Been such a long time!

I have a kind of sad history with this blog in that I have had some long periods where I have fallen off the face of the earth and have neglected to record what is going on. It has actually caused me to feel some guilt, which is kind of silly, because what I write here may cause someone to think, but it isn’t the life and death work with which I have been involved with while I have been away.

So, I decided I won’t feel guilty, but I will share what has been going on for the last 15+ months. 

Family

Our two daughters moved in with us in July of 2011. They were in the foster care system and we fostered them for a long time until we were finally allowed to adopt them. They were older and had experienced a lot of trauma, which meant that there were some significant challenges to come for all of us. I am NOT whining, but I can tell you that this has been the most costly and difficult thing that I have ever done. My husband and I have both had to leave jobs, lost friends, income and have found ourselves isolated on several occasions. This is a tough spot to be in when you are trying to reduce debt. When the rest of your life feel constricted, the last think you want is to feel like you can’t provide yourself some self-care because you wanted to pay that bill down by $20 extra. But we still managed to, even if it wasn’t as much as we had originally planned.

School

Well, after 7.5 years of slogging along part-time, I finally (!!!!!!) finished my masters degree! It has been great not to have to pay for tuition any more. And the last two years, we decided not to apply for another student loan, but to pay out of pocket. Which hurt. A lot. But we didn’t incur any additional student debt, which is good, because that bad boy bill is HIGH. 

Work

This has been the biggest area of change. When I was last “current” on the blog, my husband had finally gotten a new job after being fired from his last job when his performance at work was affected by the special needs of our children. He found a position at an organization that really understood where he was coming from and that supported his focus on family over work. His 10 months of unemployment was PAINFUL. But then, when he went back to work, we discovered that our youngest was disintegrating at school. Eventually, the school asked us to come in for a meeting in the Spring of 2013 to let us know that they didn’t want our little 2nd grader there because she was too disruptive for the class. And this is the best school in the district (and they would not give us a permit to go to another district), so my husband and I had to talk and pray about the whole thing. Eventually, we came to conclusion that we would homeschool for the 2013-2014 school year to address the emotional and psychological needs of our little one. Which meant a 58% reduction in income. In your head, remember what E.T. said to Elliot when he cut his finger on the saw blade – “OOOOOOOOUUUUUUUUUUUUUUCH!”  Yes, that is what that felt like.

I’ll write more about some of the things that we did to replace income, but it should be clearer that I was away for a good reason and that while it kept me so drained that I couldn’t write, it didn’t stop our debt journey. 

Thanks for reading and I look forward to sharing more soon!

We missed the halfway point!

Yesterday, after getting caught up on my numbers, I noticed something that bears mentioning…

We are at 51% paid-off!

Wait, what?!? We rolled right past the 50% celebration! Oh, no!

Well, the great news is that we’ve reached this milestone. I’m a little “sad” that it has taken us 4 years to reach this point, but I’m still thankful. It isn’t like we haven’t had some set backs during this time and there was that whole year where we were just in survival mode as we were adjusting to our new family reality. That being said, my spreadsheet and Quicken seem to think we can knock the rest of this out in 20 months, so LET’S DO THIS THING!!!

Numbers Update :: 8.15.2012

The Numbers

And here is where we are at as of 8.15.2012:

Credit Card Debt    ::  $ 21,095.20
Taxes Owed              ::  $          00.00
Car Loan                     ::  $ 11,275.68
Tuition                        :: $     1,705.66
Personal Loans       ::  $          00.00

Total Debt*              ::  $ 34,076.34

*does not include school loans

Budget

We put together a budget in mid-July as we found that things had calmed down enough to start taking a serious look at what was going on with our money.

Savings

Here is where we are in savings

Regular Savings  :: $      35
Emergency           :: $    208

Total Savings      :: $    243

 

Cancellation of Debt

Back in January of 2009, as we were deciding if we were going to file bankruptcy or not, we had been talking to my husband’s creditors, which was really easy to do as they were calling us at least once every day. I encouraged him to let them know that we were close to filing and to ask them if they would be willing to 1) drop the principle, and 2) drop the interest rate. One of our creditors proposed a significant settlement deal that was really hard, but resulted in a cancellation of debt.

At the time, I was advised by a family member to look out for tax forms to include in our 2009 tax return, but that we shouldn’t be concerned about it affecting our taxes. This family member happens to work very closely with the IRS, so I trust them to steer me in the right direction.

When I started working on our taxes last month, I had forgotten that we were advised to take care of that debt cancellation form in a specific way. Luckily, when I got it in the mail, I talked to the family member and she clarified that:

If you are insolvent at the time that your debt is cancelled, you do NOT have to include the cancellation in your income (*)

You have to fill out a special form (IRS Form 982  – Reduction of Tax Attributes Due to Discharge of Indebtedness) and have records that show that you were, in fact, insolvent at the time of cancellation. In our case, were were (sadly) VERY insolvent – we had over $60K in debt and no real assets (under $20K worth of personal property), so we qualify for this.

So, we are able to take the $4,500+ that was written off and leave it out of our income, which helped to make our potential tax return even greater (yahoo!)…

We didn’t include this amount in our starting amount (and some of out other debts), because we started the blog after we had already started paying off our debt,  so the reality is that we actually started this journey at over $70K…yikes… but to know that we have reduced our debt by more than $30K in a year – that tells me that we can get to the end…

* I am not a tax advisor and every person’s situation is different. Consult your tax professional for information about your taxes.

