I can use a little help from you veterans...

[trader19]

i am now about 3 months behind on payments to the following cards... AMEX ($25k), BOA AAA ($25k), Citicard ($25), UT Federal Credit Union ($17k) and GE Moneybank Banana Republic Card ($6k).

Thats almost $100k.

I get 25-50 calls a day which i just send to voicemail. that part doesn't bother me. mostly they are recordings left on my voicemail.

as i have posted on here a few times...i am considering chapter 7... but i am concerned about possible preferential payments made so i am 10 months away from being able to file comfortably. i am a very good candidate as i have no assets, my house is underwater, etc... also, the only income i have coming in is from self-employment.

however, i would certainly consider debt negotiation from the credit cards and get this over sooner and avoid bankruptcy. i am aware anything i am forgiven will be 1099'ed to me. i feel i am kinda in the driver seat against the CCs cause i can and will declare bankruptcy... so why not at least explore how low they will go as far as debt forgiveness. at some level it would be worth it to me to take it.

So, my questions are as follows.

1. what is the best TIME to negotiate? do i start now (3 months late) and keep holding strong. do i wait a few more months (5-6 months)? also, is it better to let them charge it off and then negotiate with whoever buys the debt? don't they buy it for pennies on the dollar? so don't you think they would settle for way less? i am very confused about when to start this.

2. do i contact them, or wait for someone to leave a message on my voicemail saying they want to negotiate or a letter or something? how does the whole process start?

3. is there anything i should or shouldn't say when negotiating? can i say, "hey, its this or i declare bankruptcy and you get nothing?" or something along those lines. should i tip my hand about bankruptcy in some way?

thanks for your help. any and all responses are appreciated.

[HHM]

i feel i am kinda in the driver seat against the CCs cause i can and will declare bankruptcy...

False assumption number 1...they don't care.

2, let's say you do negotiate, where is the money going to come from. When you are in default, negotiation is not about setting up a new payment plan, it is about how much money can you pay now. Let's say you have "best case" scenario, and you can get everyone on board for an en-mass settlement of $25-30K, where would you get the money.

If you can file chapter 7, that is what you do...you don't waste time and money in negotiation, period.

[justbroke]

As to the question of preferences, it doesn't matter for you personally. Preferences are something the Trustee recovers for the Estate. The Trustee doesn't recover these preference from you personally; the Trustee goes after the entity/person that you paid. Unless it's a family member that you're trying to "protect" there is no reason to "worry" about preferences!!! I will caveat my statement about not worrying about preferences with the following; don't create preferences by paying unsecured creditors in the 90 days prior to filing! It's a waste of money as the creditor would be discharged and it would leave your case open while the Trustee claws back the money from the "preferred" creditors. (Not that having your case an "asset" case and open for some time is necessarily a "bad" thing, but certainly something you'd like to avoid.)

I think HHM was being nice by not mentioning the tax impact -- although you mentioned it. If the $100K was negotiated down to $25K you'd be forgiven $75K. I'm assuming that you're in a 6-figure+ income and that you are in a high tax bracket. So this would be on top of your regular taxable income (AGI) and would be taxed at the higher rate -- since the IRS taxes this 1099-C as "ordinary" income. That means 30% (or maybe 35%) of $75K which is $22K in taxes. So your real cost is $47K or 47%... not the 20-25% you think you could actually settle for.

On the other hand, if you're a non-consumer case, pay $3-5K to file and discharge it all. Hmmm... $5K or $47K???

This is not the time to negotiate. This is the time to make a financial (business) decision and execute that decision.

[trader19]

i appreciate both of your help. and i would only negotiate if the price is at a level i am comfortable with. as far as the taxes... there are two things that would offset this. first, i am taking a huge loss this year on my taxes. it would offset the income that i would get from debt forgiveness. and second, i believe there is a way to qualify with the IRS to have this thrown out. my liabilities exceed my assets. either way, the 1099 is not much of a concern.

and i know your thinking is... why pay 25k when you can pay 5k (lawyers)... well, i am a 35yo with a finance degree wanting to work in the finance industry. in might be worth it to bite the bullet and shell out the extra 20k to keep a BK off my credit score. from what i read, alot of employers will do credit checks. while my credit will still take a hit, a BK would stand out like a sore thumb and possibly cost me way more than 20k worth of income over the next 7-10 years.

also, to answer your question... i have family willing to help me out with money. while they won't be able to come up with 100k for the credit cards... if they knew 25k would end this for me, i would have no problem getting a long term loan with no strings attached.

i am always willing to consider all options. i am very familiar with what i can do in BK. i would really love to educate myself more on the whole process of debt negotiation and do the math when all cards are on the table.

any more info on this process will be greatly appreciated.

