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My 2009 Chapter 13 and eventual debt settlement journey

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    My 2009 Chapter 13 and eventual debt settlement journey

    Well my bankruptcy journey 2009 has come to an end. I was able to avoid bankruptcy and settle with my cards, which is better for my situation.

    This is a long post and I apologize in advance.

    Introduction
    My situation only works for people who have access to extra money for lump sum payments. For me it was a tax refund, bonus from work, and 401k loan. In addition, I work for a financial company and would need to inform them of a bankruptcy. That could lead to my termination or handicap me for raises / promotions. In addition, I have a corporate credit card for client visits which would be cancelled in a bankruptcy situation and could also lead my managers to decide that I cannot properly do my job without the card and terminate me. This option may work for you in a similar situation or if you have access to make a lot of money quick via overtime at work, a 2nd job, or selling collectibles / assets.

    I will discuss my situation so that others contemplating Chapter 13 can evaluate and see if settling may be a better decision for you. In many cases settling will not be the best situation for you and chapter 13 will be. This board has helped me a lot and I think everyone who contributes. Without this board I probably would have not made as smart of decisions in this process as I have.

    My situation came to fruition at the end of October 2008 when I had around 63k in credit card debt. This is the month the stock market did very bad and lost over 900 points in 1 day. Within a week my Amex cards (2) made a decision to remove over 15k of available credit. I had an interest rate of 18% on these cards. My BOA card with over 20k of debt decided to move my interest rate from 10% to 26%. Basically these 2 things happening at the same time along with no available cash put me in a situation where I could not make minimum payments. My 401k and IRA were also down almost 50% between Oct and February.

    October / November 2008:
    I talked to a lawyer a friend of mine used for a chapter 7 last year. He was an ex- trustee and basically said I need to file within a month and would be a chapter 13 paying back 100%. He told me straight off that I would need to defer my student loans and halt 401k contributions. I ran the numbers and it just did not make sense with my budget. I talked to a second lawyer and he seemed more flexible. This was back in November 2008. In December I brought him all my information and we started to run the numbers. The software he used said I would pay back 100%. We started to play with the numbers a bit and would ask for reductions for the Student Loan ($230 a month) and 401k contribution (6% of my salary which the company matches). I had received a bonus from work in early 2008 for the 2007 fiscal year but the company was struggling and the 2008 bonus was in jeopardy.

    January / February 2009
    In early January I was informed I was getting a bonus from work equal to what I received the prior year. This meant the bonus needed to be on my Ch 13 forms and meant I may have to pay back 100% or close to it based on the formulas. We waited for the bonus and tax refund (from mortgage interest to be paid to me in late February. At the same time I got an appraisal and had evidence that I was 30k under water on my property.

    Trying to modify / refinance mortgage
    The only thing that remained at this point was to try and get out of the mortgage arm (2.5 years remaining) since doing so while in bankruptcy can be very difficult. Wells Fargo was not very responsive so I was watching for the Senate to take action. In April the Senate decided not to take action on the mortgage plan. So I was preparing to file in mid-may with about 10k in my bank account from the bonus and tax refund (was scared to spend it since the trustee may set my payments to a point where I would have needed that money to break even).



    Debts at time of settlement (approximate):
    BOA: $27500
    Citi: $22500
    Amex 1: $8800
    Amex 2: $5200
    Discover: $5200

    Settlement Situation:
    In mid May I received a call from BOA who held my largest debt (about 40% of what I owed) and offered to settle at 15 cents on the dollar. The account was about to be charged off within a week and they were eager to make an agreement. Previously Discover and one Amex card made offers to my lawyer (February both around 35%). With 10k in my bank account, I took a day to think it over. I checked out this board for information from those who settled. I learned about the insolvency form to possibly avoid some of the 1099C tax obligations. I also called some of the other cards. Citi indicated they could not match 15 cents on the dollar and said they could do 30 cents on the dollar. At this point I had BOA for 15%, Citi for 30%, Amex 2 and Discover also willing to settle for less than 50%. Now I looked to see where I can get the money. My 401k was down in November through February. It was once over 40k and fell to 13k in February. By mid-may it was up to 26k with half able to be borrowed at 4.25%, which would have been a better return than my investments between November and February. So I had 10k in my bank account and another 13k available to borrow (23k available to me).

    Settlements:Taxes:
    Based on my tax bracket I will pay 28% to the government and 6.3% to my state. I ran the IRS form 982 work sheet and see that because of my assets and debts I may qualify for insolvency and not be required to pay the taxes from the 1099Cs. If I do have to pay, I will owe about 8k after applying my 2008 tax refund and hopeful bonus. I will apply for the IRS payment program in that case.


