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How to pay off $12K in non-dischargeable debt with low income?

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  • How to pay off $12K in non-dischargeable debt with low income?

    Firstly, I apologize if this is not a appropriate forum since I don't think there's an appropriate forum for my question, and this forum is the most active one.

    Yesterday I had a final meeting with my attorney, their staff member really, and my case will be filed next week.

    One of my debts is owed to a university for $12K; it was assigned to be collected by Williams and Fudge, an agency specializing in collecting education-related debts. This debt was a refund from a federal student loan that I took out for grad school, which I dropped out off. The university had to pay back the fund to the Department of Education, thus sending me the bill. Even though I really hope that this debt would be discharged, I highly doubt so.

    I get paid on commission, and I can probably save between $1,000-$1,500 monthly starting from now. I expect to save at least $6,000, more or less, six months from now, which is just about half the amount owed. I plan to negotiate a settlement with them for about $5K (and I’d be very happy if they accept), but I highly doubt they would take my offer since the debt was assigned rather than sold. I don’t expect them to accept a settlement less than 75% ($9,000). I have devised a plan to pay off this debt and need your input on it:
    • Save monthly for the next six months.
    • Take out a bunch of Credit One (and other sub-prime lenders) credit cards after my case is discharged.
    • Use the credit cards to charge for small balances like $5-$20 and pay off ASAP; this would help me build my credit.
    • Three months after discharge, apply for other CC’s and personal loan(s) after my credit has improved.
    • Now I would have $6,000 in cash + X amount of available CC limits + Y amount of personal loans
    • Not sure if the collector will accept CC payments or if it’s even a good idea to pay them with CC; the amount saved, CC and personal loans should be enough to cover the balance for $12K
    • However, if they don’t accept CC or you don’t recommend paying them with CC, I can use the CC to buy cash or gold on eBay; a handful of sellers on eBay are selling cash for $125 for $100 (i.e. using a CC to buy $100 cash with $125 credit). I’ve done this before. I also bought gold using my CC and sold them for cash at pawnshops for 80% face value. With the cash, I can use it to pay the collector.

    I know what you’re thinking, this is freaking stupid. Why would you $125 for $100 on top of 25% APR, which is essentially 50% APR if I pay off the CC balance within a year. I don’t know what else are my choices besides getting a judgment against me for wage garnishment, which I obviously don’t want; I know the judgement for wage garnishment will eventually come. I work for a small company and would hate it for HR to find out my wage is being garnished. What do you think of my plan? Suggestions?
    Last edited by VegasBK7; 06-10-2017, 05:24 AM.

  • #2
    Why don't you expect them to accept a settlement less than 75%?

    Also, regarding the discharge of this debt, have you spoken with your attorney about the possibility of discharging it? Not being an attorney, I would approach this two ways:
    1) You mention the school paid back the dept. of education. You now owe a school, not a lender for a student loan. I would question if this debt is even considered a student loan vs. unpaid tuition. I would ask your attorney if unpaid tuition is dischargable.

    2) If it is not dischargable, you may still initiate a proceeding to request that it be discharged. This comes at an added cost, but it's much less than $12k. Your attorney should be able to tell you what the standard is in your jurisdiction. If it's the Brunner test, I'm concerned that you may not have shown good faith in attempting to pay off this debt based on the limited information I have.
    Check out this link:

    Finally, if you are unable to discharge it, I would not pursue your plan of obtaining credit to pay off the debt. I would instead negotiate a payment plan with them, that you can start post-discharge.


    • #3
      Hi Leonel,

      I don’t expect them to accept a settlement less than 75% because the debt was assigned by the university to the collector, which makes it less likely to for them to settle for any amount really as compared to a debt that was sold. Additionally, I am hoping for the best outcome (i.e. to get all debts discharged except for student loans) while preparing for the worst (i.e. to pay 100% of this debt).

      Yes, I have spoken with my attorney about getting this debt discharged. I explained to him how I got into this debt, and he simply said “it probably won’t get discharged.” I then asked him about negotiating a settlement, and he said “we don’t offer that service here” and moved on to other topics. Since he’s an attorney with years of experience, he’s probably seen this before; I trust his expertise.

      From what I’ve been researching and asking this question on various forums including MyFICO and Reddit, I conclude that my debt is not an unpaid tuition. Because I received a fund, this renders my debt a loan from a university—hence a student loan.

      I’ve looked at the link you provided with the burner test, and I would easily fail the burner test.

      As for your last paragraph, I fully agree that I should attempt to work on a payment plan with them rather than taking out credits to pay. However, I want to keep this plan open to prepare for the worst—i.e. they refuse to settle and work with a payment plan but only accept a full payment or sue.


      • #4
        As to whether this is a student loan or not: I just don't see how both your cancelled federal student loan is considered a loan, as well as this debt. Perhaps the simple fact that the debts were used for higher education is all that is required. I'd still press for a more concrete answer from your attorney than "probably." I would ask what would be required for this debt to be determined as not a student loan -- I'm guessing a special motion and ruling from your judge.

        If this is a student loan, it is possible that your court does not use the Brunner test. In that case, you may still be successful in moving to discharge the debt. Again a question for your attorney.

        To your original question, however: If you are making payments on the debt it is not likely you will be sued. For sure you won't be sued in the months you are in bankruptcy due to the automatic stay. I think it's highly unlikely that the collection agency will refuse payments ( e.g. $1,000 a month). I'd research what the maximum garnishment is that they could obtain, and then compare that to a payment plan you may propose. If the payment plan results in them receiving more money (without the added cost of a court hearing), I think they'd be likely to accept.


        • #5
          Thanks. What should I ask my attorney exactly? What if he charges additional consultation fees? When should I consult with him again? ASAP? Before 341 meeting? After 341 meeting? After discharge? What if he said can't help me?


          • #6
            I don't know about the student loan situation, but your plan to buy cash on eBay seems very foolish to me. What protection do you have against counterfeit? If you receive counterfeit money and try to do a chargeback, you'd be admitting to your CC company that you were trying to get around their cash advance limits. That's problematic.
            This post does not constitute legal advice. If you use this advice instead of that of a lawyer, God help you.
            Filed CH 7: 5/11/17 341: 6/12/17 Discharge: 8/14/17


            • #7
              Originally posted by VegasBK7 View Post
              Thanks. What should I ask my attorney exactly? What if he charges additional consultation fees? When should I consult with him again? ASAP? Before 341 meeting? After 341 meeting? After discharge? What if he said can't help me?
              Ideally, you should know the options regarding this debt before filling. Either it will not be discharged, or it will not be discharged without a separate proceeding. I would hope your attorney would be able to give you an idea of how viable this proceeding would be, and what the cost would be for it. After filing, you begin to miss certain deadlines. If you are going to pursue this, time is of the essence.

              Two other thoughts:
              1) Although your attorney may not negotiate, you could certainly do this yourself. For example, let's say your attorney tell you that the debt is student loan debt, is not subject to discharge, and he'll charge an additional $1,000 to initiate proceedings to request it be classified as dischargable.

              You could always the creditor prior to filling bankruptcy, advise that you will be filling bankruptcy (maybe even give them a copy of your filling) and offer a $500 settlement (if you have it). Just keep in mind there is a rule on payments to creditors for $600+ within 90 days of filing.

              2) If you aren't able to discharge this debt, and you absolutely must pay via credit card, I would look into cards that offer balance transfer checks vs. buying gold on eBay.


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