[HHM]

Here is the problem...how do you think your record would look with a judgment or two against you?

It is exceedingly rare that every creditor will settle with you. After about 6-12 months of non-payment, at least one of them will pop up on sue you, and that will force your hand.

Sounds like someone is just making excuses...if you ask me to call it like I see it. Your credit is ALREADY TRASHED and is only getting worse. Do you really think and employer will look at your credit report, see $100K in defaulted debts, late payments and a garbage credit score and consider that person any better of a candidate that someone who filed BK...that is delusional thinking. That is someone looking for any excuse not to do what they know they should do.

Realistically, not counting any tax consequences, it will take you upwards of $40K to settle everything and prevent hold outs and lawsuits. The 25% settlements are only about 1 in 10. On average, you "budget" for 45%, and then try to do a "little" better. Maybe ONE or TWO of your creditors will give what you consider a "reasonable" settlement..25-30%, if you hold out long enough, the others won't. So real settlement packages tend to average about 45% on the dollar.

Most likely, GE Moneybank will sue you. The balance is small enough to go quickly into lawsuit collections and at least in my area, they sue pretty quick.

[trader19]

HHM... i think you are misunderstanding. i am going into this with 100% intention of chapter 7. but i am 10 months away from filing. i am just trying to educate myself on the debt negotiation process since i have 10 months to kill anyway. sure... it is most likely a 99% chance that i will be forced to file for BK. i most likely will be sued or one of the creditors won't negotiate. but i have 10 months to at least see if there are other options. it is not like i am choosing debt negotiation over BK. i just want to learn more so i know how to handle the next 10 months. i don't want to simply shut the door and rule out all other options. sure, it may be wishful thinking, but what is the harm in trying. if it doesn't work out... i file in 10 months as planned.

i wasn't trying the make this thread about BK vs. debt negotiation. i was just trying to ask veterans on this board to help educate me on the debt negotiation process. i have already learned so much about chapter 7 from this board... i just want to expand my education into other areas.

[justbroke]

I think that the question is, why are you waiting 10 months? If it is to make sure you don't affect a chance at promotion, the damage is already done. In most cases, for jobs over 6-figures, the credit reports are more thorough and they would see your bad credit experience with a large (combined) credit line.

You say the 10 months is for preferential payments, but I explained that it doesn't affect "you" personally. What other reason is there to wait?

[HHM]

Debt negotiation is not really a process. It is simply,

I offer to pay x
creditor says no
you say, how much will you take,
creditor says y if recieved in certified funds in five days.
you say either yes or no.

[trader19]

justbroke... i often used my moms home equity line to survive. i borrowed 10k, paid it back... borrowed 10k again, paid it back. she is a single mom that lives in a house that she won in a lottery for low income families. i cannot simply say... sorry mom, thanks for helping me out but now the trustee is your problem. i would rather wait the 10 months so she is not affected.

[trader19]

HHM.... it seems simple... but no one has really answered my questions... when is the best time? how does the process start? and what should and shouldn't i say. like i said, i am waiting the 10 months to declare c7 so why not at least take the debt negotiation car out for a spin. i know people are trying to help me...and you guys have been life savers... but i feel like i am being attacked for even asking about debt negotiation. i just want to learn about it so if and when the subject comes up from creditors i kinda have an education in it. i am NOT saying that i am planning on it. i know so little about it, so i was hoping someone would step up and say... hey, this is my experience... so i have an idea.

[LadyInTheRed]

It really is pretty simple. Some creditors eventually offer a settlement after a few months of no payments. So, you can either wait around for offers or start the "process" outlined by HHM by calling a creditor and making an offer. The longer you go without paying, the better. But, it's impossible to know when you are going to be served with a lawsuit at which point you probably don't have as much leverage. You are probably in a better bargaining position if you wait for them to make the first offer, because they have already decided to try settling and probably did not start with their best offer. But, you could wait 10 months and not get an offer. If you decide to make the first offer, start low and tell the creditor that you have very little income and no assets and they aren't going to be able to collect more from you than you are offering. If that's not true, you aren't likely to get them to settle if they think they can sue you and get more. They hear threats of BK all the time. That won't help.

