Bankruptcy vs DebtMgmt vs "Settlement" ?

Hello all. I hope this is an appropriate place to pose my lengthy and long-winded dilemma and first question. I'm a freelance graphic designer, and after years of not enough work and falling further behind, using credit cards to pay for 2 hospital stays, for cash advances to pay my rent, to pay my card payments, I've reached a point where I owe $48,000, credit is maxxed out, payments have doubled, can't find enough work to pay both rent and cards, and I have to make a decision in the next few days - bankruptcy, debt mgmt program, or settlement. I still have decent credit and get 0%APR offers weekly, but only for $3-4000 limits, which won't help me enough. The hardest part is that my work situation is so sporadic - wks/mos. go by when I can't find work - I'm extremely concerned about getting locked in to a longterm monthly payment program. (When I do get work, I make good money) One further consideration is that I'd like to keep my lower balance BankofAmerica visa, and just consider relief from the other 3, but I don't know if this is a good idea...

I have virtually no assets - a '93 car, a '97 computer, an old motorcycle and some furniture. I have a small ebay and web biz income of less than 2k/yr.

This week I've begun reading about options, searching the web and came upon this excellent forum with real people - not lawyers.

I haven't fully read what's involved in filing bankruptcy, the ramifications and repercussions and expense - that's next. I downloaded the BankruptcyManual2 pdf. I got several "non-profit" Debt Mgmt firms from the US gov'ts Consumer Credit Counseling 800 number to figure me a program

Yesterday I found out for the first time about "Settlement", got a consultation and program written up, and I'm writing to ask if any of you folk have personal first-hand experience with Settlement ?

As many of you know, Settlement involves opening a bank acct and giving a Settlement law firm the money you'd pay your creditors, or less - an amount you agree you can pay each month. You stop making card payments and let your accounts go delinquent, they change your address and phone to their Texas office where wages can't be garnishee'd and theoretically, collectors won't bother you. They say they'll take over all correspondance with creditors, fight judgements, send out cease and desist letters. Then after at least 6 mos, when you've started to build up a balance in the bank acct and Chase and the others want to bargain, they negotiate a settlement for 25-30 % of your debt, making the banks agree to a paid in full, $0 balance condition for your acct and your monthly payments go to them until you've paid it off. You pay more, they settle sooner.

So far I've got these Pro's and Con's -

PRO's:
- Savings on Principle and interest in tens of thousands of $$'s.
- Pays off your new "settlement" debt in full in 3-4 years on avg
- Somewhat sticks it to the banks who've been gouging me with 29.99% APR for years and probably already got back their actual loan.

CON's:
- $2800 of your first few months deposits goes straight to them, and $1000's more of your mo. payments over the years in fees ($6k for me)
- You have to hide from collectors and bank reps for years - (i'm certain savvy collectors will find me and call me regardless of phone and address switch) so you have to screen calls for the duration (not a problem for me)
- Credit is damaged like bankruptcy ( but can rebound I'm guessing)

Did I overlook something important / misunderstand / leave something out? Your thoughts? Thanks if advance for taking the time to offer your advice.

??? This makes no sense. If I understand this, then you pay them a lot of money, so why not put that towards the debts you owe. And you don't supply false information, like an address, to creditors. Doesn't sound completely legitimate.

Listen folks, there are so many debt settlement consumer groups out there these days and there a lot of consumers who are paying the price for getting wrapped up in these schemes. The one thing I have learned from the mounds of research I have done on these programs (and believe me, the research would shock the hell out of you) is that most of these programs are scam artists that take your money, don't pay off any of your debt and live in paradise on some tropical island with all of the money they have scammed. Then the innocent consumer is stuck with lawsuits and garnishments.

CONSUMER BEWARE!

I don't like writing long winded responses, so I probably won't address all your issues but...

