Family, Financial, and Bankruptcy Help......

I am sure some of you have been through it, I've done some basic research but looking for your opinion.

Here's the problem, My wife's family ( my mom and dad in law) have seperated for the first time ever. He went to go stay with his other daughter in FL, she is staying here in their house. She has always been the bread winner, (he's never made more than 20k a year, and usually way less)....

She is trying to keep up with all the bills, "his and hers", although their finances has always been joined. He has 0 responsbility right now because he has 0 income.

I went over to try to help sort out the bills. I was astounished.

She brings in roughly 2200 a month NET. (probably should get more, she withholds too much checking, calls it her savings. smh. gross 4600 a month!)
Her bills are: Mortgage, Credit Cards, and monthly BILLS(not including gas, food, entertainment, or savings) came to 2300 a month.

These were just paying the MIN payments on everything, combined they have EIGHT credit cards with a little over 20k owed.

She mentioned bankruptcy and just don't know if its the right move. Is Bankruptcy right for them? Can they keep their house??

What if they get back together?? which she says she is giving it 6 months before making a decision and right now its a "50-50" chance. Granted he only netted $1400 a month, but that allowed them to pay extra on the Credit Cards and have enough left over to for gas food and entertainment expenses...

She mentioned something about pulling from her TSP Retirement fund, that she can pull from, its a government retirement fund. She CLAIMS, you can pull out anything you need, set up the number of years in the repayment, and only pay 1.9% APR. Is that true??? Anyone know anything about this???


But what if they dont get back together???.... he's a bum, he's never gonna to make more than 15k a year. Even if that what he does make, he's going to have his own living expenses, how much will he be able to send back to her to be able to pay his portion? $300 a month?

If she consolidates all this debt, and they don't get back together and get a divorce, does that mean, even the debt she consolidated in his name, is legally, forever her responsiblity???

I hate for her to pull from her retirement because they clearly don't save enough as it is, but IF and thats a big IF, she says it true she can borrom 20,000, at 1.9% over 5 years, Were talking only $350 a month. Just seems too good to be true.... But at the same time, shell need to get a 2nd job just to make it, which she is willing to do, just won't be a ton of money or hours available.....

I appreciate you guys giving me your opinion and being respectful in this matter. Not knowing how they turn out is tough, but I just want them to be okay financially.

(<)<

loan rate is currently 1.375%, you can research it at www. tsp.gov

she can borrow up to 50% of her tsp account balance, so as long as she has 40k in her account she can borrow 20k at 1.375% for a term of 1 to 5 yrs

Getting involved in your wife's family and a potential divorce is a recipe for disaster.

Enfuego said:

Getting involved in your wife's family and a potential divorce is a recipe for disaster.

Click to expand...

+1

Enfuego said:

Getting involved in your wife's family and a potential divorce is a recipe for disaster.

Click to expand...

Normally, I would agree. these people though, just lack common sense and knowledge, they rely on me for quite a lot, which I don't mind... Im close to both of them....

pete7713 said:

she can borrow up to 50% of her tsp account balance, so as long as she has 40k in her account she can borrow 20k at 1.375% for a term of 1 to 5 yrs

Click to expand...

pete thanks for the information... Ill look at it...

have you ever done it? any other drawbacks you know of?

If thats the case, seems like the right thing to do.

This is right up my alley and I'll be glad to help.

Before making any rash decisions, a deep breath and common sense is necessary here.

First sit down and put an excel spreadsheet together of exact income amounts and exact debts with the balance, minimum payment and interest rate along with the due date of the bills.

What kind of tax return is there yearly, is she/they getting a refund if so is it big? If so change the witholding amount and have more money coming in now rather than 7-8 months from now. You can do better with the money now than the governement getting to hold on to it interest free.

How much is being taken out for the TSP right now, meaning what % of her pay? This is extremely important and must not be overlooked.

