Grateful for any advice

[Mike]

I'm sorry to reach out with such a long and confusing story, but I am at the end of my rope and open to any and all suggestions and/or comments anyone may have to offer, whether favorable or not. If I neglect to note important facts, etc., please let me know and I will fill in the blanks. Here goes . . . My husband and I bought a new house in 2001 in Phoenix for $148,000.00 (1597 sq. ft.), with $30,000.00 down. We also started a small construction business dealing with doors and windows. After he basically stopped working, we divorced in 2005. I taught myself the business and got my contractor's license so that I could continue the business. As part of the divorce, I had to refinance the house at the current market value to buy him out. I purchased the house from him 8-26-05 for $240,000.00 from Bayrock Mortgage (who later sold my loan to EMC) at a rate of 7.625%, interest-only, set to adjust after two years from and put down $48,000.00. The mortgage brokers were friends of our family and assured me that because this was my first home purchase (my ex lives in Europe now and originally bought the house using a foreign national loan, where I signed a quit claim deed) I had no choice but to take this loan, but after a year of on time payments, would have no problems at all refinancing. I had no reason to doubt them. I fortunately was granted custody of my four-year-old son, but had many legal bills, as at one point my ex left the country with him and did not bring him back until court ordered after four months. Because he does not live here, child support isn't enforceable, and I did not start receiving any until recently. In March of 2006, my neighbor talked me into getting a home equity line of credit, which I obtained through Citibank at 8.25%. This helped me pay off legal bills and medical bills for my son, as I carry insurance with a $5000.00 deductible. I also used this for all emergencies (new transmission, a/c, etc.) and to cover expenses for daycare, school tuition or any other bills that may not have been covered with my income on any given month. Wells Fargo issued me a business line of credit for $30,000.00 and a business card for $28,000.00, which I used to cover cash flow issues to pay vendors, suppliers and sub-contractors. Unfortunately, this cushion also made me feel comfortable letting customers make payments and late payments. Some of these decisions have come back to bite me as many of these people ended up in bankruptcy where they wrote off their debt to me. Many months business was great, and of course there were some months that were slow. Twice I had people convince me to test drive bringing them in as partners and it cost me. I started trying to refinance, but was told that it would be very difficult because I had a stated income. Then home prices started falling. My credit scores with the three agencies were 736, 732 and 742. I did not have one late payment on anything ever. I called EMC because my loan was going to reset and take my payment on my first from$1383.42 to $1747.71. They then told me it would go up to approx. $2250.00 six months after that. They told me that because I had never had a late payment, that meant I could afford the payments and not to call back until I was late. I then tried to refinance both loans into one with First Guaranty and was denied. As the housing crisis developed, my business slowed down, lowering my income, but not my expenses. Soon I was close to maxing out all of my resources. I tried to refinance the two loans into one again and was turned down. Citibank would not refinance my line of credit into a 30-year fixed (their idea) and every time I tried to refinance, Citibank and EMC would not work with each other or give concessions of any kind. I felt my world crumbling and was only worried about not having a place for my son to live. I decided that my 1st mortgage of $1750.00 + $550.00 for my 2nd was too much to pay for my home, knowing that my first would soon go up to $2250. 00 to make my total payment close to $2800.00 a month. January 1, 2008 I skipped my first payment, and it made me feel sick to my stomach. But I thought now maybe EMC would talk to me. This time they told me they could not talk to me because I wasn't current, but once I was they would modify my loan for me. Several people told me of stories where they were told this same thing, and then after giving them $5000.00 or so, they offered to drop their rate only .25% or .5%. I told EMC that I would gladly catch up my payments if they could modify my loan to a reasonable rate. I explained that I never had a teaser rate or no money down loan, but instead paid a 7.625% - %9.75 rate, with almost $50,000.00 down. Many people started doing short sales and then the lenders started using those sale prices as comps for their appraisals. Now my home is appraising anywhere from $190,000. - $220,000., depending on who's doing the appraising. I became very frustrated and stopped paying my mortgage and my credit cards as of last month and kept the rest of my bills current. I decided I had no hope and I had to accept foreclosure as inevitable, and possibly even bankruptcy. But I picked up the phone two days ago and someone from EMC seemed sincere in their efforts to help me. They said they wanted me to write down all of my monthly expenses and my income so that they could come up with an affordable payment for me to make for the next six months, since I refuse to make my payments current without a contract negotiating a refinance I deem affordable. She said that after six month of timely payments, she would be able to refinance or modify my loan to a fixed rate. I am assuming they will not wrap my 2nd into this, but I will ask, as that would be ideal. As I write down my expenses, my income becomes a difficult issue, as in January I show little, as in February, but fairly good in March and April expected to be very good. I'm afraid January will make me look like I can't afford a loan, but April will look like I can afford the current adjustable rate. Ideally, what range are they looking for? I don't want to accidentally shoot myself in the foot by showing my slowest or best month for income, as I'm sure once I turn in my numbers, I can't adjust or correct them. My business has picked up and I am starting to see my monthly income go back up to what it was, with the next two months accounts receivables looking fantastic (knock on wood). But on the other hand, I really don't know if I should just let go and file bankruptcy, or fight for a modification and get credit counseling to address the other debt? Between taking care of my seven-year-old son, running a business by myself and maintaining a home, I barely have time for six hours of sleep on a good night, much less begin to understand what to do in my situation. I don't have family near to consult with either. Two other homes on my court have gone into foreclosure, with the one next door becoming overgrown with weeds. What would you do? I have a degree from University of Michigan and consider myself fairly intelligent for the most part, but the situation I'm in now makes me feel like a foolish failure. Please reply with any and all suggestions. Gratefully, Kimberly