my 1st mortgage and saved my home, but have not made a payment on the 2nd, or my credit cards for several months (18). Most of the credit cards have written or charged off the debt. But I still get collection efforts from them. Total debt is 22K credit cards, and 107K 2nd mortgage.

I was just served by a law agency who purchased one of my credit debts. I unfortunately make too much income for a chapter 7 in my state. What is the best way to handle the lawsuit, and deal with my other old credit debt to make sure I don’t get sued again or have my wages garnished?

Lee

Answer:

Dear Lee,

Getting divorced can toss finances into the garbage disposal of life. It’s just another layer of trauma that comes with splitting up relationships.

Keep in mind that just because a debt has been written off or charged off it does not mean it is not owed. It is and it can still be collected on and you may still be sued over it.

You have two choices. The first is you can work with someone who can attempt to negotiate with your creditors on your behalf and settle the debt. This can be problematic if you don’t have the money to pay the creditors or they don’t all agree to a mutually acceptable repayment plan.

The solution that would provide you with the greatest legal protection, stop collections, stop any pending suit, and avoid wage garnishments would be a consumer bankruptcy. Just because you feel you can’t qualify under a Chapter 7 bankruptcy doesn’t mean you can’t. Don’t assume you can’t. But even if you can’t, the protections afford to you in a Chapter 13 bankruptcy would seem to provide you with what you are looking for.

In a Chapter 13 bankruptcy you would make payments for up to five years, the same as you might in a longer term debt settlement payment approach. At the end of your Chapter 13 bankruptcy the remaining debt owed would be eliminated and it might also strip off part of the second mortgage you owe.

Given that you have not made a payment for several months, you should absolutely find an attorney now and make a free appointment. You may want to read How to Find a Great Bankruptcy Attorney to help start this process. Also read So You Are Going to File Bankruptcy. That’s Great News. Congratulations.

You have to decide which path is more painful to you, the inevitable collections and more that are coming by doing nothing, the uncertainty if you start to negotiate with your creditors and they don’t all agree to an acceptable solution, or the legal protection you would get under a consumer bankruptcy filing.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

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