As we thought about filing for bankruptcy, our hope has been that our lender will see that we are filing and they're going to lose money on us, and offer us a settlement instead. We filed 4.5 weeks ago at this point, and still haven't heard anything. Our hearing is on Monday, so only two business days left. I'm not entirely sure if we can withdraw our bankruptcy petition after our hearing. While I'm perfectly willing to file bankruptcy to get us out of this mess, I'd rather not if we don't have to. We'll see.
So the hearing on Monday is referred to as a 341 hearing, which, in Virginia, takes place 30-45 days after you file for bankruptcy. (Throughout this blog, I will refer to my experiences in VA; I'm not sure how much of what I experience is consistent throughout the country.) These hearings are scheduled in hour time blocks, with multiple people assigned to each block. You get about five minutes with the judge, during which time he/she asks you questions regarding your filing. Such as, Did you tell the truth? Do you have any changes to your filing? Do you understand the consequences of filing?, etc. Nothing too hard, according to our lawyer, but I'm still kind of nervous about it. We followed the laws, but I'm still afraid I'm going to say the wrong thing. And this is the other weird thing - you're not supposed to dress up. You're supposed to go looking neat and clean, but very simple clothes. You don't wan to project yourself as someone with money, because that's not exactly the image of a bankrupt person, now is it? This won't be hard for me - I don't typically dress very fancy anyway - but it's going to be weird going to a formal appointment and not dressing up.
Thursday, March 5, 2009
How we got here, Part 3
When we last left this story, I told you that we felt we had no choice but to walk away from our condo. I wasn’t crazy about this idea at first, but after I thought about it for a few months, I realized that it was really what had to be done. We can’t continue to live here for another decade, and even if we could fit, I don’t know how I’d feel about continuing to throw our money away on an investment that has lost so much of its value. That’s neither here nor there though, because we just can’t stay.
So now what? Well, we stop paying our mortgage. The lender would foreclose on us…but wait, there’s no guarantee they’d leave us alone. In fact, in Virginia, they have five years to come after you for the balance that you owe them (in our case, this would be something $115K-$120K, maybe more depending on how much they could sell it for). Well, we can’t have that. My husband makes more than he did when we bought the place, but it’s still not a ton. He fully expects that within five years, though, that he will have moved on to a much more lucrative career, and we could actually have that much cash sitting around for the lender to take. That’s not a chance we were willing to take, so bankruptcy is the final step.
So now what? Well, we stop paying our mortgage. The lender would foreclose on us…but wait, there’s no guarantee they’d leave us alone. In fact, in Virginia, they have five years to come after you for the balance that you owe them (in our case, this would be something $115K-$120K, maybe more depending on how much they could sell it for). Well, we can’t have that. My husband makes more than he did when we bought the place, but it’s still not a ton. He fully expects that within five years, though, that he will have moved on to a much more lucrative career, and we could actually have that much cash sitting around for the lender to take. That’s not a chance we were willing to take, so bankruptcy is the final step.
How we got here, Part 2
So there we were! Our own little home. Cozy, but doable. At the time we were searching for a place to buy (in September of 2005), there were some signs that the housing market was slowing down a little but we said, "Pshaw! It's not a bubble!" Famous last words, right?
The value of our condo has fallen 42%. 42%!!!! Yes, when we got our assessment this year, it was valued at $157,600. Yowzers. This wasn't a surprise this year, of course; we saw that our value was falling all along, as follows:
2006: $268K
2007: $220K
2008: $209K (this was wishful thinking on the part of our county, but whatev)
Basically, we're stuck here. It will take many, many years for the value of this place to even get close to what we owe on the mortgage. As in, my youngest, who's currently four, would probably be in high school. Completely unacceptable. We can't rent the place (due to terms in our mortgage) and even if we could, we'd take a huge loss every month.
We put the place on the market in hopes that we could complete a short sale. All that resulted in was many months of me cleaning like a madwoman but no offers. We didn’t really think it would work, but we wanted to give it a shot. And, of course, we had talked to our lender many times before this, but they basically told us they couldn’t modify our loan because of the way it was securitized. This was our only shot.
The only choice left? Walk away.
The value of our condo has fallen 42%. 42%!!!! Yes, when we got our assessment this year, it was valued at $157,600. Yowzers. This wasn't a surprise this year, of course; we saw that our value was falling all along, as follows:
2006: $268K
2007: $220K
2008: $209K (this was wishful thinking on the part of our county, but whatev)
Basically, we're stuck here. It will take many, many years for the value of this place to even get close to what we owe on the mortgage. As in, my youngest, who's currently four, would probably be in high school. Completely unacceptable. We can't rent the place (due to terms in our mortgage) and even if we could, we'd take a huge loss every month.
We put the place on the market in hopes that we could complete a short sale. All that resulted in was many months of me cleaning like a madwoman but no offers. We didn’t really think it would work, but we wanted to give it a shot. And, of course, we had talked to our lender many times before this, but they basically told us they couldn’t modify our loan because of the way it was securitized. This was our only shot.
The only choice left? Walk away.
Friday, February 27, 2009
How did we get here?
Good question, I'm glad you asked!! It all goes back about four years ago, in a galaxy far, far away...
OK, not really. In November of 2004, my family (husband, one daughter, another daughter on the way) and I moved to Northern Virginia to be closer to family. We knew there was a higher cost of living here (as compared to upstate NY) but figured salaries rise to meet that, so it would be fine.
