3 months away from filing - should I try settling w/ CC's first?

[zenbit]

Hi - I have searched the forums, and haven't quite found this question here...

I am preparing to file Ch 13 (can't file Ch 7 due to income). I am planning on waiting about 3 months to save for attorney's fees and get everything in order.

Here's my question. Most of my debt is owed to 3 banks - one credit card, a consolidation loan, and a "flexible" line of credit. Over $50k in all.

I like the fact that a Ch 13 is relatively clean, and will give me a light at the end of the tunnel - even if it is five years out. But I wonder if it is overkill if I am really only troubled by three or four creditors.

Wondering if I should tell them I am filing, and if I should try to settle w/ them directly?

I don't exactly trust this process and would hate to end back up thinking about filing in 2 or 3 years, pushing out that dim light at the end of the tunnel even further. At the same time, I would like to be responsible and ensure I am evaluating all of my options.

My attorney, it seems to me, has a vested and biased interest in me filing, so I am not sure I would completely trust or value his response to this question.

Any tips or ideas would be helpful.

[JoeBankrupt33]

It's tough to say. If you go through the means test, I think you should be able to estimate your payback in the plan. But...I don't know much about 13; I'm fortunate not to be there.

Now, if you do settle, keep in mind that you will get a 1099C for any amount that they cancelled and you might have to pay taxes on it. Depending on your situation, this might not be bad, because you won't have to pay taxes on the cancelled debt if you can show the IRS that you were insolvent at the time (debts outweighed assets).

[fltoo]

What assets do you have?

Do you have the cash to settle with the creditors? I would say you need at least 12-15,000 dollars to settle or could you save that much in the next 3-6 months?

If not, chap 13 is the way to go.

Your credit is trashed either way.

[catleg]

You probably know what your total debts are, and what your payment will be in the plan, so, do you think you can do better, and do you have the money to actually pay them off.

If you don't have the money, or
if they all won't come down enough, then it won't work.

A lot depends on how creative and aggressive you are with your planning.
I'm pretty sure that by the time I file my disposable income will be fairly low and my unsecureds will get about 10% - 20% which I know I can't do with settlements.

[zenbit]

Thanks! Food for thought

Thanks for the ideas... and there's definitely food for thought here.

I guess I missed the whole idea that to settle, I would need cash in short order.

As I think through it - I guess it is possible I could liquidate my 401k to settle. (I realize I wouldn't have to touch my 401k in a Ch 13). The only benefit I can see in doing this, versus Ch 13, is if I could speed up my recovery from this mess, and avoid having trustees in my business for the next five years. And avoid having an outright BK on my credit report for 10 or whatever years.

All in all, settling sounds like a much more risky and messy way to go though.

Plus, if I lose my job or something, I am sunk all over again. I am under the impression that if I am in a Ch 13 and lose my job, I can convert to a Ch 7 or something like that.

I would rather have a sure thing that is over in 5 years if I stick with it, than an unsure risky thing that might be done in 3 years, or worse - blow up in my face and make this whole thing last even longer than 5.

Thanks again for the responses. It seems that there is so much to think through with these things... so many angles, and so much of it is timing things right and planning well.

[walkthaplank]

You don't want to risk your retirement for this.

edited after I got past the first part