# Trying to reorganise debt



## Winehouse (19 Jul 2009)

I have a situation where I am trying to pay credit card bills credit union loans and a tax liability and finding it very difficult

2 Bed apt bought 225,000 renting for 700.00 per month repayment 842,00 to bank
2 Bed apt bought 194,000 renting for 700.00 per month repayment 547.00 to bank
Home mortgage left 7000.00 finished in April 2010 House worth 600,000

Credit Card debt 10,000
Credit Union       13,000
Management Fee 2000
Husband cc        3000
Tax Liability        3000

Both my husband and I were self employed but had to give it up over the last 12 months.
I now earn approx 15,000 per year
He earns              20,000 per year
These are are not permanent jobs
This is my husband 3rd time going out of business and I am finding it extremely difficult to deal with.
I would appreciate any help or advice  


I have a daughter in college and a son hoping to start in Sept as well as two other children.
I drive a really old car which is due to die any day
We got a grant for our daughter to attend college last year and some assistance from my family.  I am finding it 
really difficult to make ends meet and am continualy under pressure.  Should I try and sell off one or both of the apartments I dont think with our job situation I would be able to refinace.


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## BoscoTalking (19 Jul 2009)

Can you downsize your home to one cheaper than 600k and sell one or both of the apartments in order to release money?


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## Winehouse (19 Jul 2009)

Yes I will try and sell one of the apartments to release finance. Thanks


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## chlipps (19 Jul 2009)

why have you a tax liability?.. your incomes are very low.. You should check the revenue website to ensure you are getting all your tax relief entitlements

Is it correct above that you only owe a further 7000 euro on a 600k property.. or is that a typo above... How much do you owe on each of the apartments? If you do decide to sell, how much cash is released..


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## Winehouse (19 Jul 2009)

Yes 7000.00 is correct.  I owe 202,500 on one apartment and 140,000 on the other.  If I sold the one with the 140,000 mortgage at 200,000 I could release after sols fees approx 58000.00  The rental income on the other property is not covering the mortgage repaymets.  I would then pay off my cc bills loans and cu loan which would come to approx 30000 that is a vat liablity of 3000 not tax.  I think I would then lose the grant towards college fees.


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## chlipps (19 Jul 2009)

Selling the 140k apartment sounds like the way forward. In addition to loss of the college grant, ensure that you take the auctioneers fees, capital gains fees also into account before you finalise your decision. Is downsizing your own home an option considering that some of the children are heading off to college?


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## Complainer (19 Jul 2009)

How long have you had each of the apartments? What amount and what mortgage term is outstanding on these? Are you paying interest only on these?


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## Winehouse (19 Jul 2009)

We bought one apartment 3 years ago and one 2 years ago and yes we are paying interest only the term left is 17 years on the 140,000 mortgage and 20 years on the 202,000 mortgage.


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## Winehouse (19 Jul 2009)

No downsizing our home is not an option. Is capital gains tax only payable on the amount you sell it for which is greater than the amount you bought it for?  Thanks.


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## lmipwis (20 Jul 2009)

Hi Winehouse,

I'm going to set out here where I think you are financially and what I would do in your circumstances. Please correct me on any mistakes, disregard my opinion as you see fit and please note I have made a number of assumptions, which are stated.

Re. the 2 Apartments:
Cost to service 2 x interest-only loans: 842pm+547pm=1389pm x 12 = 16,668 pa.
Management fees = 2,000 pa.
*Total cost per annum = €18,668*
*Assuming no maintenance costs, boiler servicing, painting, etc - unrealistic

*Total Rental Income per annum: 1400pm x 12 = €16,800*
* Assuming no break in rental income - unrealistic

My opinion: These 2 apartments are not paying for themselves, you are conservatively losing €1,868 per annum on just operating them. They are interest-only loans so no capital is being repaid; mortgage not reducing.

On the value of the 2 apartments:
You bought at peak of the market and prices have dropped circa 40% since then (note, this is debatable, depends on location etc)
Assuming a 40% drop:
Apartment 1 - bought at 225,000; mortgage 202,500; current value 135,000; current negative equity = 67,500
Apartment 2 - bought at 194,000; mortgage 140,000; current value 116,400; current negative equity = 23,600

*Your total current negative equity is €91,100*

My opinion: You currently have €91,100 of negative equity in the 2 apartments, they cost you at minimum an extra €1,868 per annum. You cannot sell one or both, in a negative equity scenario, without giving the bank the difference, plus you will need their permission to sell at less than the mortgage.
It does not seem likely that property prices will recover in the short-medium term - you can read about this from the Central bank, ESRI, PTSB Index publications, etc, etc. Should prices continue to fall, your negative equity situation will get worse. In addition, there is the €200pa tax on owners of 2nd homes (€400pa for you), plus property taxes looming in the next couple of budgets.

