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How to walk away
June 6, 2009 8:54 PM   Subscribe

I expect to find out by next week if I am laid off. I don't believe I will be able to find a job that pays as well and I am kinda burned out anyway. I owe 40K in cc bills and owe 227k on a house worth 187K. I have not missed a payment and have a credit score of 700+ but I have HAD ENOUGH. I want out.


If they do lay me off, I will get full pay for 10 weeks...then unemployment..
So there are three things to do about the house: 1) do a deed in lieu, 2) do a short sale 3) 'just walk away' Which would be the most advantageous to me? Do I tell the banks that when I am laid off or when I am on unemployment? How short is too short of a sale? What exactly is 'just walk away' in Colorado?.
.
Onto CC. I don't pass the means test for 7 so that's out. I can do the credit counciling route...but I don't know who to trust. I worry about picking a fraudulent counciling service that'll take my money and do nothing. Even then the legitimate ones work for the CC companies and will slant advice their way every chance they get. Even bankrupcy lawyers have restrictions on how they can advice you. And you KNOW just as soon as I tell one of these places I am in trouble the rest will hear about it and jack my rates to 30% because unemployed people have SO MUCH MONEY...so timing is also an issue..
I am hoping to get a list of things to do like:.
1) tell mortgage companies when you hear about layoffs and offer ###.
2) stop paying mortgage that day (or after the 10 weeks or after ???) .
3) keep paying cc bills (or stop paying cc bills) .
or .
1) Go to find a reputable credit councilor fount at (website or phone) the day you hear about the layoffs and tell them (cc, house, want out...).
2) stop paying the mortgage that day or in 10 weeks or ???.
.
After all this crap, I don't care if I never own another house again..
.
Now, lets say you have no idea what the best thing to do is...what is the thing I shouldn't do? OR who knows what I should do?.
.
I need a game plan.
posted by CodeMonkey to Work & Money (28 answers total) 1 user marked this as a favorite
 
Its time to talk to a bankruptcy lawyer.
posted by damn dirty ape at 9:03 PM on June 6, 2009


Sheez, 40K underwater on a house now isn't that big a deal. I've spent $60K on rent in the past three years and that money's gone forever. Housing might bounce back next decade.

Can you find a job in the time you have that can service your debt?

You signed onto this debt and you got stuff for it didn't you?

I am NOT A particularly knowledgeable person about BK law but here's what I think I've collected over the past year or so:

1) Colorado is a non-recourse state. That means the lender can't go after you for purchase-money loans that are foreclosed on unless they pursue an alternate judgment thing which they seldom do.

2) This protection is lost if you've refinanced, since a refinance is no longer a "purchase-money" loan. Have you refinanced?

3) Forgiven debts are not taxable through 2012 thanks to this.

If you are worried about your future and are convinced that your house payment is going to be the death of you then stop paying now and get prepared to move out in 5-15 months.

The interim will be rent-free so you should be able to make a big dent on your credit cards.

I don't have any advice on the cc.
posted by @troy at 9:09 PM on June 6, 2009 [1 favorite]


Its time to talk to a bankruptcy lawyer.

Utter crap

What you need to be doing is casting around for another job. You get 10 weeks pay, that's a good buffer. Get another job as the first priority. Seek credit a councillor - In the states you have to pay for this? - that's cruel, but they will formulate a plan for you. Get another job.
posted by mattoxic at 9:41 PM on June 6, 2009 [4 favorites]


What did you spend $40k on? If they're things you can e-bay or CL, then get selling!
posted by sbutler at 9:46 PM on June 6, 2009


Is your mortgage payment much more than typical rents in your area? If not, can you file bankruptcy on the credit cards & keep the house so long as you make payments on it? I believe in Texas, you can keep one house through bankruptcy, but I figure it varies from state to state. Your credit's going to be shot to hell the minute you file anything, so if you do intend to file, stop paying the credit cards immediately upon making this decision. It might make up a house payment or two.

I'm just thinking that it might be less hassle than the foreclosure/moving mess if you can stay put a while & see if home values bounce back in two or three years.

I ditched all my credit cards in a bankruptcy two years ago and have found that I am actually capable of living on exactly half of what I previously thought I needed to get by. It's been a hard lesson, centered around the used book store for diversion, but it's turned out okay. In my case though, I'd already found another job & knew what i'd be making for the foreseeable future, so it was a little easier to decide to file, knowing this.
posted by Devils Rancher at 9:53 PM on June 6, 2009


Take a breath. Release. Breathe. Exhale.