Original debt probably more than previously reported

I was talking to my husband about our milestone of getting past $10K in debt reduction and he asked me if the figure included the reduction that he negotiated for one of the liabilities. Um….no?

So it looks like I’ll need to adjust our “starting out” numbers in the next few weeks when we find out the total amount that was written off by the creditor – we think it was around $4,700 – which would bring our total debt reduction to $15,000. Wouldn’t *that* be something!

More on this later…

Regrets…I’ve had a few

The last couple of weeks have been spent contemplating and thinking about what the next post should share about this journey, so even though I haven’t been posting new content, I have been thinking of you, dear readers.

As long as I can remember, I’ve been determined that I had no interest in ever owning a house and that I would be just fine with moving around the rest of my life nomad-style. I married an artistic type, and he seemed agreeable to that and the only time that we really brought up owning a house was when we had the “If we win the lotto…” conversations.

Part of this is the fact that I grew up in a military household and the wanderlust that was instilled in my formative years took root – to date, I have moved 25 times. Yes, 25.

I can’t identify what has made me turn a corner on this issue, but in the last few weeks, I have  started watching HGTV (specifically My First Home and House Hunters) with my husband and we’ve started talking about what we would like in a house. The market in Los Angeles is truly a buyers market at this point (I think it has fallen at least 25% in the last year or so) and there are some amazing properties out there that are way more reasonably priced than they were 3 years ago.

Here’s the irony: with the $60K that we are going to pay off in this process, we could have had a great down-payment and be set up to actually afford house payments, especially in this market.

I had always felt the weight of this debt in other ways, but it has never been tied to the idea that we are going to miss out on getting a house in LA when they are more affordable. I’m not a person that has many true regrets – but this is going to be one of them.

I guess that we can take comfort in knowing that we’ve never been closer to freedom than we are right now. And every day we get closer.

Have any of your financial decisions caused you to have regret? How have you addressed this or changed the situation?

Bankruptcy Research and What We Found

Today’s post is a little more about our history and what we learned from our Bankruptcy research.

I wrote before about how a conversation about our finances led my Mom to suggest that we needed to file for bankruptcy. She told us “stop paying your credit cards, meet with a lawyer and file the paperwork this week.” So the next Monday, we started researching the process and we found out the following:

  1. Before you can file for individual bankruptcy, you need to attend a pre-bankruptcy counseling session (either in person on online) to obtain a Bankruptcy Counseling Certificate. 
  2. Chapter 7 takes your assets and distributes them to your creditors and the rest of debt (except student loans and a few other types of debt) are discharged. Chapter 13 develops a payment plan so your creditors get as much as they can for 5 years. (These explanations are over-simplified – I’ll post some resources that help with providing more detail later).
  3. After you file, your creditors can no longer call you, until the Meeting of the Creditors where you have to face your creditors.
  4. Both filings stay on your record for 7 years.
  5. If you are married, only one spouse *can* file, but both incomes are taken into account, which adds to #6.
  6. It’s really difficult to qualify for Chapter 7. 

The bulk of the debt is only in my husband’s name ($42,000+) and filing might cause some complications with my job, so we decided that my husband would contact his Employee Assistance Program and get a referral for a Bankruptcy lawyer. He was connected with one and the lawyer did a phone consult with my husband. The lawyer was very terse and said, “you can’t file, you make too much money.” This seemed to conflict with a lot of the research that we had done, so we contacted the EAP again and my husband got a meeting with a new lawyer – one who worked at a Bankruptcy practice. He took all of our financial records with him and at the end of the meeting it was determined:

  1. We could file for Chapter 13.
  2. The payments would take 5 years.
  3. The firm would require $2,400 to file the paperwork.
  4. Our credit lines would be closed. 
  5. Our standard of living would be very, very low for 5 years. 

Both my husband and I felt a little defeated – it had already been a really touch 18 months, and we felt so hopeless. We had really hoped that we would be able to file for Chapter 7, but even though our debt (over $60,000) was more than our annual take home (under $60,000), we “made too much money” to have any of our debt discharged. 

So, as our creditors were calling every day (seriously, EVERY day), I asked my husband to try and cut a deal (settlement) with them. I suggested that he tell them that we were about to file for bankruptcy and did they want to work something out with us so that neither party had to go through the system – I told him we should ask them to drop the principal and interest rate. Here is what happened:

  • MBNA – dropped the interest rate to 4.25% (from 19.95%) and put us on monthly payments of $370/month, which lowered our monthly payments by almost $200.
  • Citibank – dropped the interest rate to 9.9% (from 32.24%) and put us on monthly payments for $319/month, which lowered them by $200-300
  • Direct Merchants (they weren’t as friendly, but they cut us a good deal) – they cut our principal by 25% and took the interest rate to 0% – *however* we had to pay the balance monthly within 6 months – those payments are the $1,600+ payments (only 2 left as of this writing). 

The “hitch” for all of this: (1) the cards/lines of credit are closed, (2) my husband cannot apply for any credit while paying these off or the terms will revert to the previous agreement – this is for 5 years, (3) if we miss a payment, all the terms will revert. 

But all in all, I’m actually glad that we went through with this process instead of going through the bankruptcy filing. Sure, there would have been more protection and it would be nice to have it a little more “out of our hands,” but I really think that this allows us to push even harder to reduce our debt as our circumstances change. And even though the payment plans are 5 years, we’re still committed to being done with this process in 3 years, 3 months.