I'm not telling you this from personal experience. I've just read a lot about debt settlement. While there are some bkforum members who have settled debt, you aren't going to find many personal experiences here. Most bkforum members who stick around after dealing with their debt did it by filing BK.

Even if you settle some debt, the problem is that when you make the first settlement, you have no way of knowing whether you will be successful settling with any other creditors. Settlement offers won't be open long enough for you to settle several debts simultaneously. You may feel pretty good if you are fortunate enough to settle a $25K debt for $10K. But, when you still have to file BK in 10 months and owe your mother or another family member $10K that you'll probably pay back even if it is discharged, you'll wish you hadn't bothered settling.

[keepsmiling]

Hey Trader,

I understand where you are coming from. I gave serious consideration to doing as you say... we are self employed and have received some very tempting offers of as low as 13%. I think it is to your advantage in that they really can't garnish you, so they MAY consider a settlement. BUT... as the above learned posters have told you... there is just no guarantee that they will all fall in line. This technique really only works if you only have one or two accounts to settle.

You aren't going to find much talk of successful settling on this forum. Instead, you will find many people who tried to settle, paid up an account or two, were sued by a stubborn holdout of a company and wound up filing bk and having flushed that money down the toilet. You'd think the company WOULD be happy for a settlement, but they are greedy ba$tards and don't necessarily think with their brains. AND THEN, even if they have settled.... you run the risk of zombie debt rearing its head.

I am glad you are thinking about your mom. There are many good ways to stall a suit. Being self employed, it may be a while til they come after you. It's been a very long time for us. Keep reading, posting and hanging in there.

[justbroke]

justbroke... i often used my moms home equity line to survive. i borrowed 10k, paid it back... borrowed 10k again, paid it back. she is a single mom that lives in a house that she won in a lottery for low income families. i cannot simply say... sorry mom, thanks for helping me out but now the trustee is your problem. i would rather wait the 10 months so she is not affected.

I think that you misunderstand bankruptcy! The fact is, that you can pay back ANY unsecured creditor that you want to pay back! There is nothing in the bankruptcy law that precludes this simple fact.

If you want to pay them back, pay them back. Remember, the bankruptcy doesn't "forgive" your obligation to pay. It simply removes the legal obligation to pay.

You can actually negotiate with the Trustee on the preferential payment to your mother. You may even be able to offer less than full value. I think what you may need is to sit down with a few serious and professional bankruptcy attorneys and they can discuss strategy on this particular preference issue. (This is why I was asking what type of preference that it was.)

HHM.... it seems simple... but no one has really answered my questions... when is the best time? how does the process start?.

I think the answer may not be what you wanted to read, but it is there. There is no "real" best time, but generally it's before you start getting judgment liens and tax liens placed upon real and personal property. This is what a good consultation helps you to evaluate. You can also deal with preference issues as well... if it is going to hurt family. Yes, there are people who have negotiated "insider" type preferences by offering a lower amount to the Trustee, so they don't have to litigate and lose money on the litigation.

Bankruptcy should be as much about planning than about actually filing. Planning doesn't mean just waiting 10 months to avoid a preference issue. Planning is recognizing that you can actually do things to mitigate preferences where they may hurt a family member.

I don't think it's a time to negotiate in your particular case. It's time to plan for a bankruptcy.

[keepsmiling]

JB,
Don't know if you have seen this discussion of trading's sitch:http://www.bkforum.com/showthread.ph...458#post572458

[ready2puke]

I'd try to wait it out..you said your self employed ..? So am I and so far have no judgements or suits..almost at the 4 year SOL which will be Sept.. I say wait it out.. I didn't talk to one single creditor..you really have to be so careful as the clock starts if you say anything about payments..I'm still getting calls and letter from them with sometimes 70% off..I couldn't even think of paying them back..
Citi bank sent me a 1099-C forgiven debt..Now I have to deal with the insolvency issue..just more crappy paper work..
Good luck in your decision