Settlement offer: 15% of 75,000 with B of A?

[njguy1972]

I am not sure of your situation but I have been settling my cards since it makes sense for me vs ch 13. Per my lawyer I was likely to have a 100% payback where through settling I will pay back about 55%-65% after taxes. I am settled with 4 of 5 right now. BOA is cool where they will mention that the account is settled in full and that there will be a tax liability on the forgiven amount. Also, make sure you clearly ask on their recorded lines that the debt cannot be re-sold. All their calls are recorded based on what I was told. This will protect you as well. Of course get them to fax the letter before you send any money.

It will make sense to settle if any of the following apply to you:
1. You have cash on hand from a tax refund / work bonus that would be turned over in a ch 13 to the trustee
2. You can borrow from your 401k at a low interest rate to settle all the debts
3. You have a credit card from work that is required for your job. If you declare BK (even ch 13) it will be canceled and you will be required to alert your boss that you cannot use it for visiting clients.
4. You work in financial services or an industry where a BK may prevent you from promotions or getting a new job
5. You can save money with a settlement vs. a BK (especially if you are destined for a 100% ch 13 plan)
6. You have issues with the trustee involved with your personal finances for 5 years where you cannot make any decisions without permission.

From experience:
-BOA will settle at 15% if you are approaching 6 months overdue and they are about to charge you off with little haggling
-Citi will settle for around 30% if you are 4-6 months overdue with little haggling
-Discover will settle for about 30%-40% after 3 months with lots of haggling
-Amex is very tough. With NCO you can get to the 40%-50% range but other CAs play harder ball and will tell you that AMEX will not settle when they actually will. I have read that AMEX does not care if they have to sue to garnish wages.
-I have no experience with store cards but I have a feeling they may be easier since they just want to clean liabilities from their books since they are not in the financial business.

I put some numbers below based on 30% for most but moved it to 40% for some of the smaller balances since the banks / CAs may play hard ball on them. It is a lot easier to come up with 2k vs 13k and they know that.

You mentioned you have :
75k owed to BOA - @ 15% = $11250 ($63750 forgiven)
12k to Sears - @ 30% = $3600 ($8400 forgiven)
7k to Discover- @ 30% = $2100 ($4900 forgiven)
$2k to Kohls- @ 40% = $800 ($1200 forgiven)
$4k to Chase- @ 40% = $1600 ($2400 forgiven)
13k to GM- @ 30% = $3900 ($9100 forgiven)

Totals: $23250 in settlements ($89750 forgiven)
Federal Taxes: $89750 * 28% = $25130
(28% tax bracket for all income over 75k. If your salary is under 75k you may have a smaller tax liability)
State taxes: $89750 * 5% (depends on your state- mine is 6.3%) = $4488

Total of payment in a settlement: $23250+$25130+$4488 = $52868
which represents 46% of your total debt.

This number can become larger if you borrow from your 401k to settle or if you have to go onto a federal tax repayment plan that includes interest.

You said you would pay $700 a month in a ch 13 (42k) which is around 37%.
Your break even is around $850 a month.

I hope this helps.

[tyfoon]

I think you are confusing 401K loan repayments with 401K contribution. There is NO DOUBT that 401K loan repayments are allowed, (see code section 1322(f)). Find other attorneys.

Looking back at my notes, there was a disagreement between attorneys on this point. The code clearly states it would be allowed. One attorney specifically told me there was a chance it would be disallowed because of the way the loan agreement was drafted. The other two indicated that because my 401k loan is scheduled to be paid up by Sept. 2009 the permitted deduction would not be as high as i am actually paying (I am paying $650 a month to payback the loan). In any case, I was incorrect and the loan repayments may be a deduction, but not as much as I am currently paying.

[treehugger1]

I think I understood incorrectly. I thought the poster was referring to 401 contributions. Loan paybacks in a chapter 13 plan are totally allowed, and are considered prior to "disposable" incoem avaialable to the plan. In terms of continued contributions, 3% - 5% to a 401 seem to be the norm allowed. It becomes fuzzy when a defined benefit pension plan is involved and one also wants to continue contributions to a 403(b) or 457 plan. You can;t have it all.

