Has anyone ever tried this? Negotiating lower balance for payoff...

[lalap123]

Okay, I'm beginning to re-think my bankruptcy filing. I think we can scrape together about half of what I owe to my cards. What if I called all of my creditors (all credit cards...all about 60 days behind) and told them honestly that I am about ready to file Ch 7 but if they will reduce my balances by half I can pay them in full and will close the accounts? Is this going to be just as bad for my credit as BK would be? The reason I am balking with filing to be honest is that I am terrified the trustee will either take our house or force us to pay the equity to him, which in the end would probably be almost as much as paying the cards off (if they will go for this).

Anyone tried this? What do you all think?

[Trixie007]

You can always try... BofA offered us 15%, buy 60 days late won't get you that offer. None of our other 6 cc's gave us any reasonable offers. Also, don't forget there might be tax ramifications on the forgiven debt.

[StartingOver08]

So you have the money to pay off your cards if they cut the balance in half?

What are your total balances? It might not make since for you to file if you have cash and too much equity.

I'm sure you have already taken into consideration the taxes you will have to pay on the forgiven part of the debt. If not, make sure to count the amount of taxes dues on the 1099-C's In that case you really should negotiate for a lower payoff than 50%

[lalap123]

You mean BofA said you only had to pay 15% of balance??

Wow, that would be a great deal. But did you also say that I would have to catch back up first?? I thought they'd be more likely to negotiate if I were so far behind that I was almost filing BK, which I am.

The money would come from a variety of sources...my husband could try to get a HELOC on our home for around $15K (trustee would probably ask for anyway), we have about $4K in stock (trustee would ask for anyway), plus I already have about $3K saved up to pay atty's fees and we could use our tax refund (around $3500...trustee would at least take my half anyway!!). I owe around $68K but was hoping that the cards would let me pay half if not less. I would even be willing to keep a couple of the lower balance cards open b/c then my husband could probably get a part-time job and we could easily pay the minimums until I can find work.

[HHM]

If the only way to settle these debts is to take out OTHER debt, don't do it. BK brings certainty, DS is a road to headaches, sleepless nights, and uncertainty.

[2Bshinyandnew]

Wow, that would be a great deal. But did you also say that I would have to catch back up first?? I thought they'd be more likely to negotiate if I were so far behind that I was almost filing BK, which I am.

The money would come from a variety of sources...my husband could try to get a HELOC on our home for around $15K (trustee would probably ask for anyway), we have about $4K in stock (trustee would ask for anyway), plus I already have about $3K saved up to pay atty's fees and we could use our tax refund (around $3500...trustee would at least take my half anyway!!). I owe around $68K but was hoping that the cards would let me pay half if not less. I would even be willing to keep a couple of the lower balance cards open b/c then my husband could probably get a part-time job and we could easily pay the minimums until I can find work.

BOA offered me 25% of the balance to settle...I owe $27K on that account so that would have been $6750, but that offer didn't come until I was 150+ days late. I don't have an extra $6.75, much less $6750...or the means to pay tax on a 1099, although I understand if you are insolvent at the time you receive a 1099, you might not have to pay tax, but I am not at all sure how that works...BK on the horizon for me.

[2Bshinyandnew]

HaHaHa...BoA is trying to rip you off!!! They offered me 15% on one card and 10% on my business card. But like you I don't have the money to pay them.

Also the insolvency rules are pretty straight forward for the IRS:

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

http://www.irs.gov/individuals/artic...179414,00.html

BOA's offer may get lower yet..I'm not filing BK for awhile and I'm collection proof , so their only strategy I can think of is to go lower in a settlement offer, if they *bother* me at all. None of my creditors have a phone # for me, and the creditors I was joint with my ex send mail addressed to ONLY me at my ex husba/nds old address,(I never lived there, LOL) which is still being forwarded. He brings me the mail, which is how it finally gets to me . He's already filed a CH7 and included our joint debt, last day for objections is 2/27/09@5:00pm

Question: For tax purposes, If I have equity in my home that is greater than my total debts, would that mean I am an not insolvent, even though that equity/asset would be exempt in BK or from collection efforts?

[lalap123]

Glad you asked that question...

It could be argued that we would have enough equity to cover the debt w/ out taking the cost of selling it into consideration. And of course the mortgage company wouldn't give us the full amount in a HELOC either. Plus I wonder if they would take into consideration that the debt is all mine but the equity is equally divided b/t me and my husband?

BTW, what kind of tax impact are we talking? 25 percent of the forgiven debt or worse? And how do you prove to the government that you were insolvent at the time the debt was forgiven???

[Trixie007]

Wow, that would be a great deal. But did you also say that I would have to catch back up first?? I thought they'd be more likely to negotiate if I were so far behind that I was almost filing BK, which I am.

Sorry, I meant you're probably not far enough behind. You can check my blog for exactly when they made the offers, but I think I was 4-5 mos behind. If you go to my blog and select the category "Creditors/Collectors" you can see the timeline of just what happened with our cards. They offered 20% first, then a week or two later lowered it to 15%.

