Debt Settlement vs Bankruptcy

[ifly2007]

Does anybody here took a Debt Settlement program route instead of filing Bankruptcy? I've talked to Credit Solutions of America, We owe almost 19K and they can bring it down to 8K something with 15% interest, total to 11K plus they also told me that 100% creditors would agree to the settlement amt and that I wont be liable for the difference (taxable) and they can do wage garnishment but they have to spend a lot of money to go to that route. I saw on the internet to that some people that went to Debt settlement ended up filing for BK. If anyone here can give me an advise, that's greatly appreciated.

[325Falcon]

Run away from CSA, FAST!

[woeisme]

If they tell you that you won't have tax liabilities for the amount of debt that is forgiven, they are lying. It's all taxable as income, and in the cases of forgiven debt over $600, the creditor will file forms with the IRS so that there's no hiding the amount forgiven. If they are lying to you about something so basic and easy to spot, imagine what else they are lying about! I a tried CCCS, made it about 3 years into the 5-year plan but still had so much debt that I realized they were lying about how long it was going to take to pay it off, and just couldn't stick with their totally unmanageable budget anymore. Believe it or not, CH 13 allowances were much more reasonable and easier budget to stick to for me than the credit counseling services budget was. But that's just my experience, others might be different.

[Keebler]

They're already making promises they can't keep by saying that the negotiated settlement wouldn't be taxable. All they can do is hide the fact that it's taxable so you don't claim it on your tax return like you're supposed to.

[BKTango]

Woeisme is in entirely correct on the tax issue. They are in fact lying about that. Any debt forgiven above the amount of $600 is taxable and you will have to deal with that unless you can prove to the IRS you are insolvent.

Doing a quick search of the site will bring up many threads on Debt Settlement companies and many of the members experiences including my own. Long story short, after losing several thousand dollars to a DScompany, I managed to only settle 2 small accounts, had numerous lawsuits actually filed against me, was in debt double the amount of what it was when I started thanks to late fees and interest(bet they lied to you about that) had lates and charge offs reported to my credit report....an ended up having to file bankruptcy anyway.

They've lied about one issue already, and another is NOT every creditor will work with the programs...that's another lie. Also you will be harassed to death my all of your creditors during the whole time, with bankruptcy at least they can't contact you anymore. Depending on your state, household size, and income you may qualify for a chapter 7 and be done with it all in 3-4 months. Whatever you do, do your research. Whether it's the route you are looking into or bankruptcy.

Good luck!

[lrprn]

In the 18 months I've been here in the forum, we haven't had one single member who successfully used debt management. All of us (me included) found that it just didn't deliver as promised.

In our case, we paid a very well regarded and reputable CCCS group $8000 over eight months to reduce our debt $900...total rip-off. And we ended up filing Ch 13 anyway.

Debt management helps very, very few people who aren't very far under with only a few creditors who are willing to work with the proposed debt management plan. Don't waste your time and money - it's better spent making appointments for free or low-cost initial consultations with 3-4 bankruptcy lawyers in your area.

[Keebler]

I don't know where I read it, but it makes complete sense...

Bankruptcy is debt-negotiation backed by the power of the Federal government!

With Bankruptcy your responsibility is determined by a neutral third-party using widely published rules. Repayment is based on your ability to pay and includes zero if necessary.

Try THAT with a Debt Negotiation Company!

[RickInMich]

I have a question along these lines. In a Ch 7 bankruptcy, if a creditor objects to something, and you settle with them for, say, half the amount, are you taxed on that? My attorney said there's a 25% chance or so that Capital One will object to one of our accounts (about $22,000), but he said that most likely the worse case scenario would be that we would have to pay them about half. So now I'm worried about that income tax liability. Does it exist in a Ch 7?

[HHM]

I have a question along these lines. In a Ch 7 bankruptcy, if a creditor objects to something, and you settle with them for, say, half the amount, are you taxed on that? My attorney said there's a 25% chance or so that Capital One will object to one of our accounts (about $22,000), but he said that most likely the worse case scenario would be that we would have to pay them about half. So now I'm worried about that income tax liability. Does it exist in a Ch 7?

You're in luck, because you do not get taxed on reaffirmations or settlements that occur within at BK case. The DEBT is part of the BK estate.

In the BK context, the reaffirmation/settlement is to resolve a dispute regarding the dischargeability of the debt. So long as you abide by the terms of the settlement (i.e. make the payments), any remaining balance is discharged in the BK. If you do not abide by the terms of the settlement, the debt become due in the full amount minus any payments you may have made.

[Blue_Ray]

19K CC debit is not so bad. I mean compared to a lot of us that are in the 40K and up. Is there no way you can make any payments or settle a payment plan w/ the CC companies??

If not, just BK it!!

[leftyf]

Wait it out a little and the CC companies will probably be sending you settlement offers in the area of 20% to 40%. Skip the CCCS or CCA or whatever it is. A total waste of time. Of course, you will still have to pay the taxes on the forgiven debt, but your debt level seems pretty low to bk unless you are in bad shape.
Based on the news I've been hearing lately, the CC settlement offers are going to get really sweet. The subprime mess is nothing compared to what's coming in credit cards...the next wave of the "credit crunch", so to speak. My opinion, of course, and I don't really have statistics to back it up.

[jp2861]

Does anybody here took a Debt Settlement program route instead of filing Bankruptcy? I've talked to Credit Solutions of America, We owe almost 19K and they can bring it down to 8K something with 15% interest, total to 11K plus they also told me that 100% creditors would agree to the settlement amt and that I wont be liable for the difference (taxable) and they can do wage garnishment but they have to spend a lot of money to go to that route. I saw on the internet to that some people that went to Debt settlement ended up filing for BK. If anyone here can give me an advise, that's greatly appreciated.

Like said....run. These guys are charging you for something you can do yourself. You dont need to pay these guys to ruin your credit, as you can do it for free. They will take your money, sit on it, not make any payments, wait until you're about to get sued, and then TRY to settle. There is absolutely NO WAY these guys can sit there and tell you what the bank will take for a settlement. They aren't the bank and don't know squat until settlement negotiations begin. They are sales people reeling you in. If you're that bad off that you're considering debt consolidation you will better off to file BK. You file a Ch7 and in two years you'll be well on your way to recovery. In two years with these debt consolidation clowns you'll still be paying, credit still dorked up, and probably crying yourself to sleep. Even if you're in a Ch13 at least you know from day 1 where your money is going and exactly where you'll be in 3 or 5 years. Either way BK is the smarter option.