[HHM]

I think you are confusing 401K loan repayments with 401K contribution. There is NO DOUBT that 401K loan repayments are allowed, (see code section 1322(f)). Find other attorneys.

[tyfoon]

Interesting that in your district the attorneys informed you that the 401 contributions might have to cease. The BK laws are so lame in this country and allow for different "regulations" to be interpreted by different districts. In the end, your best bet is probably a BK. Whether the road to recovery is a few months (BK 7) or five years (BK 13,) you definitely know where you stand. As to future issues with JDB's attempting to collect pre-BK debt, you will probably have to follow through and this requires some work on your part in the future. It's much easier to get into debt than it is to get out of it. In my opinion, if you are eligible for either a 7 or 13, one should move toward this quickly while the original creditors still hold all the paperwork. An early BK seems to nip the possibility of future issues with CA's and JDB's in the bud.

thanks, fyi, 401k loan payback would cease (I owe $10k to my 401 plan). 401k contributions may continue as long as they are reasonable (3% is ok). Yes it is interesting that the district regulations differ.

[treehugger1]

Interesting that in your district the attorneys informed you that the 401 contributions might have to cease. The BK laws are so lame in this country and allow for different "regulations" to be interpreted by different districts. In the end, your best bet is probably a BK. Whether the road to recovery is a few months (BK 7) or five years (BK 13,) you definitely know where you stand. As to future issues with JDB's attempting to collect pre-BK debt, you will probably have to follow through and this requires some work on your part in the future. It's much easier to get into debt than it is to get out of it. In my opinion, if you are eligible for either a 7 or 13, one should move toward this quickly while the original creditors still hold all the paperwork. An early BK seems to nip the possibility of future issues with CA's and JDB's in the bud.

[HHM]

You would have a good defense to future collection, the issue is that there would be future collection. It puts an additional burden and hassle on you to deal with these issues as they arise. It is still quite rare for post chapter 7 debts to be pursued in any meaningful way.

[tyfoon]

I believe debt settlement gives you an affirmative defense of "estoppel", likewise, bankruptcy also gives you an affirmative defense of "res judicata".

Down the road you can be sued (or merely pursued) for the debt whichever road you choose, if the creditor behaves unethically.

In either case, I am not sure if debtor would be able to collect anything else. But RJ appears to be a better defense.


Had to look them up:
******************************
Estoppel is a legal doctrine at common law, where a party is barred from claiming or denying an argument on an equitable ground. Estoppel complements the requirement of consideration in contract law.[citation needed] In general, estoppel protects an aggrieved party, if the counter-party induced an expectation from the aggrieved party, and the aggrieved party reasonably relied on the expectation and would suffer detriment if the expectation is not met.

While there are many types of estoppel, in simpler terms, most estoppels prohibit an individual or group from being harmed as a result of another's deeds, statements or promises, when later actions or statements contradict or undermine what was originally stated, promised, or inferred. In a case, estoppel is used as a defense and provides immunity to the defendant, by preventing the claimant or accuser from presenting statements of facts when such statements contradict earlier statements or when the party, by negligence, failed to present them earlier. Additionally, estoppel in a defense may also provide a legal basis for a claim, when proof exists that the undermined actions or false promises, or the negligence to present the facts, caused harm to the defendant. In limited cases where statements or promises were not made explicitly, a party's silence alone may alone prevent them from making a later claim or statement. See estoppel by silence.

So, "Where A has by his words OR conduct...[led]... B into believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to...[say to]..B that a different state of facts existed at the same time" (per Lord Birkenhead in Maclaine v Gathy (1921)

For an example of estoppel, consider the case of a debtor and a creditor. The creditor might unofficially inform the debtor that the creditor forgives the debt. Even if such forgiveness is not formally documented, the creditor may be estopped from changing its mind and seeking to collect the debt, because that change would be unfair.
************************************************** ***

Res iudicata or res judicata (RJ) is the Latin term for "a matter [already] judged", and may refer to two things: in both civil law and common law legal systems, a case in which there has been a final judgment and is no longer subject to appeal.[1]; and the term is also used to refer to the legal doctrine meant to bar (or preclude) continued litigation of such cases between the same parties, which is different between the two legal systems. In this latter usage, the term is synonymous with "preclusion".