    Comparison for me of Chapter 13 vs Settlement:
    Ch 13:
    -Pay 69k over 60 months.
    -Have to submit tax returns and refunds to trustee
    -need permission if my car breaks down to buy a new one
    -need permission to refinance my mortgage when the arm resets
    -need to tell my boss / compliance at work
    -lose corporate credit card and possibly my job
    -not have freedom to make decisions

    Settle:
    -Pay $19200 now (28% of what is owed)
    -will try for insolvency on tax return or have an $18000 tax obligation.
    -if need to pay taxes then will have paid $37200 (54%). Number may be high if there is interest bit still much less than the potential 100% that was likely with a chapter 13.
    -borrow $12500 from 401k at 4.25% (possible tax implication if lose job and cannot pay back)
    -locked into job until loan is paid off
    -no need to tell work of my situation
    -have freedom to make own financial decisions.

    #2
    Glad that you found a route out of debt that worked out for you in your unique situation, NJ. Now go forth and take advantage of all your hard-earned life lessons so you never find yourself in bad financial shape again. Good luck to you!
    I am not a lawyer and this is not legal advice nor a statement of the law - only a lawyer can provide those.

    06/01/06 - Filed Ch 13
    06/28/06 - 341 Meeting
    07/18/06 - Confirmation Hearing - not confirmed, 3 objections
    10/05/06 - Hearing to resolve 2 trustee objections
    01/24/07 - Judge dismisses mortgage company objection
    09/27/07 - Confirmed at last!
    06/10/11 - Trustee confirms all payments made
    08/10/11 - DISCHARGED !

    10/02/11 - CASE CLOSED
    Countdown: 60 months paid, 0 months to go

    Comment


      #3
      Great story, well written.

      Now that your credit is trashed, will getting your home loan modified or refinanced be a problem?
      Golden Jubilee was a year-long celebration held every 50 years in which all bondmen were freed, mortgaged lands were restored to the original owners, and land was left fallow: Lev. 25:8-17

      Comment


        #4
        BigJohn

        My credit would have been trashed whether I went with ch13 or the route I have taken.

        If I qualify for the treasury plan then my credit may not matter.

        We will see. If it presents a problem I will be happy to come back to this board and post an update to help others contemplating the options.

        Comment


          #5
          Well, let's hope the creditors didn't resell the deficiency balance for collection. (it is common practice).

          Do you know if your home loan was backed by Fannie Mae, if not, you can forget about the Mortgage Modification Refinance program.

          On a side note, I question the advice you got from your "attorney friend" and some of the "assumptions" you made about what has to be done in a chapter 13, unless you really went through the process of figuring out what the chapter 13 would look like, I think you might be misrepresenting what your eventual chapter 13 would have been.

          But, those are good settlements, about on par with what is reasonably possible. It often times comes down to numbers, for high income individuals, settlement can make sense. Generally, settlement is more for high income and high asset value (non-exempt asset) value.
          Last edited by HHM; 06-18-2009, 06:53 AM.

          Comment


            #6
            Those are good percentage paybacks. I wonder if you would have gotten as good a settlement if the debts had already been sold to collection agencies, or junk debt buyers?

            Comment


              #7
              Thanks for the comments. The only one that was charged off was Discover but not sure if it was sold to the CA. The settlement letter had Discover's logo on it so they may have charged it off when I told them I was filing BK in February.

              With each settlement I asked if I was on a recorded line to verify and then asked multiple times that the settlement was in full and that the remainder could not be resold. In all cases I was assured that it cannot be resold. The letters also say full settlement.

              I will know the full extent at the end of the year when I receive the 1099Cs. If one of the creditors does not send to me then I may worry about them reselling the debt.

              My home loan is Freddie Mac I believe. I checked when I try to get Wells to modify for me through the government program. It was definitely one of the programs included.

              Comment


                #8
                When you settled, did you settle the amounts due when you stopped making payments? Or, did you settle the amounts due after they jacked up your APR and added late fees?

                Our Citicard that had a payment due June 15 was just upped to 29.99% APR.
                So, after a few months of not paying I'm sure the balances on all our accounts will go up quite a bit.

                Comment


                  #9
                  Lala

                  The settlement was on the inflated amounts. I tried to get them to reduce the principal but they were not willing to settle for that. They were playing hard ball and saying if they ask to reduce the amount from the time I stopped paying, then they would require full payment.

                  I have a larger forgiven amount.

                  Thanks to a large student loan, underwater property, and car debt, I should be ok with the form 982 to say I was insolvent and not have to pay taxes on the forgiven amount.

                  I believe it needs to be as of the day of each settlement for liabilities vs assets. Mine range from -50k to -10k.

                  Originally posted by lala View Post
                  When you settled, did you settle the amounts due when you stopped making payments? Or, did you settle the amounts due after they jacked up your APR and added late fees?

                  Our Citicard that had a payment due June 15 was just upped to 29.99% APR.
                  So, after a few months of not paying I'm sure the balances on all our accounts will go up quite a bit.

                  Comment


                    #10
                    Niguy1972:

                    I noticed you used IRS Form 982 just to get a feel for insolvency regarding 1099 for year 2009. IRS Publication 908 is quite detailed. I'm not sure Publication can be viewed at the IRS website or must be ordered by mail.

                    I'm proud of You! Our journey started last Sept. for a Chapter 7 to be filed 9/30/09. However, my father who will be 90 in Dec. is failing fast, according to his wife, yesterday on phone. He has told my twin sister and me, upon his death, we will inherit a large sum of monies. I pray he lives to be 93 or 94 like his mother and father.

