San Diego Housing Bubble News and Analysis

how long will you be in russia?

FreeFalling,
So I have no greater expertise or authority than anybody else in looking at your situation, but you sound like you are feeling a bit overwhelmed. I also had to care for an elderly parent and it was a big obligation.

The bottom line answer is that you will have to decide your own priorities, and you need an accurate understanding of the situation to make these choices. I foresee one question deciding much of how you can proceed. How well do you get along with your wife? Can you talk to each other and work together on a plan? If the answer is yes, your situation really is not so bad and there are workable, though somewhat painful, alternatives. If no, you have a problem and that needs to change.

Threshold issue: when you say default, I assume that you mean your credit card debt. This is really the only debt that you have which can be affected even by bankruptcy if you were to go there because student loans cannot be discharged in bankruptcy. Your situation is not unrecoverable because you basically seem to have 2x your income (pulling out the 15K obligation to support your mom, you have 70K income and 140K in debt assuming that you are not paying taxes as an expat).

First step will be to put together a workable austerity budget. This is where the cooperation becomes important. You and your wife need to get onto a budget that you can survive, hopefully without getting scary bleak and with a small margin for error, and you are headed for having to do this whether you ultimately default or not. Monthly negative cash flow is not sustainable, so these changes are coming regardless (the whole country is in the same boat after all). Figure out exactly how much you can live on and what you can cut out, and you may want to get the help of fresh eyes to do this (cable TV is viewed as essential by some, but many never have paid for TV, etc.) Simple math, but a hard answer to give up things we have grown accustomed to in some cases. You have no alternative, so sooner is better and more productive than later. Stay current on the credit card payments while you do your planning so they don’t trip into the penalty interest zones or you will lose a lot of room to maneuver, and don’t go without something like health insurance.

Next is challenge the assumptions and look for flexibility. Do you have any siblings who can contribute towards your mother’s support? Here is where hard decisions include having her move into one of her children’s houses and getting a sibling to contribute towards the costs. As a personal matter, I would do a lot of things before asking her to live on less than 16.2K per year if that is her only income as you say. Not a great time economically to have these conversations, but better than flying the situation into the ground without doing anything. Is your mother getting social security? You mentioned only a pension, but there may be other forms of public assistance available (prescription drug benefit decisions under Medicare are complicated but in some cases save money). Talk to a social worker in your mother’s county, they work with these issues regularly, and while you may need to call a few of them to get to a good one, some social workers are the best people around.

Continuing the search for flexibility, you may need to call the student loan originator and see what flexibility on repayment terms you have there. Most lenders are much easier to work with before you get too far behind, and I have heard that student loan terms can allow for periods of forbearance or even extension of payment terms to allow reduced or suspended monthly payments. You may be able to negotiate repayment terms with the credit card companies, but I would be very cautious about calling them for fear of tipping my hand; they don’t have all that great of a reputation for working with their clients unless forced to do so, and I would approach them after doing the bulk of the analysis and decision making.

Check if you can liquidate assets to pay other obligations, but I would not touch the retirement savings. Retirement savings are protected from creditors in bankruptcy, but more importantly, you are going to need them someday. The car in the states is a candidate, especially if it is just sitting. 9K is 9K, and it would pay down your credit card balances or provide a financial buffer in case of job loss. The 7K in company stock will be subject to claims from the credit card companies if it is not in a protected account (pension or IRA), so you need to consider that this is on the table for your budget planning, and by all means comply with your insider restrictions because messing with these rules is a headache you don’t need (the SEC action and job loss are unpleasant).

So when you have a sense of the actual numbers and the potential flexibility, then you talk to your wife and together you make the call on whether to pay the credit card debt or default. If you try to pay off the credit card, you will have to live very carefully, probably for several years, but probably not much different than a default really. If you default, you will need to talk to a bankruptcy attorney (depending on how aggressive this attorney is, they might be able to suggest some planning like living on the 7K in company stock and making more contributions to the 401(k) for a period before filing, but don’t do something like this without real advice because you will shoot yourself in the foot), and in addition to the mark on your credit record, bankruptcy can also be viewed negatively by present and future employers (there are some EEOC rules about a bankruptcy being a fresh start and hiring discrimination based on bankruptcy is prohibited, but like a lot of employment rules, it is hard to prove – you just don’t get the job you apply for and never know why). Default will probably lead to asset liquidation, and the credit card companies will get the value of the car and company stock, so one way to look at this is whether you want to declare bankruptcy over 24K which is all that would be discharged on the credit cards after they get the car and the 7K in company stock if it is not in a protected retirement account.

I also suggest that you talk to a credit counselor who may have good suggestions that you won’t find on an anonymous internet site. And I don’t think that a permanent relocation with a salary reduction to local levels is market for most expat deals, so get some advice before you agree to terms like that in the future (most of what I see are terms like tax equalization and relocation gross ups, but I don’t see that many).

Best or luck to you.

PW

In Soviet Russia, bankruptcy files for you!

Can you clarify, "support for my family (wife, kids) costs me ~60K" -- is this some sort of child support + alimony? I assume no since you didn't say 'ex-wife'. It seems like $75K/year for mom+wife+kids could be lowered significantly; mom='free daycare' so wife can get p/t job (though they are probably thousands of miles apart, and wife does not have work visa?). You should be able to cut those costs considerably anyway.

Sounds like your biggest debt service is your student loans of $100K and credit card at $40K. If you default of the cc, you can kiss anymore use good bye. The Student loan is probably a GSL? If so, you cant default on it. The govt will always want that money back. The rest are expenses for living. reduce where you can. Am I missing anything?
At this point it's all about cash flow for you. You're young and trying to increase your lot in life. To be honest, servicing you debt is a small part of your monthly expense. Maybe $500 or $600? If you're making $85K and a debt service load of $8K per year is draggin you down, you need to seriously re-evaluate your life style as you'll need to cut expenses big time.

I'd say expense and cost control will be your best long term strategy.

Check out ynab.com (short for "you need a budget"). It's a budgeting software that helped me get out of debt. It uses the principles of living off your last month's income (instead of paycheck to paycheck) and "giving every dollar a job" so you know where your money is going.

Doing just those two things helped me find ~$500 in my budget that I didn't know existed. I could probably save another $450 by cutting some other expenses. Point is, I wouldn't have known where to find them if I wasn't using ynab.

Also check out Dave Ramsey. He has people calling in his talk show that are in much worse situations that are able to turn their debt around.

Good luck.

Are you considering defaulting or filing for bankruptcy? Poor credit can affect you in many ways.

You seem repentant, how about a little self-flagellation in the form of a second job until the debts are paid? If that is possible where you are. Also, I'd say the wife needs to help out by getting a paying job as well.

Hopefully your BA in econ will have taught you budgeting.

[quote=alarmclock]In Soviet Russia, bankruptcy files for you!

Not to make light of the situation, but that was freakin funny!

You're not the only one.

http://money.cnn.com/2008/10/23/pf/colle...

Student loan fugitives
When faced with unaffordable monthly payments and relentless creditors, some see leaving the country as their only way out.