We rented for a year, and as the year was drawing to a close, we realized we needed to think about buying. The real estate market at the time was crazy - no exaggeration, about 20-25% gains every year since 2001ish. We knew that if we didn't buy soon, we would be priced out of the market and would never be able to buy. At the time, my husband made about 56K (I stay home with the kiddos). We contacted a realtor and started looking. We could only afford condos - single family homes, and even townhouses, were way out of our price range. We ended up with a 2-bedroom, 1-bathroom condo, about 950 square feet. We knew that we wouldn't be able to stay here forever, but we thought 5-7 years until the kids get bigger, and then we'll move up to something more. The price for our little piece of paradise? $272,000.
Luckily, we were smart enough to know to stay away from those exotic mortgages (ARMs and such) and just got a plain-old, 30-year fixed-rate mortgage. It was financed 100% through a state program designed to help low- and moderate-income families. Because of this program, we didn't have to pay PMI, and the payments were interest-only for the first 7 years.
So let's stop here for today. You might have some good questions, like:
OK, not really. In November of 2004, my family (husband, one daughter, another daughter on the way) and I moved to Northern Virginia to be closer to family. We knew there was a higher cost of living here (as compared to upstate NY) but figured salaries rise to meet that, so it would be fine.
We rented for a year, and as the year was drawing to a close, we realized we needed to think about buying. The real estate market at the time was crazy - no exaggeration, about 20-25% gains every year since 2001ish. We knew that if we didn't buy soon, we would be priced out of the market and would never be able to buy. At the time, my husband made about 56K (I stay home with the kiddos). We contacted a realtor and started looking. We could only afford condos - single family homes, and even townhouses, were way out of our price range. We ended up with a 2-bedroom, 1-bathroom condo, about 950 square feet. We knew that we wouldn't be able to stay here forever, but we thought 5-7 years until the kids get bigger, and then we'll move up to something more. The price for our little piece of paradise? $272,000.
Luckily, we were smart enough to know to stay away from those exotic mortgages (ARMs and such) and just got a plain-old, 30-year fixed-rate mortgage. It was financed 100% through a state program designed to help low- and moderate-income families. Because of this program, we didn't have to pay PMI, and the payments were interest-only for the first 7 years.
So let's stop here for today. You might have some good questions, like:
- If you were priced out of the market, so what? Maybe that means you picked the wrong place to live or have the wrong job.
- Why buy when you weren't prepared for it? You didn't have a down payment, so you should have just waited.
- Why the HELL would you be approved for a $272,000 mortgage on a $56,000 income?
All excellent questions, I assure you. As to 1 and 2, blame that on financial inexperience. We were 26 (me) and 24 (husband) at the time. Just not much time in the "real world" yet. The answer to 3 was that these were the boom years! Anyone and everyone could get a mortgage. We could afford our payments, just barely. Our monthly payment, when you figured in mortgage, property tax, and 2 homeowner's association fees (one for the condo community, one for the HOA in our part of the town) came to $1,830. That means that we were approved for a mortgage payment totaling almost 40% of my husband's gross monthly income. However, I actually worked a small part-time job from home, which added about $1000 to our monthly income. The lender wouldn't consider that income when we applied for the loan because I hadn't worked this job for a full year, but we knew we had it and it gave us some breathing room. (In retrospect, thank goodness they didn't consider it, because we would have gotten a more expensive place, and I truly don't know that we would have been able to afford it.) Also, we figured our income would go up and it could only get easier.
That's it for today! Stay tuned for the next episode...
It Begins
All around the country bankruptcy rates are through the roof right now. According to the Administrative Office of the Courts, non-business bankruptcy filings increased 28.4% from June 30, 2007, to June 30, 2008, and I imagine that it will be even worse this year. People are really being hit hard by this economy and find themselves too far in debt to dig themselves out.
Unfortunately, my family has been one of them. Our story is a little different than most, I think, and I will share it with you later.
As we contemplated filing for bankruptcy, I searched online for personal experiences with how it works, how it affects your life, and how you try to recover from it. I could find little snippets here and there, but not much detail. A few weeks ago, I had the brilliant idea to start my own blog about it! I wish that I had thought of it in January when we were preparing to file so that I could have chronicled that part of the journey, but such is life.
We filed for bankruptcy on January 29th. The whole month was spent in a haze of gathering paperwork and culminated with 2.5 hours in our lawyer's office on the evening of the 29th trying to get all the paperwork done correctly. (We needed to file that day because my husband would receive his monthly paycheck the next day and that would have messed up everything.) It was all completed successfully though, and now we are about one week away from our 341 hearing.
I look forward to sharing with you how we got into this situation in the first place, things I learned as we prepared to file, and what comes next! (I wish someone could tell ME what comes next!)
Unfortunately, my family has been one of them. Our story is a little different than most, I think, and I will share it with you later.
As we contemplated filing for bankruptcy, I searched online for personal experiences with how it works, how it affects your life, and how you try to recover from it. I could find little snippets here and there, but not much detail. A few weeks ago, I had the brilliant idea to start my own blog about it! I wish that I had thought of it in January when we were preparing to file so that I could have chronicled that part of the journey, but such is life.
We filed for bankruptcy on January 29th. The whole month was spent in a haze of gathering paperwork and culminated with 2.5 hours in our lawyer's office on the evening of the 29th trying to get all the paperwork done correctly. (We needed to file that day because my husband would receive his monthly paycheck the next day and that would have messed up everything.) It was all completed successfully though, and now we are about one week away from our 341 hearing.
I look forward to sharing with you how we got into this situation in the first place, things I learned as we prepared to file, and what comes next! (I wish someone could tell ME what comes next!)
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