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Chapter 7 vs DIY CC Debt Settlement

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  • Chapter 7 vs DIY CC Debt Settlement

    Hello, I am self employed and went from making $50k a year to $16k. I have so much competition now that I do not believe it will ever get better. I have started putting in entry-level job apps. I used to have $1000 in savings plus a $1000 buffer but now I see that was not enough. I am now living payment to payment the interest alone is almost $500 a month. I have never missed a payment and my credit score is 682 TU (FICO8) but Credit Karma has it at 580. This month is the first time I will not be able to make a minimum payment even. I put way too many business expenses on a CC (though more than 50% of this debt is foolish personal spending+interest) and ran out of 0% balance transfers. I have $44k in credit card debt along with $6k in IRS debt from last years taxes (I haven't filed this years but I don't expect it to be much).

    I keep having internal battles with myself about whether or not I should stop paying and file or stop paying and wait 160-180 days to see what kind of settlement I could get first. I am 31 years old and wanting to start a family with my girlfriend. I am afraid to get married because I know that it will put me over the means test because she makes just over the state median. I talked to a lawyer last year and he said that I could put my household as one if I include her half of the rent as income from other sources and she would be seen as a roommate. If we get married that goes out the window. I have only been to one lawyer so far. The stress is starting to affect me. I am stuck in decision paralysis. What's worse is I dropped my health insurance this month because I could not afford it.

    This is how my thought cycles are going, every day, constantly battling:

    Well $44k is not even as much as some people's car.

    But $44k is $733 a month for the next 5 years even at 0% interest.

    I need to find a job and everything will get better.

    I only have an associates (from 2008) and even if I find a job I will be lucky to see $25k ($12/hr) a year which is not a lot to live on.

    What if my girlfriend doesn't want to be with a broke person and I have to start paying full rent alone.

    If I file chapter 7 I have to give up my self employment for at least 5 months which will mean I lose at least $5k in prospective income.

    My car is paid off and car insurance is cheap due to liability-only so maybe I could live on just $25k.

    but it has 200,000 miles now and won't last more than 2 years.

    and I keep going back and forth over and over between:

    Well if I settle my credit will be ruined for 7 years anyway I might as well file, plus I won't have to pay anything more than the attorney fees.
    Well if I settle (or get judgements/garnishments) I won't have to answer yes to "have you ever declared bankruptcy" on my job applications for the rest of my life if I decide to go back to school.

    Then I think:

    Well if I just stop paying 2 I can afford the minimums again and avoid bankruptcy
    If I have two settled for less than owed or charged off I might as well not pay any of them since my score will be trashed anyway...

    Then five minutes later:

    Okay so maybe if I sell absolutely everything I own I can put a big dent in it (I have $9000 in assets including a $4000 boat, not including a $2000 car i need to live)
    These assets could be exempted and I wouldn't have to re-buy them again if I filed, plus I still have those non-dischargable taxes and those assets could be craigslisted to pay that.

    Here are my current debts, all unsecured CC accounts:



    Is credit card debt really worth using the nuclear option of Bankruptcy for if you have nothing you care about losing and can mute your phone? I worry about getting sick or unable to work and ending up in this mess again. It's like using my get-out-of-jail free card before seeing if I roll doubles.

    Thanks for reading.

  • #2
    I read your entire post, and I see the internal struggle you are going through. I want you to know we've all been there. And many of us are now on the other side of it, and that struggle is gone. We pop in each day, not because we are still consumed with thoughts of bk, but because we want to help others who are going through what we've already been through.

    You will find many (many) conversations here about why bk is so often viewed as a better option than trying to settle with these companies, so I won't go through the list of reasons. Maybe someone else will.

    What stands out to me is this one question: IF your unsecured debt was GONE, can you crunch the hypothetical numbers and it *works* -- without having to go into more debt? Do you have enough to live on, and possibly even SAVE, in your post-bk picture? If so, there is no reason for bk to be viewed as "nuclear" and no, your credit is not "ruined" for 7 years.

    My husband and I filed chapter 7 in July 2017 -- just 7 months ago. Both of our credit scores are in the 670-680 range, and have been for months. There was an initial dip when we missed payments. Then creditors start zeroing out balances, and it all comes back up.

    My sister and her husband filed chapter 7 close to a decade ago. I am not remotely kidding when I say that they have acquired roughly 5-6 mortgages since then. They have moved a lot. Their homes are nice. Their cars are nice. They are comfortable.

    A lot of this is fear of the unknown. The reality should not be what you are picturing. Not if you have a good plan.


    • #3
      I literally just spent an hour and a half two days ago going over all of this with Greenpath. If you're not familiar with them, Greenpath works on debt management plans and if they can't help through those, they give bankruptcy counseling. It was free to call and get the advice. My soon to be ex spouse was on a plan with them for two years and I can say that it really does work if you have the means.

      I can tell you what they told me. For a debt management company that's licensed by your state to manage your debt, you typically have to be able to pay off all the debt in 60 months. They achieve this by negotiating with the companies to lower your interest significantly by about 4-8% on average so smaller payments can be made. I can tell you since I make a little more than you and about the same in credit card debts, you will probably not qualify for this option, but it largely also depends on who the creditors are. Greenpath and licensed companies like them are familiar with which creditors will offer what types of arrangements. They grouped all my creditors together in this way because of that.