1. Debt Settlement. You are NOT a candidate for debt settlement. To get any kind of decent settlement, you need to be seriously in DEFAULT on your cards. At least right now, Debt Settlement is not an options, w/ $48K debt, you need at least $24K cash and be about 9-14 months in default before you could get a %50 settlement, or $36K cash and be about 4 to 8 months in default to get a 75% settlement. The claims that they can get you a 25-30% settlement are reserved for debts that are typically 2-4 years old and have been sold to junk debt buyers. Most debt settlements average 60%-75% of the balance.

2. Debt Management...If you can barely make payments now, what makes you think you will be able to consistently make payments to a debt management firm. Debt Management DOES NOT reduce your balance, but can save you money on interest...but it can be difficult to find a reputable one. Moreover, since you have lower rate cards anyway, your monthly payment will probably not be significantly lower. Moreover, most of these plans anticipate repayment in 36 months (some might go out to 60), so if you stopped use of all your credit cards...and merely paid you existing principal, you are talking about $1,334 monthly payment, at 60 mos, you are still at $800 per month. Note, they don't reduce your existing interest, they can only stop interest moving forward.
So unless you can afford that kind of payment and meet all your living expenses, this option may not work for you.

I think, first and foremost, you need to take a "reality check" of your lifestyle and prospects. "Doing the same thing and expecting different results, is crazy." Since you need to use credit to pay your living expenses, and even when your working, you can't seem to pay down your debt, you are a better candidate for Bankruptcy than you might think.

Thanks for your replies. May be bankruptcy is the best way for me - but I'm still looking at all options.

I looked up this lawyer on the California Bar - he's active and has no disciplines and apparently has been running this very legal program for years. Maybe "settlement" isn't the correct term or maybe I've misunderstood or mis-stated how it works. According to the agreement I discussed via phone and now have in front of me waiting to be signed, this law firm has a program that will pay the CC banks $14,500 of the $48k I owe - 30%. Now if it takes mos/years of defaulting before anything can begin, that's what I mis-stated and probably misunderstood. The agent spoke of 6 mos at some point for something to begin, that it's a formulaic "cookie-cutter" system they are experts in. I know its a years-long program for me, that I'd be funding every month. Where in the timeline they do the legal wrangling - I don't know. They have offices in TX and since they would be my council for this debt-relief event, there wouldn't be anything false about having a TX address so all contact goes to them, not me.

You guys sound skeptical - and I am too - but it seems legal on the face of it. I value your opinion and want to keep learning....

As for any other opinions I can offer, well, you've gotta make the decision on your own if they are legitimate or not. Just from my research, I've seen no success and a lot of heartache caused to innocent comsumers.

All that aside, BK might be your best option. Although, as it's been said, if you can afford to pay this consumer group all of this dough, then why not just pay them yourself. Better yet, you can settle the debts all by yourself if you communicate with the creditor. Why pay someone else to do what you can do all on your own.

One other thing, just because the lawyer does not have any disciplines may only be because no one has caught him/her as of yet. There are many of these consumer groups that went unnoticed for a year or longer before the law caught up with them.

Although, as it's been said, if you can afford to pay this consumer group all of this dough, then why not just pay them yourself. Better yet, you can settle the debts all by yourself if you communicate with the creditor. Why pay someone else to do what you can do all on your own.

Well I missed a payment, Chase doubled my min. payment from $500 to $1000 /mo and I can't pay that, rent and other CC payments, even when I'm working full-time. I wrote a nice letter to Chase explaining my situation, asking for relief, said I could pay the $500/mo still. They wrote back with "No, can't do it." When I called, they gave me the govt 800# for debt relief counseling

I can't pay my minimum payments is why I'm now looking for help.

BassBoy is right on with the debt settlement programs. Luckily I didnt lose to much money before I found out what a scam it was. I wouldnt do it it I were you.

I know how debt settlement programs work, they are not all scams...I am trying to give you a better of picture of how it "actually" works compared to the marketing material you received from this firm...and I bet the firm you'er considering is legitimate.

