Preparing to File Chapter 13

I have made the tough decision to file Chapter 13 and am in the process of getting my paperwork together and trying to find a lawyer.

I am in my early 30s, single with no kids and have suffered all my adult life with the build-up of debt from college – the typical horry story of student loans combined with easy credit that snowballed to $80,000 in debt at its height. My monthly net take home has hovered between $2500 to $2600 in recent years. I was on a debt management plan for two years with a monthly payment of $1,600 (this does not include $200+ per month in student loans that I have had placed in forbearance). I tightened up, but it is very difficult to pay rent, utilities, food, transportation, household goods, clothes and other stuff on just $900-$1000 per month. I may have been able to get by, even though it was rough, but then the car transmission went out and since I had already depleted my savings and could not get new credit, I could not pay the lump sum to fix the car. I found a cheap garage to rent a car, but I also had to pay to store the defective car. In a great perversity, I am paying almost double for a cheap car + car storage than I would with a new loan to get a car (but I don’t qualify for new credit) and my job does require reliable transportation. Of course, my monthly expenses shot up and I fell eventually fell behind.

In addition, last summer, I finally had to address personal and household issues that I had neglected. Even though I make a middle class income, I have been living like I was low-income, but I have a professional job where I do have to maintain my appearance and such. I went about 2 and half years without really buying any clothes other than worn out underclothes and shoes, but had to come to terms with the need to get some new clothes to replace parts of my wardrobe that had worn out or didn’t fit anymore. Last July, when I got a $500 bonus, I used it to buy new clothes, instead of trying to catch up on the debt payment. I was also recently made a manager and workers under me, some of whom make just over half of what I make and have kids, have better cars and stuff than me. If I am unable to maintain appropriate “trappings” that are commensurate with my job position, then I feel that my advancement is going to be limited.

I found a lot of info from this video:

Last December, I signed up for a new debt management plan, after the previous plan was terminated when I fell too far behind. To date, only half the 12 creditors have agreed to the new payment plan, but even some of the ones who agree to the plan are charging me off and one who rejected the plan is suing me to get a judgment, even though I have sent monthly payments the past 3 months.

When I got the notice about the lawsuit earlier this month, I first was thinking that I need to explain to that creditor that I was making a good faith effort to make payments and sent a letter to their lawyer to try to get them to dismissed the lawsuit. But I had a weekend to think about it and after reviewing the bankruptcy law and my personal situation, I determined that it doesn’t make sense for me to continue with the debt management plan anyways. The only way to avoid the judgment is to file bankruptcy, but that’s not the whole story.

I, of course, care about my credit rating and so I do approach the decision to file bankruptcy seriously. But my credit is already damaged, with the late or missed payments, charge offs, and participation in the CCCS debt management plans. There is not too much more damage that a bankruptcy can do to me at this point other than make part of the public record that which in private I already know, which is that I am insolvent. I have already been operating without new credit for 3 years and believe with the debt relief that I could live without credit.

The belt tightening that I’ve done has been so severe that I have neglected myself personally – I’ve really been on an austerity plan. I need to get glasses, I need to get my car fixed so I don’t have to pay car rental and storage fees, I have not paid annual fees to maintain an unrequired but nonetheless valuable professional certification, I need to get collision insurance for the car, I don’t have rental insurance for my apartment, even though I got medical/dental plan I don’t use it due to the copayment, and the list goes on. Meanwhile, my social and personal are impacted as I rarely go out and have never had a real vacation. Then, there is the nasty collection calls and letters that have my so frazzled that I don’t want to answer the phone, listen to my answering machine messages, or open the mailbox. They have also called me at work and called me at my parents home over Thanksgiving weekend! Meanwhile, I have no money to address other emergencies that may come up and I have disinvestment in other activities (continued education/training) that could end up making me more money in the future.

My concern about bankruptcy as a failure has also been mitigated.

First, I learned that successful people have been bankrupt. For example, Donald Trump has had business bankruptcies and Abraham Lincoln had business and personal bankruptcies. So with me in my early 30’s, I feel that in the long-term, I can restore my financial and personal credibility and still be successful. From the moral perspective, I don’t feel like I am leaving the creditors in the lurch. As I was going through one of my recent statements, I noticed that the balance had not changed from the previous month. Even though the creditor accepted my DMP Payment, they didn’t re-age my account and so the interest, late, and over limit fees equaled the DMP payment (the only reason I had an overlimit fee is due to penalties and interest – I never actually charged up the card over the limit). This fed stronger into my feeling that I need to do something drastic, or else I would continue to make movement but no progress, like a little mouse running on a wheel in a cage. I have paid the creditors the principal balance and a healthy profit already!

I know some people have denounced the new bankruptcy laws, but I don’t really have a problem with them. If I filed Chapter 13, I would likely be looking at payments of student loans at about $200 per month and the Chapter 13 Plan Payments of about $350 per month for a total of approximately $550 in debt payments. As I have been belt tightening over the past 3 years, my spending has been well below the allowable living expenses calculated by the IRS. I should have more than $2,000 per month to live on and resume having a normal life and build a savings.

PROFILE:

  • Gross Annual Income = $49,000
  • Unsecured Credit Card and Personal Loans = $52,000
  • Student Loan Debt = $13,000
  • Net Monthly Income = $2,600
  • Student Loan Monthly Payments = $200 (in forbearance)
  • Partially Approved Monthly DMP Payments = $1,200*
  • Transporation Related Expenses Per Month = $550
  • Rent & Utilities Per Month = $600
  • Food, Clothes, and Household Items Monthly = $200 or whatever is
    available (usually less)

*Some creditors have rejected the 2nd DMP plan, but take payments without further collection activity other than charge offs, though one creditor is suing for a judgment for about $5,000 which is a prelude to garnishing my wages.

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