      The other option they told me is debt settlement. Debt settlement on average requires paying 50-60% of what you owe, all at once. Again that depends on the creditor and the collection agency they go with. Most of your debts would have to go to collection. If you settle, it will remain on your credit report in many cases as satisfied, but it's not necessarily a good mark. Bankruptcy would wipe all these derogatory marks. You may be able to get in writing from some that they will agree to remove it from your credit report if you pay the settlement amount, but get everything in writing and signed by them before you pay. in my case and in yours, it would mean coming up with about 20-30k within 40 months they told me. I'm not sure how they came up with that length of time, but the longer the amount of time, the likelihood of creditors suing for garnishment increases. She said that credit companies like Capital One and Citibank are more likely to do so than store cards. With things I have to pay for like my car and insurance and stuff, if every I needed a car repair or tires, or anything went wrong, it would destroy the whole plan. The second option is to settle with some of them and hope the less likely to sue ones will exceed statute of limitations and fall off. But again, that varies depending on state. It's 7 for me.

      So Bankruptcy falls off after 10 years versus gambling for 7 whether someone is going to sue me or not. The Greenpath lady told me to do the debt management plan I'd be hundreds in the hole each month so they can't do it. I already have a full time and part time job so getting another isn't really feasible while also going to school.

      I am terrified of bankruptcy too, but the reality is my credit score tanked 200 points after my creditors reported me 30 days late....I've missed one payment ever in over 10 years. I've always paid my bills on time.

      You can technically file bankruptcy yourself. I don't want to, but there are people who can do it successfully. You'd then only have to pay filing and court fees. Read up on it and see if it's something you think you can handle.

      We can only deal with where we are at now. I hope for a better job too, but I can't count on that happening before creditors start coming after me. I've done a lot of reading and from everything I've read, bankruptcy sounds like it will be a huge relief as long as I'm willing to accept that I may or may not have to make some sacrifices initially. But really, gambling on whether or not my bank account and wages are going to be garnished is sacrifice of my freedom. I'm in this spot because I made mistakes and I allowed my spouse to make those mistakes under my name. I feel horrible about it and I feel scared like you. But I came to the realization I'm already not in control if I can't pay all my bills. I can only control what I choose to do about it based on what options I'm able to utilize.

      Most people are able to keep everything in bankruptcy unless they have a lot of assets I've been told. Remember that rolling the dice on ignoring creditors means that they can sue to levy your paycheck and your bank account....then your employer will know about it too.

      I don't want to influence your decision based on what I'm doing, but they helped me understand the consequences of each option.

      I hope this kind of helps


      • #4
        I did the negotiate and payoff. $50,000+ and 7 years down the hole and I'll be filing bankruptcy shortly. If I'd filed 7 years ago, I'd have $50,000 more in my retirement account, $50,000 more to use as a cushion against an endless run of surgeries. And that $50,000 would be exempt from creditors and seizure in bankruptcy.

        Except it'd probably be a lot more than $50k now with the way the stock market has grown since 2011.

        My suggestion is to walk away from "credit and debt settlements". Don't ruin your retirement and it is Bs to have to stop self-employment to file bk. Spend your small, tiny amounts now to find a good lawyer, plan properly, and get a fresh start. Why force yourself into a punitive chapter 13 bankruptcy without the bankruptcy discharge provisions, protections, and stress release? That's really all that debt settlement and "counseling" is, an unofficial chapter 13 without the fresh start.

        and you ma have to file after the settlement or counseling plan anyways, if a junk debt buyer gets your account that was not paid in full, then garnishes your wages.

        see a real attorney (or several free consultations) for legal advice, and not just my idiot on the internet opinion. Good luck!


        • #5
          Originally posted by Chrysalis View Post

          What stands out to me is this one question: IF your unsecured debt was GONE, can you crunch the hypothetical numbers and it *works* -- without having to go into more debt? Do you have enough to live on, and possibly even SAVE, in your post-bk picture? If so, there is no reason for bk to be viewed as "nuclear" and no, your credit is not "ruined" for 7 years.


          My sister and her husband filed chapter 7 close to a decade ago. I am not remotely kidding when I say that they have acquired roughly 5-6 mortgages since then. They have moved a lot. Their homes are nice. Their cars are nice. They are comfortable.
          Yes if that debt was gone I would be comfortable. Not as well of as I was but with my mind at ease and not chronically stressed I'm sure my productivity would increase as well. I thank you for sharing your and your sister's story. It gives me hope.

          Originally posted by stormygate View Post
          But I came to the realization I'm already not in control if I can't pay all my bills.
          Excellent quote. By not filing bankruptcy I feel like I still have "control"... but right now my debts ARE controlling me. Ironically the only way to control those debts is to give myself to the trustee...

          Originally posted by Maria80386 View Post
          $50,000 more to use as a cushion against an endless run of surgeries.
          I thank you so much for your reply and I hope you are getting better. I am healthy right now but I could not imagine being too sick to work and being in this same situation. A credit score can't pay the bills Good luck to you.


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