Walking away sounds tempting, but it will crater your future more than doing it the responsible, adult way, and it will probably make you feel like crap. I wish I had someone to recommend to you. If you provide a general location, maybe someone else can help hook you up with someone reliable and local.

I do think talking to a bankruptcy lawyer or financial analyst or credit counselor would probably be worth whatever introductory fee (if any) you have to pay for some advice. When you go, have a list of all of you outstanding bills and costs, projected income , and your wish list. Make it clear that you do not want them to act for you (yet). You want to know what your options are realistically, and what would happen if you walked away from everything.

I seriously considered renting my house out to cover my mortgage and taxes and fees for a management company before I decided to sell last spring. (This may impact the type of mortgage you have!) If you can cover your mortgage and fees with rent, you might be able to wait the market out. A management company will handle all the headaches of renting your place out. It may allow you to wait the market out and see it bounce back. If this is feasible, you can focus on finding a way to deal with your credit cards - perhaps through some sort of consolidation and payment plan that will allow you to live more frugally with a job that covers rent, food, insurance, and debt payment.

Your excellent credit rating is something you will want to try and keep if at all possible. It should help get you an optimal plan with a negotiated payment system for your credit card debt that will suit your however changed circumstances. Even if you don't get laid off, you are going to want to find a way to get your debt in hand.
posted by julen at 9:55 PM on June 6, 2009 [2 favorites]


I don't understand why you're resistant to talk to a bankruptcy lawyer. Yes, lawyers have restrictions that stop them from telling their clients to engage in unethical/illegal behavior. That's not a bad thing ... you're considering walking away from the house and you're trying to figure out how to eliminate your credit card debt, so why WOULDN'T you want to talk to a legal professional about this? There's multiple forms of bankruptcy. Go find a lawyer, share what you've shared here and then determine what your best route is.

(You might also talk to a lawyer or other professional who deals with loan modifications for your house.)
posted by Happydaz at 10:15 PM on June 6, 2009


Are you in Denver or close by? What kind of work do you do? I assume you're a programmer, so what kind of code do you write? how much do you need to make? There are lots of start ups in Boulder that seem always to be expanding. We, here in Denver, are always looking for talented folks. Maybe worth chatting.
posted by FlamingBore at 10:36 PM on June 6, 2009


Even then the legitimate ones work for the CC companies and will slant advice their way every chance they get.

You can see it this way, but it's a fairly straightforward deal. If you can afford to pay off your debts in five years (60 months) or less, they will put you on a favorable payment plan with reduced interest rates. If you can't afford to do this, you should see a bankruptcy lawyer.

Qualifying for Chapter 7 will be a lot easier if you don't have an income to fund a Chapter 13 plan.

You're being given suggestions about being responsible and adult, but it's responsible and adult to admit you're insolvent and cannot pay your debts. The law is there for this circumstance. Don't feel ashamed to take advantage of it.

As to the deed in lieu or short sale or walking away, you should talk to your bank. Only they can agree to the first two options -- it's not up to you. If a) and b) are off the table, then walking away is all you have left.

If you do decide to go into bankruptcy, you should stop paying consumer debt immediately. All of it. It is potentially federal bankruptcy fraud to pick and choose whom you are paying, and at the very least involves your creditors in expensive, messy clawback procedures.

I would spend a day browsing the Bankruptcy Forum to see what others in similar circumstances have done. If you have specific questions to ask, you can get someone there with real experience and empathy for your situation.
posted by dhartung at 10:54 PM on June 6, 2009 [3 favorites]


I totally get that you are fed up and frustrated but you are looking at some options here that are fairly major solutions to will be, against the span of your lifetime, a relatively short-term problem.

I... owe 227k on a house worth 187K.

Forget about what the house is "worth" at the moment - that is subject to change, as it always has been. You can see your home as an investment, or you can see it as the place that puts a roof over your head. You're always going to need to put a roof over your head, and the "loss" on rent over time is probably greater than the "loss" on the negative equity in the same period, so really - stop worrying about that particular piece.

Q1: What is the mortgage payment, and is it fixed or variable?

I owe 40K in cc bills...

Q2: What is the total of the minimum monthly payments?
Q3: Can you leverage your good credit rating to move your highest debt/interest cards to lower cards or a lower rate with the current issuers?

You are by no means the first or only person in this situation right now. With 10 weeks of pay, I would focus on a) reducing interest rates while you are employed and have good credit, b) talking to a lawyer to protect the house as the highest priority, c) working with the credit card companies and mortgage company to reduce payments.