Do not and I repeat DO NOT take a loan out of the TSP. Granted it sounds nice to get the loan at a rate 1-1.5% however the losses that will be incurred in the TSP due to the compounding and dollar cost averaging will far outweight taking out the money.

Grossing $4,600 and only netting $2,200 is a big part of the problem and I am sure it has to do with the withholding and TSP contribution.

What kind of credit rating does she/they have? Are they currently late on payments?

What kind of credit lines does she/they have? Are the cards still open to be used, if so, how much outstanding line(s) are available.

Bankruptcy is not the answer here and anyone that says it is or any attorney that says it is, has no idea what they are talking about. $20K in debt with $4,600 gross per month = mismanagement of how funds are allocated and used for. I would imagine they could cut a ton out of day to day expenses and turn this around really quick with money management and common sense.

Changes will be neccessary but without the full picture and numbers, I can't suggest anything further at this time.

Feel free to PM me and I'll be glad to assist in righting the ship.

Again DO NOT tap the TSP and definitely don't file Bankruptcy !!

hotpizza I am very thankful for your advice, although I don't completely follow why you don't think they shouldnt tap the TSP. First off, paying 1.35% compared to 10-16% (her credit card interest) does seem like the right move. Not only that it DRASTICALLY lowers her monthly payment. Wouldn't she only be $1000 in interest over 5 years for a 20k loan. imagine she pays that or more PER year in credit card interest....

I think I understand youre saying she should cut back on his contributions to this fund..... I think youre saying the money that will earn will not be worth taking it out, its opportunity cost lost? maybe? But how do I know where the line is?.... interest - opportunity cost.

I guess I could pull up her account and see what it's earned over the last year and compare that to the interest ont he Credit Cards.....

You said "I would imagine they could cut a ton out of day to day expenses and turn this around really quick with money management and common sense." that's how they got in this position. But that 2300 in expense didn't include ANY day to day, food, gas, savings, money! It only include the MININUM payment for the credit cards too. We actually need to create room for these expense, not cut it out.

I am completely aware it's very poor money management, I mean, they have nothing to show for it. They live in a house thats nearly worthless and a bunch of old broken down cars... I digress

Anyways, back on point, she has $10,000 in stocks. Savings completely depleted. -51 in her account when I was over there. stock and retirement fund, That's her only other equity. House already has 2 mortgages (actually refied just 4 years ago to pay off all the credit card debt)

I am not arguing just trying to get a better sense of your point.

I don't see many other solutions. Even a 2nd job, 15 hours a week at $10/hr thats probably less than $500 a month, plus, lets say she is able to cut back her TSP funding $300, thats $800. -100+800= $700 -gas,food= approx $350 extra to make on credit cards, thats nothing on $20k

But you're the expert and would love to understand a bit more, I appreciate this alot.

I'll send you a PM and we go from there.

You didn't give the details on the mortgage but, if like many Americans you are far under water take a look at walking away from the house. You can immediately stop making mortgage payments and then the mortgage company will at least pay attention to you regarding either modifying your loan or offerring a short sale. If those terms don't work, start packing but, don't move until you have to as you will take those months without a mortgage/rental payment to put that money toward other obligations. This also offers the opportunity to make a decision re: staying together. If that is no, when you leave the house, you can leave the freeloader behind. It can vary but, it usually takes about a year from your first missed payment to foreclosure and you should also checkout your state laws regarding any tax implications.
Walking away does not have the impact on your credit that it once did since so many people are doing it BUT, you will not be able to get another loan for quite some time so be prepared. You also may lose access to some credit cards which may not be a bad thing for you. Google Brent White and read his paper on walking away and why it is a viable option.
An absolute last option is taping that retirement account and you will get some short term relief but, now you are talking about impact when you really need that money and you are risking having control over your life 20 years from now. Good luck.

I should have added...don't pay anyone that suggests a program to get you out of this mess. You have a computer and there is enough professional, free advice to be found there why pay for it when not having enough money is the problem.