My stupid friend !

[marina628]

My friend owes $88,000 on a $160,000 house ,she is low income and horrible with money.She had her car repossessed by Ford 6 months ago ,her FICO is 517 and she owes $27000 to ford and other bad debts.
She is wondering if she should declare bankruptcy and get a fresh start or sell house and pay off the bills.She cant get a larger mortgage ,nobody will qualify her on her $26,000 a year income.She is 47 years old and zero savings , retirement etc.

[m3s]

According to this she has $45,000 positive net worth.. wouldn't that be stupid to declare bankruptcy?

She should probably find someone to share the house and bills with, or sell it rent something within her means

[marina628]

She has a roommate and that income is included in her $26,000.She is locked in for another 4 years in a 5.5% mortgage .Probably by time she pays bank and real estate she will still have $20,000 left.Actually after a few hours talking to her tonight she is better to try to get some sort of payment plan/credit counseling.She will pay more for apartment on her own than the house is costing her with room mate.

[Spidey]

I agree that it doesn't seem to make sense to declare bankruptcy when one's assets are greater than liabilities. My first inclination would be to implement an extreme budget, where nothing was sacred (eg. cell phone, cable TV, subscriptions, restaurant meals, etc.) and pay off the debt. She should also look for a better paying job or other ways at increasing her income. Probably even a home day-care business or taking in foster-children, would pay more than she's currently earning (which must be around $20,000 after the roommate's rent is considered.) If those solutions are not possible, my second inclination would be to sell the house, pay off the debts, and then her and her roommate can search for an inexpensive 2-bedroom apt.

[the-royal-mail]

But is she willing to 1) acknowledge she has a problem and 2) take action to resolve it? We can write up all the suggestions in the world but if the person isn't serious about taking action, it may all be for naught.

[I'm Howard]

The House is worth whatever someone is prepared to pay, first She should try to lower her payments by stretching out the amortization time, and dump the high interest loans first.

Renting would probably cost her more, so She should probably stay where She is.

Debt Conselling services may be available, She should try looking there.

[marina628]

She made mistake buying new car at 0% from Ford when her car died in feb 2009.She was paying her payments fine until May 2010 when she lost her job ,now she is working part time while going to night school.She told Ford to come get the car in September because her bad credit meant she was paying $314 a month in insurance plus her $374 car payment.
We got her equifax credit fill this morning and actually it is not as bad as she thought .She has $12,000 from ford ,$314 from state farm and
she has about $3700 in unpaid bills mainly cell phone bills from 2007 that he daughters boyfriend ran up.Rogers sent them to collections and still on her bureau.These were only $1200 or so but over 3 years all this interest has been added.She owed Ford $15,000 when they took car , looking at her numbers they sold a 2009 ford focus with 50,000km for $6000.
So here is her reality , her bank will not do the mortgage for her until she pays off the bad debts .She obviously can't afford it or else she would have kept her car .
She needs to negotiate these debts down ,where does she go to get that done?Do any of you know a bank which would help her based on her equity?
Her credit bureau shows her mortgage and ford and a loan that she had in past that was paid in full.She is 47 and has never had a credit card!
She has a roommate paying $700 a month to share her 3 bedroom house .If she sold house she would probably pay $800+ for a one bedroom for herself so she is better off to keep her house.

[marina628]

She has a townhouse and probably she will get low to mid 150's.They are listed for $159,000 -$165,000 in her complex.

[plen]

Doesn't sound like school was her best decision at this juncture? Either way, she has to decide for sure now is the time to shape up. She's really running out of a lot of time.

What I'm curious about is why is she stressing so much? They can't come and take her house. Is she still struggling now to make ends meet? If she can't make her mortgage payments too then that's a whole different situation.

Here are some thoughts.

Get a secured credit card from Capital One. They are guaranteed and she needs to start getting something positive on her credit report. Use it for normal purchases that she uses cash with and pay it on time every single time.

Do not ever call the collection agencies, get everything in writing. If her phone number is unlisted or her credit report is reporting the wrong one, don't change it. Debt collectors can be very stressful over the phone and make you feel even worse about the situation. Google the name of each of her creditors/debt collectors, find their addresses and write them registered mail if they would consider a settlement or a "pay for delete" which essentially means they will remove the derogatory entry from her credit report if she pays in full. Get a paper trail for everything.

What is the Date of Last Activity on the Rogers entry? She may be better off to just let it fall off her credit report if it's close to reaching the maximum age of 6 years.

