Settle/No Settle? - Opinions please

[bugasbaby]

So I don't get sued and have my wages garnished.

[paradiddle]

Congrats..
Now your going to be rewarded with a nice 1099 at tax time and your credit is still trashed. Your HELOC lender will now see that you paid your BOA debt, which will show up on your credit report. They will now see you have funds and play hardball with you.

BK would of been cheaper if you qualified.

1) I am involved in a 6 figure lawsuit and would lose it in a BK.
2) My wife still has good credit - not involved in the debt settlement
3) I will be insolvent - so no 1099 tax ( most people are insolvent )
4) I owed more in CC debt than Heloc and it is at 3.25%
5) My 1st mort. is very close to value so a lien strip may have failed

I don't know the implications of debt settlement vs BK 13 as far as credit scores go. I guess time will tell.

I do agree that most people would do better in a BK 13.

[bugasbaby]

For us Bk13 would look like 100% pay back...I can get these settled hopefully by February 2011. I get yearly bonuses and would have to turn them over every year...the trustee being in control, I have issues with.

Yes I know it's my debt...yes I know I need to pay it back, but hubby lost his job last March, made a career change and we are having some issues right now.

As paradiddle, hubby's credit is great so if anything were to come up we would use his credit.

[azstac]

I too thought I was tax free! But guess what BAM in mid Jan. this year I got hit with a hugh 1099. Guess what the IRS will come after you. They seen how much I paid Citibank and I didn't have a leg to stand on. I want to say thank you Citibank for getting the last laugh. Should of went with the bk! Lessons learned would be " If I owed the debt and had the money to pay it I should of "

Azstac

[treehugger1]

I am 3+ years out for many of my unsecured debts that I stopped paying. Since I'm a middle aged boomer with no assets (other than a small war chest of protected retirement and pension funds), I have no intention of "settling."

I would also have been in 100% BK 13 payback. In the end, my choices worked well for me. I did speak with several attorneys and an accountant before I made my decision to walk away from unsecured. We put pencil to paper and in the long run, BK 13 was a poor option. Pumping tax-deferred dollars into protected retirement-type accounts turned out to be of far greater value.

Through all of this, the best thing I have done is to keep shoring up my retirement/pension/tax-deferred investments. These are all protected under my state (Oregon) exemption laws.

I have one optional retirement account where I can borrow money against. Then I can pay myself back. Credit is not an important issue for me.

Judgment creditors are allowed 25% of my disposable income. The remainder is mine. The process of stopping paying unsecured creditors was difficult at first. It took me a long time to get it all together. In hindsight, I should have done this a decade ago.

Somewhere in the future, I hope to file a BK 7. But for now, like many of you, the BK 13 thing is not a good option.

[jacko]

Do you know how wage garnishment works? Did you know that if you are head of household even if you have no children, the first $1004 of monthly net income is exempt from garnishment. if you have children, the amount rises. plus you can reset your withholding exemptions to zero for a nice fat IRS return check provided you do not do direct deposit. You can also have extra withhold which is legal.

Did you have that info before you settled? Sometimes a little garnishment is cheaper than a settlement.

So I don't get sued and have my wages garnished.

[flyinbroke]

I am like Tree but not far along. I only qualified for a 13, and could not fathom handing over 60 percent of my income for the next five years. I live in a state where garnishment is not allowed. I only fell behind on five accounts, and they were closed and among the big banks. I did not stop paying any account I had used recently, nor did I stop paying anyone where I had money or secured assets.

Are the calls and letters a big PITA? Yep. Do I have a nice chunk of change to work with instead of a negative bank balance? You bet. I also have a lawyer pursuing 3 CAs and 4 OCs for the CA violations. It is conceivably possible that four of the five will be driven into their hidey-holes when the violations surpass the debt. Then I could potentially eliminate four bad tradelines. Nothing is certain, but a BK would have left me with NO cash to conduct life. For me if it wasn't going to be a 7, I wasn't playing.

As for settlement and insolvencies, if you have 15K to settle, the IRS is never gonna believe you are insolvent.

[ryan]

As for settlement and insolvencies, if you have 15K to settle, the IRS is never gonna believe you are insolvent.

I would agree.
I've always figured if the IRS saw you had a large cash amount like that they would not see you as insolvent...or at least it would be very hard to prove.
...in which case you will owe a lot of tax too.

[HHM]

I would agree.
I've always figured if the IRS saw you had a large cash amount like that they would not see you as insolvent...or at least it would be very hard to prove.
...in which case you will owe a lot of tax too.

I understand that sentiment, but that is now how it works (fortunately). The insolvency test is still an offset of assets minus liabilities at the time of settlement. However, I think many people go down the settlement path not really thinking in through and "assume" they are insolvent when they really are not.

[catleg]

The problem with the IRS insolvency test is that, unlike BK, they do count IRA's and 401k's as an asset of the debtor, hence you can appear very solvent to them when you are really not.

[paradiddle]

off the top of my head, I am insolvent by 97K

Owed = 348K
Assets = 251k (including a pittance of pension/IRA/401K)

[bugasbaby]

I am insolvent to the tune of about $70.

If I receive the funds froma family member and settle why would the IRS question that...it's not my money

[BrokeIn2010]

I am insolvent to the tune of about $70.

If I receive the funds froma family member and settle why would the IRS question that...it's not my money

Still "income" to you. You still profit from the settlement and the money even if they pay the bill. It's a screw job, but it's their game and their rules.

[Fallonedward]

Does anyone know if I make an agreement to pay 100% of my unsecured Debt with Macy's but they agree to take off the 4 months of late fees will I still be a getting a nice 1099 at tax time?

[BrokeIn2010]

Does anyone know if I make an agreement to pay 100% of my unsecured Debt with Macy's but they agree to take off the 4 months of late fees will I still be a getting a nice 1099 at tax time?

Probably. My folks argued down a shell card bill by a mere $100 and got a 1099.