Personal Situation:
Adding up your list of debts above, you have currently €31,000 of debt, aside from apartments, mortgage on your home.
You have 1 child in college, another about to start in Sept. and 2 children at home - expensive and grants don't cover all 3rd level costs (as you prob. know!)
You likely have upcoming car maintenance costs
You are relying on family for financial help, but how long realistically can this go on for?
Your family has an income of €35,000, which seems not to be secure.

Re. family home:
I'm going to make a guess that you have secured the 2 apartments on your family home (I hope I'm wrong here).
I'm going to doubt the value you place on your family home and reduce its value from €600,000 to €360,000 (40% drop). You need to get it independently valued by 3 estate agents and ask them what it would realistically SELL for (I will very happily be wrong on this one!).

*Overall Summary:*
You are in negative equity of €91k, you have personal debt of €31k, you have some high cost items coming up fast (3rd level, children, car).
You have an income of €35k but its not terribly secure.
You have your home which is worth circa €360k.

*What I would do in your situation:*
I would sell all 3 properties asap - 2 apartments and home (get independent valuations on all 3).
Then with 325k cash (less 7k mortgage, EA, solicitors fees), I would pay off 91k negative equity, 31k debt, repay family members. That means you are debt-free and have circa €200,000. With that I consider renting for a year or two, looking at getting secure employment, prioritising children's expenses, letting economic situation pan out; enjoy your children and life without debt. 

Once again, I reiterate this is what I would do in the situation. 

I wish you all the very best and really hope nothing I have outlined above is in any way hurtful.


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## Elphaba (21 Jul 2009)

Mabs are very helpful, sometimes it is very difficult to accept and face up
to your current financial woes, they can help you get some perspective.
Bring someone with you for moral support. I had a credit card debt and they negotiated with credit card co. to freeze interest. You get a letter
from Mabs delegating authority. Mabs have a two week waiting list, get all your figures and go along and be strong. I have a daughter who also gets the student grant, its great and gives her independence.You should really consider selling the two apartments at realistic price, you will have to pay 12.5% capital gains, there is the possibility they would be on market for some time. Would your existing tenants be interested in renting to buy, if that could be done? Just a few ideas, I think you need to deal with this situation very quickly, before it gets any worse. Good luck.


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## tosh100 (22 Jul 2009)

Your local SVdeP may be able to help you with an education grant, amounts are small but could help you to get over this difficult patch - well worth getting in touch with them even if you just want someone to talk to.


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## Winehouse (22 Jul 2009)

Thanks for the advice, you mentioned about my existing tenant being interested in renting to buy how does that work?


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## Complainer (22 Jul 2009)

Elphaba said:


> Mabs are very helpful, sometimes it is very difficult to accept and face up
> to your current financial woes, they can help you get some perspective.
> Bring someone with you for moral support. I had a credit card debt and they negotiated with credit card co. to freeze interest. You get a letter
> from Mabs delegating authority. Mabs have a two week waiting list, get all your figures and go along and be strong. I have a daughter who also gets the student grant, its great and gives her independence.You should really consider selling the two apartments at realistic price, you will have to pay 12.5% capital gains, there is the possibility they would be on market for some time. Would your existing tenants be interested in renting to buy, if that could be done? Just a few ideas, I think you need to deal with this situation very quickly, before it gets any worse. Good luck.


MABS discussion moved to this thread.


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## Elphaba (23 Jul 2009)

Winehouse said:


> Thanks for the advice, you mentioned about my existing tenant being interested in renting to buy how does that work?



Sorry I was thinking a bit too far outside of the box, you could agree to sell apartments to your tenants at a REALISTIC price, see what happens. You say you and your partner are self employed, have you really tried every way to make business work, advertising, developing new products, networking, bottom line is you need a steady income. You need to be creative when it comes to your earning potential. You need a third party to review your finances, MABS are confidential and an excellent source of support.


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