DO NOT GO TO DEBT COUNSELLING! That is like the plague on your credit report to lenders. There is nothing they do that she can't do herself with a few stamps.

If I were in her exact situation, I'd get a secured Capital One, I'd write State Farm a goodwill letter explaining her situation (lost job) and ask them if they would consider deleting her tradeline in exchange for payment in full. I'd let the older bills fall off my credit report and I would ask Ford to arrange a payment plan. After 2 years or so, she'll be in a better situation to refinance. In the meantime, learn how to budget better, save every penny and secure a more viable job (hopefully that's what school is for)

[marina628]

Doesn't sound like school was her best decision at this juncture? Either way, she has to decide for sure now is the time to shape up. She's really running out of a lot of time.

What I'm curious about is why is she stressing so much? They can't come and take her house. Is she still struggling now to make ends meet? If she can't make her mortgage payments too then that's a whole different situation.

Here are some thoughts.

Get a secured credit card from Capital One. They are guaranteed and she needs to start getting something positive on her credit report. Use it for normal purchases that she uses cash with and pay it on time every single time.

Do not ever call the collection agencies, get everything in writing. If her phone number is unlisted or her credit report is reporting the wrong one, don't change it. Debt collectors can be very stressful over the phone and make you feel even worse about the situation. Google the name of each of her creditors/debt collectors, find their addresses and write them registered mail if they would consider a settlement or a "pay for delete" which essentially means they will remove the derogatory entry from her credit report if she pays in full. Get a paper trail for everything.

What is the Date of Last Activity on the Rogers entry? She may be better off to just let it fall off her credit report if it's close to reaching the maximum age of 6 years.

DO NOT GO TO DEBT COUNSELLING! That is like the plague on your credit report to lenders. There is nothing they do that she can't do herself with a few stamps.

If I were in her exact situation, I'd get a secured Capital One, I'd write State Farm a goodwill letter explaining her situation (lost job) and ask them if they would consider deleting her tradeline in exchange for payment in full. I'd let the older bills fall off my credit report and I would ask Ford to arrange a payment plan. After 2 years or so, she'll be in a better situation to refinance. In the meantime, learn how to budget better, save every penny and secure a more viable job (hopefully that's what school is for)

Her mortgage is paid ,she is doing some upgrades for night school so she can work in a nursing home.This is her second year of school and after she has this next year she will get a $10,000+ wage increase.
Last reporting on rogers was july 2007 so in two years that will come off.
She is worried about the Ford debt I suppose ,this is brand new only 3 months ago ,would they delete that if she paid it?Can they delete it?
Is she better off to try to break mortgage and go to variable rate?This will help her get enough monthly income to pay a monthly bill to ford or let ford sit and fall off in 6 years too?

[plen]

Her mortgage is paid ,she is doing some upgrades for night school so she can work in a nursing home.This is her second year of school and after she has this next year she will get a $10,000+ wage increase.
Last reporting on rogers was july 2007 so in two years that will come off.
She is worried about the Ford debt I suppose ,this is brand new only 3 months ago ,would they delete that if she paid it?Can they delete it?
Is she better off to try to break mortgage and go to variable rate?This will help her get enough monthly income to pay a monthly bill to ford or let ford sit and fall off in 6 years too?

Yes, any creditor can delete your account on your credit report, don't believe if they say they can not. I've done this myself with an old CIBC overdraft. They offered me a settlement to pay $300 on the $440 debt, I asked if they would delete the entry if I paid it all in full, and they acquiesced.

Another thing she might want to consider is checking her Transunion credit report. It might not be as bad as her Equifax one and she can then consider going to a bank that uses Transunion to reconsider her mortgage. RBC is one of them, I'm not sure if there are any other major banks that exclusively use Transunion.

Her chances of refinancing aren't good and more importantly if she approaches the bank and explains her situation it could raise flags and then her chances/rates in the future will be worse. It's better they don't know she's struggling right now.

I would write a letter to Ford outlining a payment plan for the near future including a ramped up expectancy of repayment for when her schooling is done and she can get a better salary. 6 years is a long time to wait for this debt to fall off and she'll have to avoid more debt collectors and her opportunity to refinance will be a longer wait. I don't know whether Ford would delete the tradeline if she paid it in full, I didn't consider it an option since it seemed like she had no way to pay for that (aside from selling the home). It doesn't hurt to ask for that as an alternative to a payment plan though.

[marina628]

Well the only way she can pay it off is if she refinanced and I don't think it is good idea to convert unsecured debt into secured debt.Ford Can't put a lien on her house right?

