pay creditors or collections?

[tofu4you2]

Another question: if I do sell my house before I have to file Chapter 13, can I pay my ORIGINAL creditors or does the third party collections own the loan now?

Does interest, late payments, and overlimit fees still accrue after all cc's have been charged off?

Thanks inadvance.

[HHM]

If you are filing chapter 13, why would you pay any creditors from the proceeds of the house?

Or, are you asking who gets paid IN the chapter 13. Actually, you don't really care as that issue is not up to you. You simply list all known creditors and all the collections agencies, debt buyers, etc that have ever touched your account. Whoever files the "claim" in your BK is the entity that gets paid. All you need to do is notify "everyone" that you are filing BK (which is done by filing out your creditors matrix for your BK petition).

Does interest, late payments, and overlimit fees still accrue after all cc's have been charged off?

Yes...interest continues to accrue, but generally, once there is a charge off, late payment fees, and other types of fees, generally (should) stop.

[tofu4you2]

That's not exactly what I meant

I mean if we sell our house before we HAVE to file 13. I am trying not to have to file bankruptcy. So this is a general question about creditors and collections.
I want to know if it is possible to go BACK and pay originial creditor or will the collections agency have the note and be able to come after me for money too.
Hope that's not too confusing.
Thanks for the interest, late fee and overlimit fee answer.

We have renters in our house with an option to purchase. They have another 6 months or so, but we were hoping they would buy sooner.

[HHM]

Generally, you pay whoever has the account at the time you pay. But since you have accounts in collections, you have a slew of other considerations. I.e. what kind of settlement will they offer, tax implications on forgiven debt (you need to report foregiven debt as income for tax purposes etc).

But to answer your basic question, if an account has been charged off, the original creditor is done with it.

[tofu4you2]

paying collections

We all know that if we pay the debt in full to the collections it is just free money for them. Some of the debts are $20k. I have a hard time with that. If we finally sell our house, I sure would like to be able to honestly settle with my creditors. I feel bad enough that it has come to this anyway. But if we settle with an agency we have to pay 1099 tax. That would be really hefty on $95k cc's.
If we do have to file the money does go directly to our original creditors.

[HHM]

If we do have to file the money does go directly to our original creditors.

If the debt has been sold, the original creditors are out of it. If you file chapter 13, whoever files the claim for the debt will get paid out of the chapter 13. Don't feel guilty about your original creditors, you absolutely do not get any brownie points for wanting to pay them back.

[tofu4you2]

paying in full

Do we get any brownie points for paying collection agency the full amount owed. (credit report etc.)

[tofu4you2]

paying in full

Do we get any brownie points for paying collection agency the full amount owed. (credit report etc.)
Thanks

[HHM]

Do we get any brownie points for paying collection agency the full amount owed. (credit report etc.)

Nope.

Unless you want to share your situation more, if you have accounts in collection, and with Junk debt buyers, your credit is trashed already. Thus, I am not sure what the hesitancy is to file BK. It is not like BK is going to make things worse.

Why don't you fill us in on the back story a little and maybe we can give you some objective advice.

1. How much equity do you have in your home
2. Monthly income (from all sources)
3. Size of household
4. Total unsecured debt
5. How much debt is charged off, how much is still with the original creditors.
6. In what state do you live.

[tofu4you2]

a little more info

We live in NC
We have $95k cc's
About $120k in equity in our house, that's after we pay off what we owe on the house. That's why we thought selling was the best way to get out from under the debt. We even moved out of the house and found a reasonable rent. However, the market went flat and we were left with two of everything! Things went south after that. We found renters with a lease/purchase option to move in - in Dec. We just hope they will buy earlier.
Most of the cc's have gone to collection- all but maybe $6k.
We have a family of 7
We make around $6700 a month and a new job with a higher salary may be in the works.
I think that's about all.
Thanks for the advice so far.

[tofu4you2]

A little more...