However, consider this, if you have to blow your good credit anyway, why pay anything back to your creditors, you really get no benefit out of it, and honestly, BK would be cheaper, in fees, (yes, that is right, cheaper) than if you went with a debt settlement option. Debt settlement is really reserved for people who otherwise can't qualify for a BK, because debt settlement is the most expensive and costly way to resolve debt issues vis-a-vis any other option...you still have to come out of pocket to pay your creditors, and the fees are relatively high compared to other options.

In your case...sounds like you would have to blow your credit using Debt settlement, why not go the BK route, only pay the BK fee, and not pay back anything to your creditors.

Before you decide anything, make an appointment with BK lawyer and discuss your options with them.

I

2. Debt Management...If you can barely make payments now, what makes you think you will be able to consistently make payments to a debt management firm. Debt Management DOES NOT reduce your balance, but can save you money on interest...but it can be difficult to find a reputable one. Moreover, since you have lower rate cards anyway, your monthly payment will probably not be significantly lower. Moreover, most of these plans anticipate repayment in 36 months (some might go out to 60), so if you stopped use of all your credit cards...and merely paid you existing principal, you are talking about $1,334 monthly payment, at 60 mos, you are still at $800 per month. Note, they don't reduce your existing interest, they can only stop interest moving forward. So unless you can afford that kind of payment and meet all your living expenses, this option may not work for you.

I think, first and foremost, you need to take a "reality check" of your lifestyle and prospects. "Doing the same thing and expecting different results, is crazy." Since you need to use credit to pay your living expenses, and even when your working, you can't seem to pay down your debt, you are a better candidate for Bankruptcy than you might think.

The underlined is not true. While I was under a DMP 6 months ago the interest rate was reduced on all accounts. Not to 0% but 6% was better than 29%. But if you missed usually 2 (at least with my creditors ) payments then they kick you off the DMP and revert back to the old interest charges and other fees. So if you think there might be some lean months where you wont be able to make payments then DMP is not for you.

ekelly,

I think you misunderstood what I meant (or maybe I wasn't clear enough, which is probably the case).

What I meant is, if your credit balance is $20,000, that represents an accumulation of charges and "INTEREST". So what happens is, when you enter a legitimate debt management program, they freeze your balance at what ever it is when you join the program...and reduce your interest from that day forward. In essence, they can't reduce "already accumulated" interest, but they can reduce the interest going forward. So, when our friend here enters a debt management program, he will still have to pay off the $48,000 he owes, but over the course of the payment plan he enters with the debt management program, he will hopefully pay less, or not interest during that time. I just wanted to warn him/her that a debt management program will NOT reduce the balance owed at the time he enters the program.

Which is the exactly what you said. So we are saying the exact same thing.

The problem I see here for you with Settlement or a DMP is the same problem you'd have trying to get a Ch 13 Payment Plan confirmed.

In order to Confirm a Ch 13 Plan, the Trustee has to believe in good faith that the debtor/filer can pay the monthly payments.

From what you've said in your posts, you don't have a guaranteed monthly income to propose a good faith payment plan to anyone.

Just my $0.02 worth there.

Thanks all. I'll start looking for BK attorneys in the area, do some reading up on the search/choice first.

150 MPH,

The advice on this website is great. I was in the same spot as you but have a very good income. My wife who has a decent income got sick and we suffered bills and medicine + made bad financial decisions with credit cards.

I was going to do debt settlement and at the time in June I almost sent them my last $5,000. However in doing research I found this site and read a lot. I also looked at the past performance of these settlement companies and it was not good. I did like the idea, however the one that I narrowed down to and almost signed with was nice enough to give me their attorney who is on retainer for them. She is in the Cleveland market as this is where I live. She told me that the program is good but you will get sued by the creditors 99% of the time. She knows as she is the one that goes into court for you with this company. She did not bash the program but did tell me this was the one drawback. I was glad to meet her as at least she told me straight up what would happen. With BK this is not the case.

