A little lost and considering Bankruptcy

Long post alert.  Please be kind, I am well aware of my mistakes and this is embarrassing and hard to post. About a year and a half ago, my husband and I got to the point where we could barely afford necessities and were struggling to make ends meet - to the point of having to consistently take out payday loans (I know)/loans from family, etc just to be able to feed our kids. At that point we basically stopped paying any and all non-essential bills including all of our debt payments. At that time we put down a retainer for an attorney and planned to file chapter 7. I wish we had just done it at that time, but I was also going through a major depression and having a difficult time dealing with the process. Fast forward to a few months down the road where we found YNAB and our income started improving. Slowly but steadily we have gotten our footing. We now use YNAB consistently and our income has increased to the point where we will likely no longer qualify for chapter 7 but we are a family of 5 and make just about enough to pay our bills and fund our sinking fund categories (mostly). We have about 26K in consumer debt, all of which is in collections and several judgements. We also have about 40K in student loans between the two of us, and will owe the IRS about 4K which we will be paying in payments. We pay 300/month towards one of the collections accounts with 8K left to go on that. We are working on a buffer/emergency fund but do not have much towards it yet. We have already cut what we can, and when all is said and done we could probably swing about another 2-300/month towards debt with an occasional windfall here or there.

We live in a rental currently which is low rent but unfortunately I don't know how much longer we can stay here for various reasons. We will likely need to move in the next 1-2 years. Our credit scores are LOW. like under 500 low. Rental prices have also skyrocketed around here, and it is going to be difficult to find anything that is not about $3-500 more per month then we are spending now  - even   if we could find someone to rent to us with our current credit situation which I can't imagine.

I am trying to figure out the best way to move forward and get rid of debt/improve our credit in the least amount of time to improve our housing situation. If I work on paying off our debt using debt snowball/avalanche etc, it will take years before some of the debts will show paid, and who knows how long to actually improve our score since we don't have anything positive on there and would have to get new credit somehow. Alternatively, we could file for chapter 13 - but I don't know if that would really be any faster.

I just feel kind of paralyzed and keep waffling back and forth. Any input would be appreciated.

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  • I'm sorry, I don't have any real advice for you.  But I wanted to respond to let you know I appreciate you sharing your struggle and I wish you strength as you and your family work your way through this.  I was in 3rd grade when my parents filed for bankruptcy (don't know which Chapter).  They kept us kids fairly insulated from the effects, (ie. I don't recall any lasting impacts from the stress my parents must have felt).  And they rebuilt their financial life over time and are now nearing retirement and will be ok.

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  • It's great you are using YNAB and already improving your situation.  Congratulations on that.  Why do you not know how much longer you can stay at your low rent apartment?  If you are able to get ahead by staying there and chipping away at your bills, then you should do that.  The way to improve your credit score is to pay off your debt and over time it will improve.  There is no fast way about it.   Moving itself can be expensive and stressful if you have to pay deposits for the place plus possible utility deposits.  I wish you well in your journey out of the muck and mire of debt.  I applaud your efforts to hunker down and get it done.

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  • Sending some positive thoughts your way.  I know your situation is extremely difficult, but you are taking the right steps to correct course.  As others have said, try and stay in your rent situation as long as you can.  Best of luck!

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    •  bikerbooker

       

      take a look at where you are spending money.  can you cut expenses on groceries perhaps?  use all the leftovers up?  don't let produce, meat spoil.  Eat less meat.  Go vegetarian for some meals.  Meat is expensive.  free entertainment.  take kids to park.  go to library.  pick up movies, etc, there.  Skip the restaurants and fast food and coffee shops and pizza places.  you can make things for less than half their cost.   walk rather than drive?  make your own cleaning supplies? make your own bread, etc.  soups are inexpensive and easy.  beans and quinoa (a grain) are VERY cheap protein.  Check out Good Will and resale places for used clothing.  I have several great jackets that i get compliments on and paid 3-5 dollars each from a resale shop.  blouses, etc.  unplug electric items when you're not using?  They use electricity even when they're not operating.  lower heat/air conditioning?  earn extra money doing yard work or sewing or babysitting or cleaning or whatever?  if you can look at Pinterest, search on the word FRUGAL and see all the great ideas that come up.  I've cut my grocery bill by a couple hundred per month, reduced electric and gas substantially, decluttered my house, lowered gasoline costs by biking sometimes and combining trips, drying most clothes on a rack in the house, eating at home mostly, buying on sale in quantity and freezing meals, etc etc.  put all that you save on your smallest debt.  and just keep at it.  When i started, i didn't think i could reduce that much, but i have.  some months it's 300-500 less than usual expenses.  plug all the savings into debts, smallest and most critical.  It's very possible to do.  I didn't think i could find more things to reduce, but i found many.  See what you can do.  And put every saved penny to your debts.  you'll be surprised how fast you can turn it around.  You CAN do it.  

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  • Talk to the lawyer about the Chapter 7 and Chapter 13. With your family and income it may be beneficial for you to file for bankruptcy. You are not a failure. You are using the legal system how it was intended. Go see the lawyer and get the facts squared away. It seems scary, but it's not.

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  • My credit union offered debt counseling services and referred us to Greenpath.  We used them for a couple of years to get back on track.  Our credit scores at that time were in the low 300s.  They did require us to close our credit card accounts, but it was honestly the best thing for us at that time.  See if your financial institution offers something like that.  Greenpath waived their monthly $50 due to the fact that we belonged to the credit union.

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  • I hope you're still around, Sea Green Tugboat , and getting encouragement from the forum and the other folks who have responded.

    I was going to suggest something similar to what Ivory Pilot suggested, which is to look into credit counseling before bankruptcy. This can be a ding to your credit, but when your scores are already low, this route can help you dig out of debt a bit faster and potentially even show the items that are currently in collections as "settled" on your credit report (don't quote me on that, but I *think* that is how it can work with some debtors).

    Here's a link to an article with some good tips on choosing a credit counseling service: https://twocents.lifehacker.com/how-to-pick-a-legitimate-credit-counselor-1640153349

    And if you do choose the bankruptcy route, that is okay, too. You are not a failure and you have nothing to be ashamed of. Everyone is going through life learning all kinds of lessons about all kinds of things, and this is one of yours.

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