                    Luci

                    Comment


                      #11
                      Thanks for sharing this story.

                      I am a high wage earner with no assets and a big chunk of change owed to cc companies. I also work for a financial services firm - and if you can believe this - it didn't even occur to me that I may also have to report my BK to my employer - and it may have some very negative consequences for me.

                      I don't have as much money up front to work with - but would love to settle if possible. My fear is that I'll start settling with what I have left to work with - and will still get stung along the way, leaving me with nothing in my 401k, and still in a Ch 13.

                      I am also upside down in my house... wondering if I could stop paying on that to put money towards the cc companies - and deal with the house last, since I could probably live there for a year while not making payments, from what I gather.

                      No matter what - my credit is shot, which would be fine by me if so many businesses didn't go by your credit score as if it were some sort of stamp of worthiness on a personal level.

                      Comment


                        #12
                        Zen

                        be careful. If you stop paying your mortgage you will need to be prepared to lose the house.

                        The employer discussion can be embarrassing plus the company can descide to lay you off because of it.

                        If you stop paying your cards for 6 months you will get settlement offers for 30-60%. You need to evaluate if it makes sense for you.

                        Look at:
                        -how much is in your 401k - can borrow half
                        -project tax refund
                        -projected bonus

                        Originally posted by zenbit View Post
                        Thanks for sharing this story.

                        I am a high wage earner with no assets and a big chunk of change owed to cc companies. I also work for a financial services firm - and if you can believe this - it didn't even occur to me that I may also have to report my BK to my employer - and it may have some very negative consequences for me.

                        I don't have as much money up front to work with - but would love to settle if possible. My fear is that I'll start settling with what I have left to work with - and will still get stung along the way, leaving me with nothing in my 401k, and still in a Ch 13.

                        I am also upside down in my house... wondering if I could stop paying on that to put money towards the cc companies - and deal with the house last, since I could probably live there for a year while not making payments, from what I gather.

                        No matter what - my credit is shot, which would be fine by me if so many businesses didn't go by your credit score as if it were some sort of stamp of worthiness on a personal level.

                        Comment


                          #13
                          Thanks.

                          I did come to realize that my options may not be as open as I had hoped. Even if I prepare to lose the house, which is OK in my book at the moment - the reality is - from what I understand - that I would take another huge hit when they foreclose, if I am not doing a bankruptcy along with the foreclosure.

                          What I mean is - I am already upside down in my mortgages, so even if I start skipping payments to put aside cash to settle the cc debt, I'll still have to account for the house after foreclosure, if they come after me for the difference between what I owe and what they auction it off for... if that is how it works.

                          So it seems increasingly unrealistic for me to consider much of anything else beside bankruptcy at this point - otherwise, I'd be facing years of unknown debts to settle one after another... and who knows if I'll even be able to keep my high wage earning job throughout all of it.

                          It's high time to stop the bleeding and face the music.

                          Comment


                            #14
                            Originally posted by zenbit View Post
                            Thanks.

                            I did come to realize that my options may not be as open as I had hoped. Even if I prepare to lose the house, which is OK in my book at the moment - the reality is - from what I understand - that I would take another huge hit when they foreclose, if I am not doing a bankruptcy along with the foreclosure.

                            What I mean is - I am already upside down in my mortgages, so even if I start skipping payments to put aside cash to settle the cc debt, I'll still have to account for the house after foreclosure, if they come after me for the difference between what I owe and what they auction it off for... if that is how it works.

                            So it seems increasingly unrealistic for me to consider much of anything else beside bankruptcy at this point - otherwise, I'd be facing years of unknown debts to settle one after another... and who knows if I'll even be able to keep my high wage earning job throughout all of it.

                            It's high time to stop the bleeding and face the music.
                            Zen I am in the same situation as you so I totally understand. I'm kind of backed against the wall too with foreclosure and cc debt. I've decided I'm ok with surrendering the house though...

                            NJ... can I ask if there is an attny you would recommend for personal bankruptcy in the Manhattan area? I assume you work/live in this area? If so, please ping me any attorney referrals.

                            Many thanks

                            Comment


                              #15
                              Sorry for not responding but I have not been lurking on the board lately.

                              I do not know an attorney in NYC.

                              At this point I have spoken to a good friend who is a CPA.

                              NJ does not require residents to include forgiven debt as income. This will save me a few thousand dollars. As for the IRS, I should qualify for insolvency and be tax free on the forgiven debt there too.

                              Of the 5 cards I settled with (4 companies), I received 1099Cs from Citi and BOA. Still waiting on Discover and Amex.

                              I will give them a week or so before filing my taxes. Even if I do not rexceive them, I will include them as misc income (with a comment of canceled debt) so that I can forego taxes on it. From what I read, the IRS wants you to prepare your returns with the forgiven amount and then exempt it through Form 982.

                              I hope this helps.

                              if anyone has received a 1099 from Amex or Discover please post the date you received it since I settled 6 months ago and there should be no hold up.

                              Comment

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