I doubt they can sell the house – if the county is doing so badly that property taxes doubled, it does not sound like a seller’s market.

This is a very emotional issue – especially if you’ve gone through it before.

I think that selling the house is an option but not the first one. We would need more information first.

When I asked John about that idea, he told me that renting something (even much smaller) would cost them the same or more – they’ve lived in the home for many many years.

The home they currently own is a starter home so there is nowhere to “downsize” according to him.

Anyway, until they get spending in line with income, it won’t matter. They’ll experience the same thing you did – they’d fall right back into debt.

The first target has to be spending and income. After that, once that’s stable, we can look at selling the home if we still need to…. Maybe they should move altogether to a new state with better income options. They don’t earn all that much right now and that could be significant – down the road.

This is a tough one…granted. You or I would have other solutions but my sense is that John and Margaret really have to focus on what got them into this fix before we apply a solution.

I do appreciate your strong feelings but they were neither rude or too strong. Keep it up Pilgrim!~
.-= Neal@WealthPilgrim´s last blog ..Innocent Spouse Married A Tax Cheat. Now What? =-.

Or would they not be able to make any payment whatsoever? I would think that second mortgage is a long-term enough to cut the costs down significantly.

If that doesn’t pan out, I’d say they need to fine all the side hustle they can. I’m assuming the husband’s working part-time or not at all. You didn’t really mention the details. Either way, if they want to save their house, they need to take in boarders and find extra work.

If they can’t do both of those things, they’re probably going to need to sell the house. If they can’t sell it… Well, I just think it’s better to leave the house and keep your IRA in tact than to save a house but start from scratch on retirement at this point in their lives. At the rate that they’re going, they’re not going to be able to replace that $68,000 in the near future. So they’ll actually pay about $55,000 for the privilege of raiding their retirement assets early (10% penalty for early withdrawal).

I understand that they don’t want to lose their house. It must be heartbreaking. But that is something concrete they can do now. Otherwise, they risk their future. And what if they borrow their IRA and things still don’t pick up? They could still lose their house anyway.

They should consider selling or renting the house. Ideally, they can share it with someone else. But since he hasn’t (I’m assuming) come back into a regular job in his field of work, they may need to consider moving anyway. Why not sell or rent out the house to cover the payments and try to use that to cover themselves in the meantime?

Also, did anyone mention to them going through and cleaning house? When we had to move, we were horrified by how much stuff we had and needed to get rid of. They were all small things, but they added up. We got about $250 for a late-in-the-season yard sale that started later than it should have. We ended up donating about $2,000 worth of items (being conservative about value).

They should get on Craigslist and eBay and start listing stuff. If they aren’t sure about any given item, they should ask themselves whether they’d rather have it or the house. Keep it or declare bankruptcy. Even if they don’t have any big toys, they might be able to make a dent in their credit card payments for a couple of months, if they keep selling things.

We never considered ourselves as having too much “extra.” But when we had to decide how to fit everything into a 10′x11′x12′ cube… Suddenly, we just weren’t as attached to our stuff. (And I’m a packrat, so that’s really saying something!)
.-= Abigail´s last blog ..What’s your 500-word story? =-.

I’m really glad you take me to task. Good for you!

Using IRA money is always the last resort. The bankruptcy would actually cost them more because -as I understand it – they’d lose the house.

Yes, these people would be subject to tax and penalty if they used the IRA money and yes, it’s usually a very bad idea and one that should not be taken lightly.

As you may recall, I did not recommend using this money to pay the debt in this case. I suggested they go back to the creditors and negotiate and at the same time, take a hard look at every single expense they have with the goal of cutting beyond the pain point.

I don’t want these folks to touch their retirement assets for exactly the reasons you point out. But in some (very rare) cases, using the IRA money might be the least bad alternative. It depends on the situation.

I think that paying off ones debts, no matter how you do it, is better than walking away from them. I think that sticking it out and paying them off gives (especially a young couple) a healthy appreciation for money. Walking away from debts does not do that in many cases. At least, that’s my experience.