Overwhelmed - Please Advise

[SNC]

Thanks so much everyone for continuing to field all of my questions... It is helping me so much because I have been so overwhelmed and confused with this whole thing...

Pandora - According to my lawyer (who I haven't officially retained yet), he said I qualify. I am meeting with him in person on Tuesday morning (he's out of town now) and will ask him about the issue someone else brought up on this forum of the fact that I have about $700 left over at the end of each month based on my current budget (this is without paying on any credit cards and without putting any money into savings).

I guess I didn't realize that my credit score was that "trashed". And I thought that by paying minimum payments to the collection agencies that it would rise back up. But I guess from what I'm learning it is just better to file bankruptcy and start over.

[Pandora]

I don't understand then what should be the determining factor? I feel like my situation is so tricky because I could probably afford to pay minumum payments to the collection agencies right now (without saving to an emergency fund), but I know that I wouldn't be able to afford the payments if I become unemployed in September.

Maybe I should just wait to file in September, because I will know by then if I will be unemployed or not, and I will still pass the means test at that point in time...

You need to look at this a different way: you havent paid these debts in at least a year, so you cant go back and pay on them now with the org. creditor. You cant fix your credit at this point in time, whats done is done and cant be undone.

Unemployed or not, it wont matter. What matters is if more judgments get brought against you for these debts and liens get placed or worse, you get garnished. Question is why on earth would you want to pay the collection agencies ANY money at this point in time when you can just get most of it discharged (except for your student loans, of course). If its the "stigma" of filing for BK and your credit you're concerned about - trust me - your credit is way trashed and will continue to be trash even IF you make payments to the collection agency's. You're better off filing BK at this point and starting over; either way its going to be on your credit for 7-10 years no matter what.

Thought you stated in your first post you were able to file Ch. 7? Do you not know if you qualify for it yet?

[SMinGA]

Determining factors: whether or not you have other viable alternatives to resolve your debt.... whether or not your income situation is likely to improve in the near future... whether or not you would be able to pay off your debts in full in the next 5-10 years on your own...

Minimum payments will not resolve your debt. Minimum payments for 5 years could mean that you'd still owe 90% of your balances and be no better off in 5 years.

I don't understand then what should be the determining factor? I feel like my situation is so tricky because I could probably afford to pay minumum payments to the collection agencies right now (without saving to an emergency fund), but I know that I wouldn't be able to afford the payments if I become unemployed in September.

Maybe I should just wait to file in September, because I will know by then if I will be unemployed or not, and I will still pass the means test at that point in time...

[SNC]

I don't understand then what should be the determining factor? I feel like my situation is so tricky because I could probably afford to pay minumum payments to the collection agencies right now (without saving to an emergency fund), but I know that I wouldn't be able to afford the payments if I become unemployed in September.

Maybe I should just wait to file in September, because I will know by then if I will be unemployed or not, and I will still pass the means test at that point in time...

[SMinGA]

I think the general consensus/bottom line/whatever you want to call it is: credit score really should not be a determining factor in whether or not to file bankruptcy.

[SNC]

So, from what I am hearing back from everyone, if I qualify for Chapter 7, I should go ahead and file since my credit score is already down to 555. I could re-build my credit faster if I just go ahead and file now, as opposed to setting up a payment plan with my creditors that I know I may not be able to pay every month in the future due to my unstable employment situation. As for a settlement option - that is not even really an option for me because I do not have 40-50% of my debt saved in cash to pay my creditors off.

[epiphany]

One more consideration: if you start to pay again, you reset the statute of limitations (sol) on these debts. I see no point in doing that if you are going to stop paying again soon after.

Also realize that you will be liable for federal taxes on any debt amount that is forgiven...inotherwords, if you settle a 20K account for 5K, you will have to pay taxes on 15K.

I agree with others here---your credit score should not be a consideration in this decision. It's already tanked. Figure out your situation first, and worry about your credit score later if you must.

I know how hard a decision this is for you but the sooner you face it, the better. I wish I had filed sooner than I did...could have spared myself and my creditors some pain.


Good luck to you.

ep

[Pandora]

No. Collection agencies will take payments, however... the terms are usually very high and you'll be paying more than you should and be bound for years to a debt that they technically, didnt have to pay 100% for. So its better to offer to settle the debt (or try to) for around 5-10% if you can. These companies pay pennies on the dollar for the full debt, so if you owed 10K to one creditor, who charged it off, and then sold it to a collector, the collector didnt pay probablly more than 3% for purchasing the full rights to the debt at 100% of what you owed; so maybe $300. Again this is just an example, but its usually how they work.