We decided to file and our 341 meeting is tomorrow at 9:00 AM. I'm really nervous but this site has made me feel that I'm not alone. We have already made our first payment. Good Luck to you.

Here's a link for you, 150:

http://www.usdoj.gov/ust/

If you want to pursue a DMP or Settlement plan further, at least check into some of the DOJ approved agencies.

Click on the link for Credit Counseling and Debtor Education in the BK Reform Box. Upper right.

Then Click on Credit Counseling. All those agencies have been approved by the Dept of Justice as part of BK Reform.

BassBoy is right on with the debt settlement programs. Luckily I didnt lose to much money before I found out what a scam it was. I wouldnt do it it I were you.

Hey 150 MPH~ those things are a scam...I ALMOST got suckered into one a few years ago~
BK is really the safest bet...because you are protected by the attorney and the law~
Those Companies promise you all kinds of stuff, but in the end...they take a HUGE profit, and you're still left holding the broken end of the stick.....
go see several BK attorney's and see what they suggest~ at least your covered by the law~

...Was wondering what you all thought, given my circumstances, or if you've tried this...

What if, in a last ditch effort to save me from filing for BK, I wrote to Chase (25k owed, instigator of my current situation) AGAIN, and said something to effect of - "Look, I'm going to file for Bankruptcy and then you won't get ANYTHING... I'm offering to go back to the $500/mo payment I was making before you doubled it. Will you take another look at my acct, properly maintained for 10 years and give me a break here?"

Or do you think they'll assume I'm threatening them and just blow me off like before? The 10 year customer line didn't help on my previous letter and I did say this on the phone to a low-level supervisor, who was sympathetic but only gave me the CCC 800#. But I didn't think I would really have to file then and now I know I will.

Just a thought....

Just my two cents............I fell for one of those "debt Settlement" scams............all I can say is run very fast and don't look back. The credit counselour that was working with me was the one who advised me to file for bk! They bilked me out of thousands and did NOTHING for me!

...Was wondering what you all thought, given my circumstances, or if you've tried this...

What if, in a last ditch effort to save me from filing for BK, I wrote to Chase (25k owed, instigator of my current situation) AGAIN, and said something to effect of - "Look, I'm going to file for Bankruptcy and then you won't get ANYTHING... I'm offering to go back to the $500/mo payment I was making before you doubled it. Will you take another look at my acct, properly maintained for 10 years and give me a break here?"

Or do you think they'll assume I'm threatening them and just blow me off like before? The 10 year customer line didn't help on my previous letter and I did say this on the phone to a low-level supervisor, who was sympathetic but only gave me the CCC 800#. But I didn't think I would really have to file then and now I know I will.

Just a thought....

From much experience, it probably won't work. From their perspective, you are just a very very small fish in a super large ocean. You have no idea what factors go into their decision regarding troubled debt. For example, you said you owed $25K, they could sell that debt TODAY to a secondary debt buyer for $18,750 and not blink an eye. After all, they have probably already made a profit in interest, so they don't really lose any money by selling it at a partial discount, so your offer to pay $500 per month is worthless to them, even if they stopped all interest from accumulating, it would take you over 4 years to pay that back. Unfortunately, there is NOTHING you bring to the table to motivate any movement on their part. I don't mean to sound pessimistic, but you need to know what your up against.

Just to give you some idea of how insignificant you are to them, JP Morgan Chase & Co. (the parent co for Chase Manhattan) did over $25 Billion dollars in Revenue for the 2nd quarter of 2006 (that is just 3 months worth of revenue)