We are also worried about losing the house. I feel horrible having to ask our tenets to leave because we have to surrender the house. If we only have a $20k homestead exemption in NC (that $10k each). If we subtract what we owe from the tax appraisel value we have about $79k - 20K is $59k left. If we need to pay as much as a Chapter 7 than we would owe about $983.00 a month.

59k divided by 5 years, divided by 12 equals $983.

After expenses we just don't have that much left over. How does anyone make it for 5 years like that. It just seems so incredibly tight. What about emergencies? We're already tight.

We will do what we have to, but I just wish the house would sell.
We could pay off everyone and be don't with it.

[HHM]

Ok, instead of dealing in hypothetical...I think the FIRST thing you need to do is get an accurate value for your house. I don't think you need a full blown appraisal, but a Current Market Analysis would be useful...any real estate agent or broker can do this for you.

$95K in CC debt is a lot for someone with $6,700 per month (I assume gross income), that means your unsecured debt is 113% of your annual income...so that does make you BK candidates in my book. Also, for a family of 7, the median income for NC is $83,869, and if the income you stated was gross, your annual income is $80,400, so you are under the median.

Unfortunately, you are in one of the circumstances that falls through the cracks of the BK system. On the one hand, you have too much equity in your home (presumably) to file chapter 7 and keep the home, and given the size of your family, income, and expenses, you can't really afford a chapter 13.

As a practical matter, I would imagine a family of 7 requires a certain amount of living space, so it is not as if you can move anywhere or simply down size. I guess I am not sure why you bothered to move out in the first place?
Is there actual rental income or are you simply collecting enough to pay the mortgage? If you are simply collecting enough to pay the mortgage, give you tenants a 30 day notice to vacate and move back in.

If the house is "not" selling, you may be overestimating the amount of equity, after all, equity is only on paper, that equity does not become cash until you can find a buyer actually willing to pay for the house. Is a real estate agent or broker selling the home or are you trying to sell it yourself?

Anyway, instead of running some options that may or may not be appropriate, go get an accurate valuation of you home.

[tofu4you2]

We actually moved out to help a friend who was moving overseas for 2 years. We only pay $550 to live in a 5000 sq. foot home in a great neighborhood. It sounded like a great idea a year and a half ago. We thought we'd be able to fix up our nice 3000 sq. foot home in a nice neighorhood (we lived in it for 11 years) and sell in about 4 months, settle our debts and live here cheaply and make some money. Well everything went flat, and here we are. Our friends come back in Dec.
Yes, $6700 is gross.
We owe $178k on the house. It's tax appraisal is $257k in 2004. It was listed for $345k when we took it off the market. We would take bottom dollar from our renters and ask only $295k.
That's just some more quick background.
Thanks.

[I want out]

We would take bottom dollar from our renters and ask only $295k.

When are they expected to exercise their option?

The days of the old-fashioned lease option are just about over.

Why?

Because most people who buy on these terms have lousy credit, and typically they don't have very much saved.

Back in the days of "fog a mirror, get a mortgage," it was easy to get these buyers financed.

Now, things are different.

They're likely to need a substantial down payment, particularly if their credit isn't great.

Do they have 5-10% saved?

Have they met with a lender?

Do they know what's needed for them to qualify for a loan?

Do they even WANT the home? (Once you've lived in a house for awhile, you find all of its warts. You've got an extended period for buyer's remorse to set in. Another problem with these agreements is that we're no longer in a rising market. Don't be surprised if they want to renegotiate the purchase price.)

Have they paid you an option fee?

Have you accounted for it and will you be able to prove to their eventual lender that they paid it?

Lots of things to figure out before you worry about spending the equity you think you may have.

[HHM]

I agree, I would probably not be relying on the tenants to bail you out. Plus, you may or may not have till December, you said many of your accounts are already in collections; if these creditors find out you have equity in your home, the lawsuits are probably not far behind and then liens will be placed on the house.

Again, the course of action I would take right this second, is get a full blown, objective appraisal of you home, that way you have a better idea of where you "really" stand.