Regarding C, I'd do that after about 8 weeks after A and after taking advice from B.
posted by DarlingBri at 11:21 PM on June 6, 2009 [1 favorite]


Don't freak about the house. Get a roommate or two. Charge them rent. This will reduce your out-of-pocket housing costs.

Sell a bunch of your stuff to make a dent in that credit card debt. Stop using your cards so it doesn't get any worse.

Spend a lot of time at getrichslowly.org to get inspired about getting out of consumer debt and living within your means. You can do it.

You've got ten weeks plus the length of your unemployment to shift gears and find a new way to make it work. You'll do it. Hang in there.
posted by Sublimity at 11:45 PM on June 6, 2009 [1 favorite]


Don't panic. Looks like Colorado offers 26 weeks of unemployment; plus the feds are extending that by 13 weeks, plus you have 10 weeks of severance... that's nearly a year of income, enough time to get unburnt out and hopefully get a new job.

Compare your mortgage payment to rent in your area... dont' take drastic steps if you're not going to save much money. (And your lender might be willing to negotiate when you're unemployed; a landlord won't be.)
posted by zompist at 1:51 AM on June 7, 2009


You sound really pissed off, not broke.

Well tough. "fed up" and typing in all caps ≠ bankruptcy. You got into that 40K of debt some how, and I don't think you were tricked into it. And now you want the rest of us to pay it off because you're pissed off? (Because that's who pays when you declare bankruptcy. We do.)

Suck it up. We're in a global recession and if your problem is that you have house payments and are merely 40K in debt then you're not doing so badly.

(If you want to hear about people doing badly, MeMail me.)

Find another job, pay you bills as you can (like the rest of us) and cut the amateur theatrics.

You don't even know you're getting laid off for sure, you're just being dramatic. And if you do get laid of... well, there are other jobs. You got this one, you'll get another one. 10 weeks is two and a half months, that's 400 hours to spend full time on a job hunt. More if you start today. Stay in your house. At least your monthly payments go towards something. If you walk away you still have to pay rent, on something that you'll never own.
posted by Ookseer at 2:36 AM on June 7, 2009 [15 favorites]


A legitimate credit counselor is Consolodated Credit Counseling Service. I used them 10 years ago. They are legit.
posted by fifilaru at 2:50 AM on June 7, 2009 [2 favorites]


I, too, would like to buy $40,000 worth of stuff and then not pay for them!

You're list assumes that you will only do something about your financial situation if you get laid off. I think you should take action now, regardless of your employment.

1. Today, Sunday, go to the Making Home Affordable website. This is a new government program that may allow you to refinance your house (if your interest rate is high) or modify your loan (if your interest rate is variable). Note that you have to be current on your mortgage to do this.

2. Monday, call Consumer Credit Counseling Services. They are the legit ones. See testimonials from MeFites here. With them, put together a reasonable payment plan. They do not pay off your debt, but they help you negotiate a better interest rate and better payment terms. From what I understand, this will include not using your credit cards anymore. This is a good thing for you (well, and for everyone).

3. Monday, call your mortgage company. Explain that you are able to pay your mortgage now, but may get laid off. You want to give them a heads-up and keep them informed.

4. If you do get laid off, call your mortgage company again. Explain that you were, in fact, laid off. Explain that you are getting severance, and trying very hard to find employment, but you want to keep them informed. Find out what options they have for you, if your severance runs out before you find your next job.
posted by Houstonian at 3:54 AM on June 7, 2009 [2 favorites]


A house is an investment. Buying any investment at the top of the market is a mistake, but selling at the bottom would be compounding the first mistake - locking it in for ever. If you can manage at all to stay in the house until it's worth more than the mortgage again, you will be at least 40k better off than you think you are now, and without having to do very much to get there. In other words, you are ONLY 40k down on your house if you sell it right now.

So I would talk to your mortgage provider about the impending layoffs and see if there's anything they can do to help you out. It's in their interest to keep you in the house - they don't want to be 40k down on the deal any more than you do.
posted by emilyw at 6:29 AM on June 7, 2009


emilyw- it's only an investment once it's paid off. Until then, it's an expense. Your advice is sound otherwise.
posted by gjc at 6:52 AM on June 7, 2009


Seconding what others have said regarding taking charge of your finances NOW, whether or not you are actually laid off.

Have you heard of Dave Ramsey? You may not like his personality, you may not like his tone, you may not like his religious leanings, but his methods work, and that's all that matters.

www.daveramsey.com is his website. NB: I am in no way connected to Dave Ramsey, nor will I profit in any way from this plug. I'm just an advocate of his approach to dealing with debt.
posted by pecanpies at 8:11 AM on June 7, 2009


Well tough. "fed up" and typing in all caps ≠ bankruptcy. You got into that 40K of debt some how, and I don't think you were tricked into it. And now you want the rest of us to pay it off because you're pissed off? (Because that's who pays when you declare bankruptcy. We do.)


