Get Out of Debt Guy

Isn't There Some Way We Can Keep Our House?

Posted June 6, 2013

Reader Question

My husband is a self-employed engineer. No contracts in immediate future and we have used all our savings to stay current on all debts.

We have come to the end of the road and can't make payments until we get work. Found out yesterday, through a lawyer, that we probably dont qualify for chapter 7 because we don't owe enough on our home (only have a line of credit for 60,000). With the exemption for NC we would have money they could use to pay our debts. Isn't there some way we could keep the house? What about reaffirmation of this property since we can pay this monthly?

Bev

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Answer

Dear Bev,

Thank you for writing to me and asking for help.

I'm glad you are taking some action now. It's always a tragedy to see someone spend through all of their assets only to be left in the same bad spot. Intervention and action are needed now to change the situation.

There are two logical approaches. The first would be to sell the house, pay back what you can and start a new life. The second would be to file a chapter 13 to keep the house and deal with your other debts based on what you can afford.

It is unclear if you are working and there is still some income in the household. If not, we've got bigger problems. But for the sake of answering this I'm going to assume you are working and brining in enough to make the mortgage payment and meet your other basic expenses.

In that case a chapter 13 bankruptcy isn't a horrible solution. It would allow you to keep the home and deal with your other debt based on your income.

But this might be the best time for you to reevaluate your income situation moving forward. It might just be that for the immediate future you husband has no real prospects to land any new contracts. As this financial situation continues the stress and pressure will wear on him. My observation is the worst time to land new deals is when you are desperate. But once you remove the financial pressure it opens new doors.

So in that case, actually considering rebooting your life based on your current financial status makes a lot of sense. If you sell the house, remove that pressure and start over with maybe some cash in the bank again, wouldn't that be a more comforting approach than keeping the house as an anchor?

The sale of the house might even generate enough cash that you could settle the debt instead of going the bankruptcy route and still keep some cash in an emergency fund.

Anchor or freedom? The choice is yours. Just remember, you are not what you own or where you live. Find a path that brings you joy, happiness, and you feel confident about. Life is a one-way journey. Make the best of it.

Steve Rhode
WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.