Most collection agency's wont settle for less than 40-50% of the debt (or so they'll tell you) and that can be paid in installments if they allow it along with an interest rate in some instances, and ususally has to be direct debited out of your account (dont do that - ever!). Then there are some that require it to be paid in full in one lump sum, so it depends. If they wont accept anything less than 40-50%, then they'll just keep selling it to another collection agency; the longer it stays on their books, the more pressure they use to collect the debt in one sense, but in another, it makes them look bad at their job, so they'll sell it to another debt collector, who then will again try to collect and so on and so forth.

First thing you should have done when you started receiving notices from the collection agency's is validated the debt; did you? Make them prove to you they own the debt - you need to read up on FDCPA and consumer rights on creditors and collections. Second thing, is if you're being served with papers, which apparently you are, it sounds like someone won a judgement against you for a debt. If you dont answer the complaint, a judgement in the full amount will be granted to the collector, which is never a good thing and I dont believe you can request validation of the debt after the fact.

At this point - BK is probably the best option for you given its been so long.

[SNC]

Pandora - so you are saying that for my credit that is in collections that the collection agencies will not set-up monthly payment arrangements, but will only do a settlement on the debt?

[Pandora]

you can offer to settle the credit cards for pennies on the dollar if you dont want to file BK, however you must have the $ upfront to do so. That is your only other option outside of BK.

The poster who stated the cards were probably charged off by now is correct - ususally they charge off after 180 day timeframe; it doesnt remove your liability to the debt, it just takes the debt off the lenders books. They usually sell it to collectors for pennies on the dollar, who then in turn, try to collect 100% of the debt from you, which is why many have been successful at settling the debt with the collection agencies in exchange for a "paid in full" or "satisified" reporting on their credit report.

Of course, doesnt matter at this point in the game because your credit is already shot after not paying for so long.

Take the means test and talk to a few lawyers to get a better understanding of your situation - and read all you can regarding what can and cannot be done re: Fair Debt Collection Practices Act as well.

[SNC]

Thanks SMinGA. You seem pretty knowledgable. And just so I am clear, if I do end up definitely qualifying for Chapter 7, you would definitely recommend filing Chapter 7 as opposed to trying to pay the credit cards off, right?

[SMinGA]

Sounds like they have not actually served you yet - so that is a good thing. From the time they do serve you, you should be able to buy time for at least 30-60 days before they can get a judgment. Possibly longer - and even if/when they did get a judgment it would take a little time before they could do anything with it. That means $ in your bank account is safe, as they can't touch it.

[SNC]

I wonder if the fact that my job is only temporary has anything to do with my qualification for Chapter 7? I think I remember the lawyer mentioning something about it, but not sure.

Also, regarding the lawsuit, I am not sure where it stands... basically all I know is that the creditor tried to deliver papers to my brother's in TN (I lived with him for a few months) and he told the police officer that I lived in MA. The police officer then said he would send the papers to the MA police. I have not communicated with the creditor to find out what is going on with it. The lawyer I've been speaking with says to just not do anything with it right now... I am supposed to meet with this lawyer on Tuesday to go over everything in person.

I just don't want to make a brash decision and file bankruptcy. If I do in fact qualify for Chapter 7, I want to make sure it is the right decision. But it seems like it is the best option as opposed to trying to pay the debt while I'm in an "iffy" time with employment...

[SMinGA]

Student loans are not secured, though it is true they cannot be discharged in BK. Secured means there is an asset attached to the debt, and nonpayment of the debt means the lienholder can take the asset. Example: car loans are secured, don't pay the car and it gets repossessed. Unsecured debts have no assets attached, so you don't lose anything by nonpayment. They can pursue collections, etc. Student loans have one added collection option in that they can take tax refund money if you're delinquent.

Opening an IRA is probably a good idea - if you cannot exempt cash - but before making any decisions with this money consult an atty and/or start studying your state's exemptions. It is possible that when/if you are able to file ch. 7, you would be able to exempt some cash and have it on hand later for an emergency fund.

But if your lawsuit has already reached the point of your creditor having a judgment against you - I would not leave this $ sitting in a bank account if I were you.

You can't discharge a student loan as it is secured. Don't pay down the student loan. Use the $5k to find a responsible bankruptcy attorney and being an IRA retirement account to begin paying into it. That will reduce the $700.00.

[lmaosm]

I would consider using some of the savings and paying down or paying off the student loans, since they are much harder to discharge than credit cards. It's that much less in savings that you will have to exempt.

As for the rest of your savings, I would use that to pay the BK expenses, and before filing, take care of various needs that have been deferred (doctor, dentist, eyeglasses, etc.)

You can't discharge a student loan as it is secured. Don't pay down the student loan. Use the $5k to find a responsible bankruptcy attorney and being an IRA retirement account to begin paying into it. That will reduce the $700.00.