Bankruptcy vs Debt Consolidation

To make a very long story short, I recently took over (legally) managing finances for my aging father-in-law. He has about $16k in credit card debt, and a mortgage on his home.  Selling the home isn't really an option right now.  

His only income is social security and he has no savings.  He has been using credit cards to buy food and essentials for years.  I put him on a weekly grocery budget and started zealously consolidating card balances to the lowest interest cards (4 cards total now down from 16, rates from 14.24% to 9.24%).  

The main issue is that when all is said and done, my husband and I are the only thing keeping him in the black.  We support him as much as we can afford, but if it weren't for our inflows to keep him in balance (approx $300/mo), he would not be able to afford both bills and credit card payments.  

I've been considering recommending bankruptcy for him, but we co-signed his house with him and I don't want to ruin our credit in the process.  Does anyone have experience with debt consolidation or bankruptcy to give some advice on which might be a better option in this situation?

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  • I would suggest speaking with an attorney. I am not one, so the below may not be accurate. The fact you co-signed on the house, may or may not be an issue. Usually you can't get out of a mortgage through bankruptcy unless you also go through a foreclosure, so if you avoid that it might not be a problem.

    That said, bankruptcy or debt consolidation may not really help with anything as long as expenses > income. Even eliminating the credit card interest may not stop the bleeding.

    The best thing to do to avoid having yuor own credit ruined is to continue making sure the mortgage payment is made on time until the house does sell eventually.

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  • I am currently in Chapter 13 bankruptcy. Ch 13 is where you make a Plan to pay at least some of the debt back by sending it to a court appointed trustee who then distributes it to creditors.

    Would he be able to live only on his SSI if the CC debt was gone, but with a new (presumably lower) monthly payment? When you file your Plan you have to prepare a budget *including* the expected monthly payment to the trustee.

    This is really a question for a bankruptcy attorney, who can help you figure out what might work given his situation and the rules in your state. Bankruptcy is a federal event, but some states have their own rules for various things, like how much of his assets can be excluded from being part of the Plan.

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    • Khaki Storm
    • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
    • Khaki_Storm.1
    • 1 mth ago
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    That's a tough spot. I'm sure you have, but I'll ask anyway. Have looked at anyway to increase the income? Maybe he worked for a school in another state for a year and has a small pension they should be paying. Maybe there's a professional association he was in that has benefits he can apply for (some churches associations, not the specific church,  have this for pastors, for example). Those would be ongoing. One time finds would be at a govt lost money search, govt bonds laying around the house, hidden money (cleaning out my grandfather's house, we found money well hidden all over). 

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      • ynaber2613
      • ynaber2613
      • 1 mth ago
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      Khaki Storm Also if he was prior military apply for veterans benefits.  They may at least help with medical and prescription costs and if there is a disability he may even get a monthly amount, a friend of mine got a 10% disability for developing migraines in the military.  VA can also help with nursing home costs if that ever happens.

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      • Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 1 mth ago
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       agreed. Whatever the background, check it out, could be military, union, state pension, clubs (maybe Freemasons), etc. 

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  • Thank you everyone for the feedback.  He does have some years with the army, and his medical benefits are through the VA, but doesn't qualify for any additional assistance (i.e. reduced prescription coverage).  I will have to do some digging to see if he qualifies for any additional benefits through the military.  As far as him making additional income, that ship has sailed for the moment, I don't see him taking up any odd jobs in the near future.  

    I think we will schedule a consult with a bankruptcy attorney to see what they would recommend.  We can get him just inside his inflows without the credit card debt, including his mortgage payment.  The mortgage and credit card bills are always paid on time.  He's always been good about that.  

    Ideally I'm hoping that clearing the credit card debt and reaffirming the mortgage won't affect our credit as the mortgage will still be paid as agreed.  I thought about just maintaining the status-quo and continuing to keep him afloat, but that is definitely not aligned with our budgeting priorities, so I would like to take action.  

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