In the case of RJ, the matter cannot be raised again, either in the same court or in a different court. A court will use RJ to deny reconsideration of a matter.[2]

The legal concept of RJ arose as a method of preventing injustice to the parties of a case supposedly finished, but perhaps mostly to avoid unnecessary waste of resources in the court system. Res iudicata does not merely prevent future judgments from contradicting earlier ones, but also prevents litigants from multiplying judgments, so a prevailing plaintiff could not recover damages from the defendant twice for the same injury.

[catleg]

I believe debt settlement gives you an affirmative defense of "estoppel", likewise, bankruptcy also gives you an affirmative defense of "res judicata".

Down the road you can be sued (or merely pursued) for the debt whichever road you choose, if the creditor behaves unethically.

[HHM]

Now I have to some research on the "dirty little secret" that the amounts left over are sold to a JDB which in turn would try to collect from me. Seems underhanded. But apparently it is happening.

Don't let that fact, alone, deter you from doing DS. But it is something you need to be prepared for. Now, all things being equal, if DS and BK came down to roughly even (which is almost never the case because 9 times out of 10, BK is the better, more cost effective option), then I would go the BK route hands down to bring legal certainty to the status of your debt and to allow recovery to happen much much more quickly.

[tyfoon]

Again your banking on a house of cards since you cannot predict what they will go along with and as mentioned "the dirty little secret" of the amount left owing to a creditor as being sold to a JDB.

As much as people don't like the idea of a trustee dealing with your financial affairs for 60 months, you get the protection of none of it coming back to bite you later. Plus your creditors must accept the plan the trustee sets up.

Point is you can lose a whole lot more money before you go seek BK protection. But I guess you can view it as the cost to learn.

Just reviewing all of my options. At this stage only cost is time. I really appreciate the good feedback from you and others.

Regarding the tax issue, I am insolvent to the tune of $90,000 (liabilities are $90k more than assets including my 401k). Therefore I would owe no tax up to an additional $90,000 reported on 1099c's.

Now I have to some research on the "dirty little secret" that the amounts left over are sold to a JDB which in turn would try to collect from me. Seems underhanded. But apparently it is happening.

[tyfoon]

The odds of all creditors accepting 15% is slim, so don't base your plan on that "assumption". When it comes to debt settlement, you need to "plan" for about 40%-45%

As for your chapter 13 concerns
1. Asset valuations are what they are, but most people tend to over-estimate value. 2. Unless you are in a district that requires mandatory payroll deductions, there is usually no reason an employer would be notified, 3. 401(k) loan repayments are an ALLOWED EXPENSE. 4. The benefit outweighs the short term issues. If you do your budget correctly, you can easily make it. You will be debt free in 60 months. 5. True, you cannot use credit. But you are basing your fear of chapter 13 on false assumptions. Yes, a chapter 13 is a lifestyle change, but it is a change for the better. I think you need to do a little soul searching if you don't think you have the commitment to make your situation better.

Very good point. Unfortunately in our district (Northeast Ohio) I have been told that payroll deductions are mandatory (courts also will take over my car payment) and that I can be told by the courts to stop paying back my 401k loan. All three attorneys I have visited indicated so. I have the commitment to make things better for myself, but not all the answers yet.

If the remaining creditor would settle for 50%, I would pay BofA $11,250 and the rest $20,000. Total of $31,250. Per the attorneys, if chapter 13 I would have to pay around $700 a month for next 60 mo to unsecured creditors or $42,000 (based upon a real conservative estimate of the worth of my three other cars). As I previously indicated, I am not sure of the tax implications but will look into it. Again, just trying to make sure that I am as informed as possible before making a decision.

[HHM]

Most likely I will end up Ch13. But it is tempting to try to settle for less than a CH13 would cost me.