I totally agree. It is immature to just walk away. It is mature to try to pay it and it would be professional to make the government bail you out with 300 Billion.


I, too, would like to buy $40,000 worth of stuff and then not pay for them!


Yes, especially stuff like health care that you can just resell on ebay if you don't need it anymore.


A house is an investment. Buying any investment at the top of the market is a mistake, but selling at the bottom would be compounding the first mistake

How do you know that you have hit bottom?
posted by yoyo_nyc at 11:01 AM on June 7, 2009


Stop and assess. Unless the house was just appraised, you may not have a good sense of its actual market value. If you really think you must get out, talk to your mortgage holder and work it out. Walking away is the worst course of action.

If you were making 100K, and might make 50K in a job, 40K of debt is something you can pay back. If you were making 50K, and stand to be lucky to make 30K, then it's more difficult. Talk to the credit card companies. Get the interest reduced. It might take just a phone call to each card company. I have poor credit, and got my interest reduced, just by asking.

There have been many frugality threads. Living frugally is a useful skill to learn. You might not get laid off.

Your fed up attitude is hard to understand. On the one hand, you incurred the debt, enjoyed spending the money, and should seriously try to pay it back. On the other hand, mortgage brokers and credit card issuers have behaved foolishly and dishonestly. I think you should try very hard to avoid bankruptcy, but I am very conservative about this issue.
posted by theora55 at 11:35 AM on June 7, 2009


gjc: The house is always an investment; while you have a mortgage it's also an expense, but one that you can't avoid, since after all, you have to live somewhere.

yoyo_nyc: it's a mistake to sell lower than you paid for it, whether or not you have hit bottom. Unless you really think the house won't regain the original price - which it almost certainly will - or of course if you have unrelated reasons for selling.
posted by emilyw at 11:41 AM on June 7, 2009


You have Forty Thousand Dollars in credit card debt? What exactly is it that you want "out" from? The stuff you bought? What have you had enough of? Your poor decisions?

I'm not trying to be mean here, but you spent money that wasn't yours and you owe it back. So, you need to do what everyone else does when they lose their jobs: Bust your butt to find a new job. Once you've done that, you need to work off your debt. And while you're at it, stop using credit until you learn how to handle it.

I use my credit cards all the time (I have two). My current balance on both cards combined is $71, which I will pay off before the end of my billing cycle. So many people think the point of credit cards is to have a balance carry over from month to month. NO! That's how you lose money. You do realize that you pay interest on what you carry over from month to month, right? Why on earth would you want to give your money away like that?

Your next question here should be: "How do I find a new job? (lots of details inside)" Finding a new job in this economy is tough, so I wish you the very best of luck.

Then, your NEXT question should be: "How do I learn to live within my means? How do I learn how to not spend more money than I have?"
posted by 2oh1 at 12:05 PM on June 7, 2009 [1 favorite]


Lots of awful advice here from people who haven't yet lost their job, spent months desperately
searching for another and now make 1/7th what they did this time last year by working twice as hard.
posted by dawson at 12:09 PM on June 7, 2009 [1 favorite]


Dawson: In 2001, I lost my job making nearly six figures and spent a year looking for a new one. I had to start over at closer to $20,000. That's some background on where my advice came from.
posted by 2oh1 at 12:56 PM on June 7, 2009 [2 favorites]


yoyo_nyc, where does he say that his debt is due to medical bills? I agree that some people have crushing debt from medical care, but he does not say this. Let's look at what he does say. He says that he:
- Has a lot of debt, owing $40,000 on credit cards.
- Cannot get money by selling his house, as he owes more on it than he can sell it for.
- Can make payments right now, as evident by him never being late.
- Has a job, although he may (or may not) lose it.

He asked for a list of things he can do. What list would you give him?
posted by Houstonian at 1:01 PM on June 7, 2009 [1 favorite]


I have in no way ever been in your situation, but I'm going to umpteenth everyone else saying "walking away" is a bad idea.

Being in debt is exasperating, frustrating, and all sorts of other unpleasant things. I grew up in a family in debt, and I've seen what that does to people. The trick is to know there's a light at the end of the tunnel if you stay on top of it. I lived in a family that did a horrible, horrible job of staying on top of it. There's good advice here. Please use it, please keep your house, please find a new job, and please take care of yourself. No matter what you do, you'll be glad you did.

