I’m $230,000 in Debt, Should I File for Bankruptcy?

[Music] Brought to you by the Every Dollar app. Start budgeting for free today. I'm trying to see if it's worth me possibly filing bankruptcy or just really grind it out and just keep paying debt. Give us the 411. So, I make 142,000 a year. I'm a single parent. My credit cards are about $100,000. I took out a home equity line of 125 to build a guest house in my backyard. Wow. Um, my mortgage is about 4,800. Okay. I try to keep my savings between 9,000 and 12,000 because I'm terrified of going below that number. What's it at now? Um, now I'm at 10 and I get paid in a couple days. Okay. What's your average paycheck? Um, with 142 a year, it's about 12,000 a month. 11 something. Oh, that's your take-home pay is 142. Oh, no. That's um that's my salary. So, takehome um after uh pension and insurance, I net probably about 9,000. Okay. And your mortgage is a lot. Almost half of that. Over half of that. Yeah. What's going on there? The helock. Cuz that doesn't include the heliloc payment. That does not include the helock. Oh boy. It doesn't. Oh gosh. So what got you into this very expensive home as a single parent? Um my at the time my debt to income ratio was higher because I had a lot of student loans. But since then, a lot were forgiven thanks to the former president. Uh I still have about 15,000 left in student loans that did not qualify for anything. So I I only put about 3,000 or sorry 3% down on the house at the time. Okay. And you're in California. Homes are expensive in the LA area. How many kids do you have that are living in the house? One. Okay. So, and because it was because it was 3%, I have to get a um PMI insurance. And in order for me to get rid of that, I refinanced. So, my interest rate went up from I think I was 3% at the time. It went up to about 49 currently. Okay. Oh gosh. All right. How old your child? 11. Okay. Okay. Um so, this is what's getting me. You're you're terrified of having less than 12 grand in the bank account, but you're on the verge of bankruptcy with a4 million dollars in debt. Mhm. Yeah. If I had to play, which one's more terrifying? I'm going with the ladder on that one. I mean, I I the way my credit card payments are set up is like I'm never paying every credit card at the right at the wrong time and I pay more than the minimum. Um, I am able to now set up the guest house to generate income as like, you know, um, a short-term rental, which is going to be great. What was the purpose of the guest house? To generate money. And so now you're able to rent it. H, have you found When will that happen? Probably in the next um, couple weeks once I get everything set up and final permits and things like that through the state. Oh, permits. That could take a while. Yeah. Yeah. And how are you vetting this tenant who will be renting it? I'm hoping the apps or the websites help that part because I'm also terrified of squatters which is a huge issue. That's what I was going to say. This is there's a lot of risk here to spend 125 grand to hope to make a little bit of money cuz what's the heliloc payment? That's 1,100 and that's got a fixed rate on it. That's a fixed rate. Yes. Okay. Okay. And what could you charge rent for this place in the LA market? Probably 2500. Um, I mean, it's brand it'll be brand new, so that would be really competitive to get that that amount. And if I do short-term rentals, probably equal that if I, you know, do higher on the This is like in your backyard. Yeah. How do you feel about short-term rental with a kid in the house? It's a detached garage. So, I mean, I thought about all these things. Um, getting a part-time job, which is really difficult with my work schedule. So, um, but you make great money. I don't think income was the problem here, right? A lot of it is when I got the house, it sort of was a fixer upper. So, the first year I spent like eight grand getting new plumbing and then I needed to get an air uh uh air conditioning. That was eight grand. And then there was other issues with plumbing. So it all just really added up. And so what do you owe on the house total? Since I did the refinance, I owe about 650. And what's the house worth if it were to sell today? Minimum 9.85 or over 1 million. Here's my thing. Peak was peak 1.3 during the pandemic. What I'm worried about is your mortgage right now is over 50% of your take-home pay. It's a lot. That's my biggest problem with this. I also wonder about I mean this is your life, but I wonder about the short-term rental thing with a a kid around. It feels risky. Let me just put it like that. Um, I'd be wondering if there's a situation where you can get in a better a better living situation um for cheaper that's not eating up all of your margin every month. Like a like renting an apartment. Yeah. Majorly downsizing way before I would even consider bankruptcy. See, I'm scared if I get out of my house, I'll never have the chance to buy another house. And that's not true. That's that's that's you living in fear. You're you're literally trading one crazy fear for another and you're living out a crazy fear right now and you're like, I'm fine with this cuz you're thinking in the future you'll never be able to have anything again or you'll never be able to do this. And I'm like, no, let's set yourself up to where you can and you can do it the right way without all the stress and the burden that you have today. How old are you? Early 40s. Early 40s. You've got time. I feel like that's like my theme today. You've got plenty of time. Let's play this out a little bit. Let's say you sell this house for a million bucks, right? And let's say you walk away with, I don't know, 350 out of that. What would what would you do immediately? Well, we'd secure an apartment for you and your uh 11year-old. You'd pay off the credit card debt. All right. Now you're at 250. You'd clear the heliloc, I guess, when you pay that off. So, we'll drop that down. And now you've got $15,000 of student loans to clear. Now that still leaves you with a decent amount of money. I never even touched your 10,000 of savings. Mhm. That sounds like a way that you could start about six figures sitting in the bank. Yeah. And then you begin to rebuild the down payment, which you're going to do easily, making 142,000 with no debt. Yes. And I even thought if even if I get a different place, could I I could rent the house and the guest house and still I would not go rent and keep your mortgage and keep the heliloc and keep the debts. You need to let go of this dream. Think about this. If you cleared a,000 bucks a month from this rental of net profit, it would still take you 10 years to ROI after you spent the 125 grand to make it happen. And we're getting you free and clear plus six figures in the bank to restart. Think about it. I would sell before bankruptcy and you make it 142,000. I think you're going to have a hard time. They're going to force you to sell all of your assets before they let you consider it. Bankruptcy is going to cost you thousands. It's going to destroy your credit for the next seven years likely. So, this is just not a shortcut that you need to be exploring when you make great money and you got a way out. Create your free every dollar budget today. The simplest way to budget for your