credit card - payoffs

[paradiddle]

I saw my BK atty yesterday and he suggested that one strategy for me is to do a payoff of CC debt. I would have to stop paying the cards to motivate the CC companies.

I have 65K in 3 cards, Some are low or no interest rollovers but will be due soon. All in my name. Wife and I have mortgage and Heloc on home. All payments are up to date and ficos in the 730's. We own our vehicles outright.

I am only working PT since recovering from MV accident and bad Fla economy. I have a lawsuit that is pending. Atty suggested that I could use lawsuit money to payoff at 25% on one shot pay-offs when I have the money to do so. He also suggested that lawsuit money should go in joint acct. not my personal. At current rate I will probably be at 75K by the time I can do this anyway.

I have had closed accts and rebuilt my credit before in the mid 90's and this would not affect my wifes credit.

I see that payoffs may trigger IRS 1099's ? Of course when I had write-offs in the 93 I just had to wait 7 years to get them cleared.

[Flamingo]

When one negotiates with a creditor to reduce debt, a 1099 is issued by that creditor for the "forgiven" portion of the debt for the year in which the debt is forgiven. The amount would need to be listed on your federal and state tax returns and you would pay taxes on that amount. You would need to run numbers on what that tax would be compared to what you can afford. If you don't report that 1099 on your taxes, the IRS will shortly be in touch with you.

The only option to not claiming the amount on the 1099(s) is to prove to the IRS that you are insolvent. When you do that, your chances for getting audited skyrocket and it is best to consult with a tax expert or tax CPA to do your taxes.

Go to www.irs.gov and review their section on forgiven debt.

[paradiddle]

has anyone elso out there just did a CC re-nogotiation with no BK? How long does "settled" ding you CR and how badly VS a closed paid late acct.

concerning the 1099 dilemma, I could file seperate because I do not show much income and would be at lower end of scale. We file as joint usually and roll our corp-s loses against our income.

[StartingOver08]

Do not file BK if you can avoid it - it really is a last resort type option. If you have funds coming in to make settlements, do that. Most of the posters here, including myself, had to resort to BK because we had no other viable choice.

If you want to find out good information regarding settlements, go here:

http://debt-consolidation-credit-repair-service.com/forums/showthread.php?t=257807

Look at the whole site - it is where you need to be when you can settle. BK will negatively affect your credit report for years (7 to 10) and it really only should be used if you do not have other options to recover from a financial setback.

[magyar123]

With all due respect - bankruptcy is the ONLY way to legally get out of debt. Settlements will increase your tax burden, and debt consolidation will leve you in debt for the same amount with the only difference being that you make one payment instead of whatever.

[jeb]

I am certainly no expert but I do not totally agree with Starting Over - the time things stay on your credit report between debt settlement and BK is not an issue as both stay there for a long time.

I looked at settlement as an option and the way most of them work is that they re-negotiate your debts, take them one at a time and you save up an amount of money to pay off that one debt lump sum and then start on the next one - in 3 yrs or so you have them all paid off.

It seems that most Ccard companies are settling for 30-40% of the debt amount - if you use one of the companies that negotiate for the settlement - and due to the way the Ccard companies work, you all but have to use one - they tack on 10-30%. You then have the possibility of tax problems or having to declare the saving as income THAT YEAR, so all in all, BK came out to be the best option for me - maybe not for you.

Ref the debt settlement companies, the key word is BEWARE! This is one of the biggest fraud/ripoffs areas that have hit this country in history.

Most of them have you send your monies each month to them and THEY save it up and then pay the lump sum to the Ccard company when they have enough to do so. The problem arises as to what happens if, after a year or so, they are no longer in business OR, even worse, the whole thing is fraud from the start?

Unfortunately, you are locked into the position of almost having to use a 3rd party to negotiate with the CC companies. Like the mortgage companies, most won't even hardly talk to you or give you any concessions but will roll over and play dead for a 3rd party that knows what they are doing. (I found this out by helping people with short sales on their homes going into foreclosure.)

Long story, short - BE VERY CAREFUL FINDING A DEBT SETTLEMENT COMPANY TO WORK WITH. - jb

[StartingOver08]

I am certainly no expert but I do not totally agree with Starting Over - the time things stay on your credit report between debt settlement and BK is not an issue as both stay there for a long time.

I looked at settlement as an option and the way most of them work is that they re-negotiate your debts, take them one at a time and you save up an amount of money to pay off that one debt lump sum and then start on the next one - in 3 yrs or so you have them all paid off.

It seems that most Ccard companies are settling for 30-40% of the debt amount - if you use one of the companies that negotiate for the settlement - and due to the way the Ccard companies work, you all but have to use one - they tack on 10-30%. You then have the possibility of tax problems or having to declare the saving as income THAT YEAR, so all in all, BK came out to be the best option for me - maybe not for you.

Ref the debt settlement companies, the key word is BEWARE! This is one of the biggest fraud/ripoffs areas that have hit this country in history.

Most of them have you send your monies each month to them and THEY save it up and then pay the lump sum to the Ccard company when they have enough to do so. The problem arises as to what happens if, after a year or so, they are no longer in business OR, even worse, the whole thing is fraud from the start?

Unfortunately, you are locked into the position of almost having to use a 3rd party to negotiate with the CC companies. Like the mortgage companies, most won't even hardly talk to you or give you any concessions but will roll over and play dead for a 3rd party that knows what they are doing. (I found this out by helping people with short sales on their homes going into foreclosure.)

Long story, short - BE VERY CAREFUL FINDING A DEBT SETTLEMENT COMPANY TO WORK WITH. - jb

I agree that debt settlement companies are not the way to go. That is why I recommended the site I did - it helps you settle your own debt - no debt settlement company involved. I personally think debt settlement companies make the situation worse than what you can do for yourself.

I believe we all have our own tolerence level for debt and stress - BK was designed to be a last resort type option. I do not understand filing on a small amount of debt without trying to work it out first - but to each his own.

[jeb]

I certainly agree on the small amount and BK - not a good deal, IMO. - jb

[HHM]

Do not file BK if you can avoid it - it really is a last resort type option. If you have funds coming in to make settlements, do that. Most of the posters here, including myself, had to resort to BK because we had no other viable choice.

If you want to find out good information regarding settlements, go here:

http://debt-consolidation-credit-repair-service.com/forums/showthread.php?t=257807

Look at the whole site - it is where you need to be when you can settle. BK will negatively affect your credit report for years (7 to 10) and it really only should be used if you do not have other options to recover from a financial setback.

I have to call BS on that information. Basically everything in this post is WRONG.

BK DOES NOT negatively effect your credit report for 7-10 years (it is listed as a public record for that time), but for credit scoring, the negative effect only last 1-2 years.

BK IS NOT A last resort. It is financial tool like any other. You always have a choice as to what to do, but for many people, BK is the BEST option even if other options are viable. BK is often the most cost effective both in the long term and short term. Why settle 80,000 in debt for $40,000 when you can pay $2,000 for a BK. And make no mistake, debt settlement is far more damaging to your credit than a BK (because you have to go into default, accounts get charged off, sent to collections, and guess what, that all goes on your credit report.

[jeb]

HHM, make sense to me - what with all the people that have been forced in BK over the last few years, it is not the serious problem on ones credit report as it use to be.

Far, far more important would be how you handled yourself AFTER the BK.

Go right back to your old ways of doing things and you are toast but keep things in order and, as you say, after a couple of years things start to smooth out. - jb