As for the tax liability - you pay taxes to the degree that you are solvent at the time of debt forgiveness. So for instance, if you settled your 68k for 20k and at that point all your assets equal 500k and all your liabilities are 490k, you are 10k to the good, so 10k of the forgiven debt would be taxed at your current tax bracket of your last dollars earned. So, if your existing income uses up all your deductions, and your last dollars earned are being taxed at the 15% federal rate, then you'll pay 15% federal tax. Hope that makes sense. Scenario two, all your assets equal 500k, all liabilites 500k+ means you are insolvent and wouldn't have a tax liability.

Also, to the OP - are you sure you have that much equity? If this is a concern, you should have a CMA or appraisal done to determine how much equity you really have.

[lalap123]

Thanks for the great explanation...

By the way, where can I find your blog?

No, I'm not sure about the equity. Last May we did a re-fi and it appraised for $250K. Tax assessed value for 2008 was $260K. I'm thinking that an appraiser might go down to $240K. We owe $202K, but I'm filing individually and can only exempt $10K. The thing that scares me is that one atty I met with told me that the trustee can and will do whatever he **** well pleases with my house, even if that means he wants to look at only the tax assessed value for last year, put it on the market and wait for 6 months to see if it sells. This atty told me that it is possible that the trustee won't even give us the option to buy out the equity, which is what really scares me. Best case I get through it free and clear b/c they figure selling the house is too much of a hassle and gamble. Next best scenario, I figure if they give us the option to buy it out my husband can take out a HELOC and pay it.

I know you're thinking I'm crazy to not just give up the house if it comes down to it, but we have three kids and lots of family nearby, and I don't want my stupid financial decisions to adversely affect my husband and children and also am NOT willing to let my husband's family find out what has happened. Maybe I'll regret this, but I'm adamant at this point.

What would you do in my situation???

[Trixie007]

The link to my blog is in my signature - The Journey. It's hard to say, but by far the simplest thing would be to file BK. We don't know your entire situation, though. Probably you need to get all of your numbers together, put everything down in black and white and take a hard look with hubby at all your options. You talk like you're the only one that made mistakes - marriage is a partnership, so IMHO it's really important to deal with this issue together. Also, if you've been using equity in your home to subsidize your life, can you realistically afford the house? Not emotionally - financially. We now rent a 4BR house and are paying half of what it cost for one of the homes we are giving up. Plus we don't pay for maintenance now.

This can't be an emotional decision - it's not about how we look to others, embarassment, or anything else. Kids are remarkably resilient, and if you come at this from a healthy place, they will too! Right now it just has to be about what is best for your future.

[lalap123]

Thank you so much...

Thanks again. After asking you about your blog I figured out how to get to it through your profile

Yes, I know that my husband has to be involved in this decision but I'm trying to get all info together so that I can have it when we talk. His job doesn't allow him to go with me to any BK attorney consultations, so I'm going to have to write it all down and go over it with him on paper.

We are actually in an affordable house right now and are far from being upside down (we currently don't have any other mortgages on the property). We also have a reasonable house payment. Although I agree with you regarding kids being resilient, I don't want to substitute one headache and stress (the money we owe) for another one (having to pack everything up, be able to afford to move somewhere else, end up with bad neighbors or other new house issues). Believe me, if we weren't able to afford the house I wouldn't have a problem giving it up. In our area, if we can manage to hold onto this house, in about five or 10 years we should be in a really good equity position. The way I've been looking at it is if we could get rid of the debt then I could easily cover a small HELOC payment until a full-time job comes around, at which time I could manage to pay it off pretty quickly. Wishful thinking on the FT job, I know, but in contrast to where we are now that seems like such a small, small problem

Thanks for listening to my ramblings. It helps to get it down and get others objective opinions!

[OhioFiler]

By the way, where can I find your blog?

No, I'm not sure about the equity. Last May we did a re-fi and it appraised for $250K. Tax assessed value for 2008 was $260K. I'm thinking that an appraiser might go down to $240K. We owe $202K, but I'm filing individually and can only exempt $10K. The thing that scares me is that one atty I met with told me that the trustee can and will do whatever he **** well pleases with my house, even if that means he wants to look at only the tax assessed value for last year, put it on the market and wait for 6 months to see if it sells. This atty told me that it is possible that the trustee won't even give us the option to buy out the equity, which is what really scares me. Best case I get through it free and clear b/c they figure selling the house is too much of a hassle and gamble. Next best scenario, I figure if they give us the option to buy it out my husband can take out a HELOC and pay it.

I know you're thinking I'm crazy to not just give up the house if it comes down to it, but we have three kids and lots of family nearby, and I don't want my stupid financial decisions to adversely affect my husband and children and also am NOT willing to let my husband's family find out what has happened. Maybe I'll regret this, but I'm adamant at this point.

What would you do in my situation???

I doubt your home is worth what you think it's worth. Real estate values are dropping by the minute. O'bama's plan isn't going to change that either. It's going to be a couple of years before we see a rebound in the market price of homes.