Expert: Regan Shinski - 4/10/2010

Question
In the past 18 months I have had medical bills that have added up.  The MRI copays and Dr copays were put on credit cards and a second mortgage taken out to help pay for living expenses. My debt is about 20,000.00 in unsecured credit and 13,000.00 for the second mortgage.  I am having trouble paying my regular mortgage monthly and our local bank that the mortgage is through does not participate in the Making Homes Affordable government program.  I have negotiated with three of the credit companies but the payments are draining us and I am not able to afford the mortgage if I pay the credit.  The other med bills get about 20.00 a month.  This adds up to about 160.00 a month.  What is my best option?  I feel that could pay these bills if our bank participated in MHA.  Our credit is bad though.  Looking for answers.  thanks!

Answer
Hi Ellen:

it sounds like you have done a good job trying to address this by negotiating where you can.  I will assume you have explored all possibilities of reducing the payments through negotiation and increasing your household income.

So... if you are going to miss payments - again never recommended but we're dealing with reality here - you should miss on the oldest non-secured debt first.  If you are bad enough to the point of contemplating bankruptcy, you should go ahead and stop paying all unsecured debt.  You try and deal with each account through credit repair and stalling techniques to avoid getting a judgement.  Once a judgement is about to be put in place - THEN you file the bankruptcy.

The benefit here is that you do not lose the benefit of bankruptcy if you need it and there is a real chance these accounts will only go to collection or written off.  If they go to collection, you deal with each one as it comes up.  Maybe making partial payments or certainly negotiating a severely reduced amount.  If they decide to sue, you can still file and discharge the debt.  Why take the stigma and negative hit of a bankruptcy if you don't have to?

The advantage to filing bankruptcy immediately is that it starts the clock right away on the 10-years it will be on your credit.  Handling it as above may delay that as creditors and collectors roll through the process.  However if bankruptcy is avoided, collection and charge-off accounts only stay on for seven year, not ten.

Remember if a collection agency sends you a letter saying something like "you have 30 days to respond" you should send them a certified letter asking for debt VALIDATION.  This stops many of them in their tracks.  Additionally, you can put in that letter that you want all future communication from them to be in writing.  This will prevent the harassment of collection calls to your home.

Good luck, I hope this information helps.
Regan