I lost my job right before my bonus and long-term incentives, which I had planned to use to pay off debt. Our debt has been piling up over the past five years, and now we are stuck. We’re thinking of selling our house, paying everything off, and renting instead. If we do that, we break even.
Would bankruptcy make more sense? If we go that route, we’d still have our mortgage, which is 35% higher than rent, plus two car payments. What would you do?
You already own a house… why not file for bankruptcy, keep the home, and rebuild your credit over time?
Pax said:
You already own a house… why not file for bankruptcy, keep the home, and rebuild your credit over time?
If the debt is high enough, they could put a lien on the house or even force a sale in some cases.
@Gracen
Yes and no. Creditors almost always put liens on property, but forcing a sale? That almost never happens.
Selling a car, for example, usually isn’t worth the effort because by the time they go through the process, the value has dropped. Plus, mortgage lenders get paid first in foreclosure, so unsecured creditors are often left with nothing after fees.
Foreclosure takes time and money, so for most creditors, it’s not worth it unless the property has significant equity.
We need more details.
How much would you make from selling the house?
How much total debt do you have?
What’s your current income?
Also, what got you into this debt? It’s usually a mix of spending habits, lack of budgeting, and not planning for financial setbacks.
@Bailey
We don’t really know how to manage our money, and we need to learn. We live in the Boston area. Rent would be $3,200, mortgage is $5,800, and car payments total $900. If we sell the house, we could pay off everything, including the cars, and just be left with rent. Utilities for the house cost $9,000 a year, while renting would drop that to $3,000. School tuition is $17,000 a year no matter where we live.
@Mars
$17K a year for school? Time to switch to public school.
Talon said:
@Mars
$17K a year for school? Time to switch to public school.
You’re right. We’ve already made arrangements, but we still need to pay for one more year and find a rental in a good school district.
@Mars
It’s good you’re taking action. First step is recognizing the issue and working on a fix.
Have you considered moving to a cheaper area? If you sell, could you relocate somewhere with a lower cost of living?
How much total debt do you have outside of the mortgage and cars? Credit cards, personal loans, anything else?
And how much do you still owe on your cars?
@Bailey
$145K in credit card and personal loan debt, no HELOC. Couldn’t qualify for one. Car loans total $33K. Household income is currently zero since we’re both between jobs, but we expect to bring in $9K a month starting in April.
@Mars
So if you sell the house, you’ll be able to pay off all $145K in debt and both cars, leaving you with just rent?
Bailey said:
@Mars
So if you sell the house, you’ll be able to pay off all $145K in debt and both cars, leaving you with just rent?
That’s correct. We’d be completely debt-free if we sold the house.
@Mars
If you go that route, make sure you use it as a fresh start. This might be your only shot at resetting your finances.
Learn how to budget and handle money better. There are plenty of resources online—look into financial education programs. Caleb Hammer on YouTube does a good job explaining personal finance in a way that makes sense.
In the meantime, you need some income. Even if you start with temp jobs, just get cash flow going until your full-time work starts in April.
And if moving out of Boston is an option, it could make your money go much further.
@Bailey
Thanks for the advice.
@Mars
Selling the house and getting rid of debt sounds like the best option. Bankruptcy might push you toward selling anyway, so check with an attorney to understand your options.
@Mars
Sell the cars and buy cheaper ones with cash. That alone would save you $900 a month.
Renting isn’t great either unless you’re okay with neighbors above and below you. Plus, the market isn’t cheap.
No matter what you decide, you have to learn how to budget. If you don’t, you’ll be in the same spot again in a few years.
Talk to a bankruptcy attorney before making any moves. Selling your house might feel like a reset, but you could regret it later.
If possible, get rid of the car payments and buy something cheap with cash. Then file for bankruptcy and keep the house.