What happens if you don't pay?

[Ineedhelp2]

I'm still exploring my options about bankruptcy and also about negotiating with the cc companies about a settlement.

I think it's been close to a year since I have made a payment on any unsecured debt. I've gotten lots of calls but have so far ignored most of them.

I have been also exploring the possibility of working with a company that negotiates with the cc companies. I know there are posters here who have commented that these companies do not do a good job. I have contacted several ot them and some seem better than others. They want a big fee--close to $5,000, and I think if it would work, I might be able to do it myself, anyway.

What I'm wondering is what they will do if I continue to not respond. Is it better to try to cut a deal now instead of later? Is there any downside to waiting until I get some kind of judgement before going ahead with a bankruptcy? Will the prospect of going bankrupt be any kind of negotiating tool?

[lrprn]

INH2 - my answers are below...

I have been also exploring the possibility of working with a company that negotiates with the cc companies. I know there are posters here who have commented that these companies do not do a good job. I have contacted several ot them and some seem better than others. They want a big fee--close to $5,000, and I think if it would work, I might be able to do it myself, anyway.

I'm one of those posters who did not have a good result using a debt management negotiation company. Ours was Consumer Credit Counseling Service and they had a very good reputation in our area and few complaints with our local BBB. They did get most of our credit cards to accept lower payments for a nanosecond, but almost simultaneously the cc's raised their APRs so high (from 12% to 28% overnight) so the monthly payments we ended up with were higher than where we started. After paying CCCS almost $800/month for eight months, we were only $900 ahead of where we started. At that rate we would be paying until they lowered us into our graves and would never make enough headway to matter.

What I'm wondering is what they will do if I continue to not respond. Is it better to try to cut a deal now instead of later? If you are going to try debt management with a company, might as well do it now. It's not going to get better by waiting. Is there any downside to waiting until I get some kind of judgement before going ahead with a bankruptcy? If you end up filing bk, the judgments for non-secured debts will be wiped out with the bankruptcy. Secured debt judgments are much trickier - depends on if your creditor gets a lien against the asset. See http://www.moranlaw.net/secured7.htm for more information about secured debts in Ch 7. Will the prospect of going bankrupt be any kind of negotiating tool? NO.

[YRUSODUMB]

Nothing at all, from what I am seeing.

[FoolAndHisMoney]

One other thing to remember. If you negotiate a settlement for less money, whether you do it yourself or you have a company represent you, the difference in what you paid as what you owed (the part of the debt that is forgiven) becomes taxable income to you and you will get a 1099 from each creditor that you will have to report on your tax return.

In Bankruptcy, the debt is not considered forgiven, therefore not taxable.

Good luck! Let us know how it turns out!

No-it-all has mentioned that whether you pay taxes or not depends on just how insolvent you really are. If you have a net worth of home equity for example of $150k and you settle 80k in debts for 20k then yes you will have to pay taxes on 60k worth of income. If your flat broke with no assets then you shouldn't have to pay any taxes. I was going to call a lawyer and see if I can use this option before the bankruptcy option. I would much rather do this instead, but I think they want the settlement in one lumps sum and that's not possible.

[Ineedhelp2]

lprn,

There are the nonprofit "consumer credit" types that I understand actually work for the cc companies in a roundabout way. Those types do not do any real negotiating.

But there are other companies that actually work to cut the balances in half and make payment arrangements on that.

Did you also contact one of the latter types?

[lrprn]

lprn,

There are the nonprofit "consumer credit" types that I understand actually work for the cc companies in a roundabout way. Those types do not do any real negotiating.

But there are other companies that actually work to cut the balances in half and make payment arrangements on that.

Did you also contact one of the latter types?

INH2, I'm thinking you are talking about a debt consolidation company ("consumer credit") vs. a debt negotiation company....right?

I investigated debt negotiation companies at the same time I was looking at debt consolidation companies last year. However, I couldn't find a debt negotiation company that had a reliable enough reputation in our area to want to meet with them.

For those members not familiar with debt negotiation...

The best benefit of a debt negotiation program is that you stop making payments to your creditors. The debt negotiation company either takes monthly payments from you and keeps it in an account, or lets you keep the money in your own account. While you are making these monthly payments to the debt negotiation company, they negotiate with your creditors for a lower payoff of around 40-50% of your total amount of debt. Once the negotiated settlement is agreed upon with your creditors, the debt negotiation company makes a one time payment to them.

One downside of a debt negotiation program is it lowers your credit score for as long as you are in the program. However, most debt negotiation companies require the creditor to make the credit report show paid in full so it doesn't show up as a negative on your report once your account is settled.

The biggest disadvantage of debt negotiation is that the IRS can consider the money written off by each cc company as income for you, so you could have to pay a considerable chunk of taxes the following year.

Only each individual can decide whether debt consolidation or debt negotiation is best for in his/her particular financial circumstances. Do your very best to ensure the company you go with is reliable - check with your local BBB, do online searches for "(company name) complaint", etc. Could save you from a world of financial hurt when you least need it.

[anonymuse]

So you could plead your case to the IRS and they would decide whether it was taxable or not?

Look up the publications for insolvency on irs.gov