[sags]

First she needs to put everything into the proper perspective.

The creditors don't care about her personal problems. They want their money.
Everyone is a "valued customer" until you run into problems, and then they don't want to talk to you.

Credit records record "derogatory" information for 6 years after the "last activity". This usually means the last payment, but can include any recognition of the debt that is proveable by the creditor. This "could" include a letter from her to the debtor, offering to make payments. It could be interpreted as a "recognition of the debt" and re-start the 6 year clock on derogatory debt.

The creditors "could" get a court judgement against her, and seize her bank account, although she would be notified by the court in advance.

The problem with dealing with them individually is that they may not all agee, and it would only take one to cause disruptions for her.

She should avoid bankruptcy, because it is very punitive and unforgiving, and she may have to give up her assets. There are also monthly budget reporting requirements, that can be intrusive.

A better answer, since she does have some income, is to visit a bankruptcy trustee for a free consultation. They offer two choices. A bankruptcy, which she doesn't want and a consumer proposal, which may be of help to her.

The advantages of a consumer proposal is that it is enforced by the courts, stops the interest from continuing, eliminates creditor and collection calls, and she keeps her unsecured assets. She would make one payment for all her combined debts, to her trustee who distributes the cash on a percentage basis. A visit with a trustee doesn't mean she has to do anything, but they will give her good advice. They can't and won't recommend any particular option, but will present them all.

A typical proposal would be for 30-50% of the debt, interest free, and spread over 3-5 years. She will not be able to access credit during a proposal, but she can't anyways with such a low FICO score and derogatory remarks, she wouldn't have access to credit anyways. After the completion of the proposal, and a 3 year waiting period, all record of the proposal and the debt, is expunged from her credit record.

She will be required to attend credit counselling at the outset of the proposal. This usually entails 2 visits a couple of months apart. It can be helpful to someone who has trouble dealing with debt.

Once a proposal is in force, the payments are entrenched. If she wins a lottery, inherits money, or gets a pay raise, she keeps the money and her payments remain the same. She also has the option of paying off the consumer proposal at any time, to shorten the length of time. It would reduce the overall time that the proposal in on the credit file.

Most of the time, even if you pay the creditors in full, they will not remove the derogatory remarks from the credit file. If any debt has been sent to a collection agency, they do not have the power to remove derogatory remarks, despite any promises they may make. At that point, the original lender won't even talk about it. All lenders depend on accurate credit reports for their own lending purposes, and if they start removing bad entries for people, it defeats the purpose of debtor risk analysis that the credit reporting agency provides. Simply put, the lenders are looking out for each other.

Perhaps, you could attend with her, so that she understands the matters she will have to deal with.

I attended with my dad, and have been through the system.

[Dana]

I don't know what province your friend is in, but if she is in Ontario she may be a candidate for consumer proposal. This would allow her to keep her home. The effect on her credit rating would be marginally better than with bankruptcy - but it sounds like a hiatus from credit access would not be a bad thing for her. In Ontario, consumer proposals are administered through bankruptcy trustees (though not all trustees do proposals). It is usually free for her to have an assesment by a trustee to see if it would benefit her.

[the-royal-mail]

The OP did not answer the question that I posed.

[Square Root]

I wouldn't want one of my "friends" calling me "stupid" and describing my affairs in this way.

[marina628]

The OP did not answer the question that I posed.Sorry for calling her stupid.I don't want to go into much than the financial facts but she has done so many things to put herself at risk in last couple years.

[marina628]

Royal
She knows she got problems ,she asked me what she should do .She is listening and reading your advise.First thing she did today was called State Farm ,they did not send to collection agency they reported it themselves.They told her they can record it as paid but do not think they can remove the trade line.Actually this bill is for after time car was taken back to Ford.They are following up with Ford and looks like maybe she can get off with that $314.If that is the case then they told her they will remove it as an error.

[marina628]

I wouldn't want one of my "friends" calling me "stupid" and describing my affairs in this way.

She was here when I posted this LOL.Trust me I am being very KIND to her ,I just want to give her a shake.My husband and I gave her $1500 to put down on this car to help her out after boyfriend ran off with car and money .She had another car but her boyfriend had his name on the title.The same boyfriend who had her refinance her $50,000 mortgage to $90,000 so he could upgrade her house.I will give him credit he did a good job on the house but then he ran off with $12,000 and the car she got him .They were together less than a year and he was paid salary by her when he was working on the house.
If i continued we would all be giving her a group kick in the butt!