In university, I struggled with the burnout/debt 1-2. To deal with that...I upped and moved to China, something on the scale of which you may be considering at this point. Considering all I had were some piddly student loans, that wasn't too hard of a jump to make for me. But 6 years on...I'm burned out at work, stuck with a house, and trying to make ends meet with a job I really wish I didn't have to do while banging my head against being severely underpaid my chosen career. So you can see how that turned out. I could up and walk here too, but it wouldn't really put me anywhere where I wouldn't have to deal with buying a house and financing it at some point anyway. I'd rather get it all out of the way while I've got the strength and patience to do it.

I say I'm burned out with my job, but the fact is, I'm in no danger of losing it, nor am I really in debt to anyone. The house was more or less given to me, but the cost of furnishing it and maintaining it isn't cheap, and it's why I have a day job! I don't have your level of stress, no. But I've got my own, and the way I deal with it is being very independent in other aspects of my life. No matter what anyone says about my financial ties, I'm in charge of my other career, my body, my morals, and my friendships. I bike around the city, I get full use out of my 3-years-off-spec Treo, I build and maintain a bajillion computers made of 2nd-hand parts, I only ingest cheap, non-junky food, I schedule huge margins of time for me to finish my projects, and I stay up until 5am posting on askmefi because I get to, god dammit! The other stuff in my life seriously helps me maintain my Zen in the face of some big expenses I'm having to save up for. I don't know what you've got, but you gotta get it and keep it, because it's what gets you through times like these, man.

It's general advice, but I really hope you plan out and stay in control of whatever move you're going to make. If "getting out" is what you want to do, figure out what the next step is, in detail, before even start thinking about how to jump ship. If not, hang on, set aside a beer budget, and get a Netflix subscription and a bicycle. Having a house and a good credit rating is worth it.
posted by saysthis at 1:59 PM on June 7, 2009


"yoyo_nyc: it's a mistake to sell lower than you paid for it, whether or not you have hit bottom. Unless you really think the house won't regain the original price - which it almost certainly will"


Well, then stop-loss orders at the stock market would not make sense. By the way, I have met investment bankers (analysts) with an MBA that did not know what a stop loss order is....
And every item will sooner or later go back to its former value if measured in not inflation adjusted dollars.

This might be interesting:

Medical bills prompt more than 60 percent of U.S. bankruptcies
http://www.cnn.com/2009/HEALTH/06/05/bankruptcy.medical.bills/index.html

I am not giving codemokey advice since I have not much experience with debt. The CC debt I had I managed to pay off. But I don't think people

* have the right to postulate that he has the obligation to pay this back under any circumstance. Declaring bankruptcy or even walking away from his house IS PLAYING by the rules in my opinion.

* I don't think anyone has the right to ask him how this debt occurred since this is not relevant to answer his questions.

I don't think it is bad to declare bankruptcy (I have not done this and I currently have no debt). If he is irresponsible, so are the people who lend him the money. Fault on debt is priced in the interest. If all debt would always be repaid (what is impossible per definition) interests rates would be much lower since risk has not to be priced in.
posted by yoyo_nyc at 2:51 PM on June 7, 2009 [1 favorite]


yoyo_nyc (and codemonkey): bankruptcy is only intended and should only be used as a last resort. The OP still has a job, and even if he loses it, he is (presumably) able-bodied or skilled enough to find other employment in the ENORMOUS length of time that his severance/unemployment benefits will cover. It is not "playing by the rules" to default on debts because you are angry at the market, burned out at your job, or because you made poor decisions and you want a free do-over.

There is no validity to the claim that "the people who lend money are irresponsible, so I can be irresponsible too."

There is no validity to the claim that "debt is priced on default risk, so it's OK for me to default because the lenders expect some people to default."

Code monkey, I don't know anything about you beyond the facts presented, so maybe your situation is more serious and bleak than you make it out to be. But from what you wrote above, you are no worse off than the average person out there trying to make ends meet. They're paying their bills and they're not bitching. You damn well better be suffocating under a pile of debt twice this size before you reach for that bankruptcy lifeline.

BTW yoyo_nyc, your argument with emilyw is just irrelevant and silly.And it's a little self-serving to compare yourself favorably to MBAs. And since were so pedantic, I will be pedantic too: you are wrong about non-inflation-adjusted prices always rising in the long term. For example, I think the common stock holders of GM will probably never see their stock price rise to its former glorious heights, inflation-adjusted or not. But that's neither here nor there.
posted by Chris4d at 11:58 PM on June 7, 2009


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