I tried that myself - basically when the minimum payments went up I was pushed over the edge and could no longer "juggle" my credit card payments. So, I called CITI and MBNA....noted to them the very thing you are suggesting and CITI reduced my interest rate but MBNA just referred me to a debt management program, which anyone I've known to use one ended up much worse off because they would be late with a payment and then you were back to square one again. I decided my credit is bad already and I just cannot get more $ out of what I have to pay off the debt. BK is a legal option...as noted, probably the least costly....cleaner....yes, a bad mark, but guess what...I can't get credit now unless it gouges me terribly. At least I can move forward after filing - even with a BK against me. Unfortunately divorce and job loss and some poor decisions on my part have occurred but life goes on and my worth is not based on those past events. Good luck and I hope to be filing soon----taking some time to even get the $ to file but getting there!! :-)

From much experience, it probably won't work. From their perspective, you are just a very very small fish in a super large ocean. You have no idea what factors go into their decision regarding troubled debt. For example, you said you owed $25K, they could sell that debt TODAY to a secondary debt buyer for $18,750 and not blink an eye. After all, they have probably already made a profit in interest, so they don't really lose any money by selling it at a partial discount, so your offer to pay $500 per month is worthless to them, even if they stopped all interest from accumulating, it would take you over 4 years to pay that back. Unfortunately, there is NOTHING you bring to the table to motivate any movement on their part. I don't mean to sound pessimistic, but you need to know what your up against.

Just to give you some idea of how insignificant you are to them, JP Morgan Chase & Co. (the parent co for Chase Manhattan) did over $25 Billion dollars in Revenue for the 2nd quarter of 2006 (that is just 3 months worth of revenue)

Wow HHM~ this is gut wrenching....the statistics....
I can only say~ all of the money that I have tried to pay back over the years, and it took me this long to realize just how much money I have thrown away~ because I was never going to be able to pay them back....ever.
I truly wish I had done this years ago...when I was only 45K in debt~
One good thing this has taught me...it has taken this painful realization to force me to look at money and how I spend it and what it means to me.
I don't ever want to be in this mess again...ever~

ekelly,

I think you misunderstood what I meant (or maybe I wasn't clear enough, which is probably the case).

What I meant is, if your credit balance is $20,000, that represents an accumulation of charges and "INTEREST". So what happens is, when you enter a legitimate debt management program, they freeze your balance at what ever it is when you join the program...and reduce your interest from that day forward. In essence, they can't reduce "already accumulated" interest, but they can reduce the interest going forward. So, when our friend here enters a debt management program, he will still have to pay off the $48,000 he owes, but over the course of the payment plan he enters with the debt management program, he will hopefully pay less, or not interest during that time. I just wanted to warn him/her that a debt management program will NOT reduce the balance owed at the time he enters the program.

Which is the exactly what you said. So we are saying the exact same thing.

yes :)
I misunderstood what you were getting at. I did the DMP for 4 months before deciding BK. what a waste of time. Sure they reduced my interest rates but the min due under the DMP were only marginally less than I was paying before...I was still in the negative every month. And when I started and went through the whole debt workup I did ask about BK and was told "nah, its not that bad (my debt)" Well since I easily qualify for ch7 I would say it is bad.

...Was wondering what you all thought, given my circumstances, or if you've tried this...

What if, in a last ditch effort to save me from filing for BK, I wrote to Chase (25k owed, instigator of my current situation) AGAIN, and said something to effect of - "Look, I'm going to file for Bankruptcy and then you won't get ANYTHING... I'm offering to go back to the $500/mo payment I was making before you doubled it. Will you take another look at my acct, properly maintained for 10 years and give me a break here?"

Or do you think they'll assume I'm threatening them and just blow me off like before? The 10 year customer line didn't help on my previous letter and I did say this on the phone to a low-level supervisor, who was sympathetic but only gave me the CCC 800#. But I didn't think I would really have to file then and now I know I will.

Just a thought....

Its certainly worth a shot. Chase was also a big PIA for us with 29% interest. We asked to have it lowered, explained our situation, etc. Wouldnt budge. Under the DMP they did lower it though. But after we decided to file to BK and informed them THEN they all the sudden were willing to work with us. Too little too late I told the. If you call (they do have an internal debt dept) and explain BK might be in the future they might be willing to work something out.