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WALL STREET, CALIFORNIA | MONEY MAKE-OVER / DEBORA
VRANA

Crisis Management : A Strict Spending Plan Should Help Rescue the Coopers

November 26, 1996|Debora Vrana

The Coopers' lives once seemed so bright they needed shades.

The hard-working couple made nearly $100,000 a year. Michael and Stephanie often spent Saturdays at the mall buying clothes and toys for their daughters, Jourdan, now 3, and Kendall, now 15 months. They took weekend trips to Las Vegas. They bought brand-name grocery items and the best cuts of meat.

Two years ago, the Coopers moved into their dream home in Carson, in the same neighborhood where Stephanie grew up. She wanted her daughters to have the kind of safe, happy childhood she had had, but better. Their three-bedroom house was only five minutes from Stephanie's mother's house, where the couple had lived for a year in order to save enough for a down payment on a home of their own.

But somehow it all went wrong.

Michael, 33, and Stephanie, 31, are now on the verge of filing for bankruptcy protection. They are $1,400 behind in debt payments. Their monthly take-home pay of $4,358 is barely enough to cover bills and living expenses of $4,188 a month.

They face tough decisions, such as whether to walk away from their home, in which they have no equity, raid their 401(k) plan or sell the family car.

How did it happen? As with many Southern Californians, the Coopers were living way beyond their means. Their lifestyle was supported by a foundation of debt, the minimum payments on which they could barely make when they were pulling in $100,000.

But then the couple decided Stephanie's $54,000-a-year job wasn't worth the long commute and long hours away from home. In February, she took a job managing artists' and performers' careers that was closer to home but that paid $33,000 a year.

That's when the problems really began mounting.

Now about two-thirds of their income goes to make minimum payments on their debts. About a third of their income goes to pay housing costs that include home insurance, a gardener and first and second mortgages on their house, which they bought for $176,000. As their mortgage payments have absorbed an increasing amount of their income, the couple got further and further behind in payments on their other debts.

"There are so many bills out there now and we can't cover them," Stephanie said. "It's created a lot of stress. There were times we thought it would boil over, but we realized the important thing was for us to hang together as a family."

Two things the Coopers are determined to do. First, they are not going to lose each other or their marriage. Second, they say they aren't going to lose their house. They told certified financial planner Darlene Jacobsen, who reviewed their finances, that they will do whatever it takes to keep their home.

"I don't want my children to grow up in an apartment," said Michael, who makes $36,000 a year as a radio production engineer and $8,400 more by doing additional engineering work on the side. "I love my wife and I love my family, and I don't want to lose them over this."

Although the situation seems overwhelming, it's actually not unusual, said Jacobsen, based in Corona del Mar. Many families of all income levels are drowning in debt. Even families such as the Coopers, who still make about $75,000 a year, can get into trouble.

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Jacobsen pointed out that there will be no quick fixes for the Coopers but that they are committed to extricating themselves from the situation, and a steadfast commitment is what it will take.

Debts that take years to build up will often take at least as much time to get rid of, Jacobsen said. The challenge for the Coopers will be to hold on to their dream house while they do it.

"It usually gets worse before it gets better," Jacobsen warned of situations such as theirs. "Even if you follow a strict spending plan for two years, you are going to have some tough times ahead."

This is what the Coopers are facing: They have borrowed from Michael's 401(k) plan, which has about $7,000 remaining, to stay current on their first mortgage. They are behind two payments totaling $600 on a $20,000 second mortgage with a high interest rate.

They have $15,800 of debt on a personal line of credit used to pay down credit card balances and to make home improvements. The couple pay $200 a month on that loan and are behind four payments.

They have stopped using their credit cards, but they still owe about $5,100 on six cards. There is also a personal loan for $2,005 that has a $240 monthly payment. The couple pay $50 a month on a $1,452 student loan and $50 a month on $943 in back state taxes.

Their 1988 Chrysler LeBaron convertible is paid for, but it needs some repair work. The couple have already spent $5,000 in repairs this year. They pay $416 each month to lease a 1993 Jeep Cherokee whose lease expires in June.

Solving problems like these isn't easy, Jacobsen said. But the Coopers do have some options they can consider.

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