I have talked to three attorneys. They all say file for CH13 but I would expect them to since I would end up paying them about $2500. My issues are (1) car valuation may be higher then I think so creditors will want more (2) notifying my place of employment (3) possible stopping of $10k in 401k loan payments until the five years are over (4) it will be very tough to live on whatever is left over of my pay (note: I probably deserve to have a tough time meeting obligations) and (5) courts will not let you borrow any other funds without their permission. From what I understand many CH13 do not work because you are forced to live on very little and what if your pay gets cut again. Back to the courts. I live in Ohio, so your state law may be different.


If all creditors would accept 15% I would sell one of the cars, pay them off and have $ left over. In theory this is great. Reality is that Sears, Chase and GM card may not settle. May even sue me. And chances are that I would have to pay with cash for many many years to come since no one will give me credit due to the settlement issue

I hope I have some time left before making a decision. Why rush especially since no one has forced me to pay them yet. Best to completely understand the situation.

The odds of all creditors accepting 15% is slim, so don't base your plan on that "assumption". When it comes to debt settlement, you need to "plan" for about 40%-45%

As for your chapter 13 concerns
1. Asset valuations are what they are, but most people tend to over-estimate value. 2. Unless you are in a district that requires mandatory payroll deductions, there is usually no reason an employer would be notified, 3. 401(k) loan repayments are an ALLOWED EXPENSE. 4. The benefit outweighs the short term issues. If you do your budget correctly, you can easily make it. You will be debt free in 60 months. 5. True, you cannot use credit. But you are basing your fear of chapter 13 on false assumptions. Yes, a chapter 13 is a lifestyle change, but it is a change for the better. I think you need to do a little soul searching if you don't think you have the commitment to make your situation better.

[Cheeseater]

A very good point about taking your time. The tax liability issue has me very concerned and I will research it further. A seven would be an almost no-brainer but the 13 has many issues as you've stated. We normally get an annual bonus and while it's not guaranteed it has always come. I know that would go to the trustee every year. We wouldn't be able to use our 401k to buy a car or pay emergency expenses. I have my own small business and don't want the microscope on me for 5 years. I wish you luck and please let me know if you receive any other offers.

[tyfoon]

If BoA was your only creditor take the deal, it might be worth the risk. But since you owe others your more than likely to end up filing a CH13, in that case the trustee would consider it preferential treatment and take the money back from BoA within a 12 month window. So then the money you would have been able to 'protect" is now being paid to all your creditors. That money could have gone into an exempt retirement account and not paid out.

So really, the CH13 is the better route it provides the best protection, you won't have to sell a car and no JDB in your future trying to collect the balance.

There is NO magical 120 day number it simply does not exist. Four months delinquent will rarely get you out of the OC office and over to CA. One number that people confuse is 180 or six months, this is when you account charges off and at that point it means nothing. Its only an internal accounting measure and is required by law to move your debt off the CC balance sheet. That IS ALL IT MEANS. An OC can keep your debt in house (Amex is a prime example) until the SOL kicks in.

So please consult an attorney and DO NOT follow the misguided advice of some posters on this thread about debt settlement, they have no idea what they are talking about and the same with some of the sites that have been linked in this thread.

The typical scenario goes like this: debt payment reduction plan> debt consolidation> some debt settlement> bankruptcy.

Most likely I will end up Ch13. But it is tempting to try to settle for less than a CH13 would cost me.

I have talked to three attorneys. They all say file for CH13 but I would expect them to since I would end up paying them about $2500. My issues are (1) car valuation may be higher then I think so creditors will want more (2) notifying my place of employment (3) possible stopping of $10k in 401k loan payments until the five years are over (4) it will be very tough to live on whatever is left over of my pay (note: I probably deserve to have a tough time meeting obligations) and (5) courts will not let you borrow any other funds without their permission. From what I understand many CH13 do not work because you are forced to live on very little and what if your pay gets cut again. Back to the courts. I live in Ohio, so your state law may be different.


If all creditors would accept 15% I would sell one of the cars, pay them off and have $ left over. In theory this is great. Reality is that Sears, Chase and GM card may not settle. May even sue me. And chances are that I would have to pay with cash for many many years to come since no one will give me credit due to the settlement issue

I hope I have some time left before making a decision. Why rush especially since no one has forced me to pay them yet. Best to completely understand the situation.