Negotiating Debt? (Don't know what this is called)

[flyinbroke]

I'll just step in here and point out that no matter how much your debt is inflated by default interest rates (30%) and late/overlimit fees, your tax liability is limited to the original principal balance, in other words the "value" of whatever was purchased on the card or the amount of cash advance. Minus whatever payment you make to settle the account. If you get a 1099 from the lender make sure it's for the correct amount.

Hmmm, one of mine has not been used in 3 years for any kind of charges. Another had not been used in over 2 years. That could be interesting....

[LadyInTheRed]

Moe, it sounds like you have a tough decision to make. I have some more thoughts.

You are trying to settle debt for about 25%. From what I've read, that's very unlikely.

Keep in mind that a debt settlement does negatively affect your credit rating. I don't know how it compares to a BK as far as the damage it does.

I mentioned before that your income tax on settlement could be reduced if you are insolvent. Coincidentally, I was reading a legal magazine this mornign and came across an article on the subject. My understanding from the article is that if at the time of debt settlement, your total debt exceeds your total asssets, you can exempt debt forgiveness from taxation up to the difference between liablities and assets. For example, if you settle $43,000 in debt for $10,000, you will have income of $33,000 (leaving out for the moment the fact that $43,000 is probably not all principal as Catleg points out). But, if your debt exceeds the value of all of your assets by $15,000, you can exempt $15,000 of the income from tax, leaving $18,000 in taxable income. If you have certain tax credits, you may have to give back part of the exemption. The article wasn't clear on the deatils of that. I don't know whether you would include your husband's debts and assets in determining insolvency. That may depend on whether you are in a community property state and whether you file separate or joint income tax returns.

Many people are successful in holding off creditors for a long time to delay filing bankruptcy. You may be able to put it off for a year or more, especially with the help of an attorney.

You seem to want to avoid bankruptcy at all costs and I get a feeling it comes from feelings of shame that I think most of us go through. While avoiding bankruptcy is preferable if you can, you need to get past the shame and emotions and look at it as the buisiness decision that it is. Your creditors will not take your decision personally and will hardly notice if you file. You are a tiny drop in their huge ocean. The sooner you figure out how to resolve your financial issues permanently, the better off you and your family will be.

Regarding your father, I was reluctant to tell my father and stepmother of my plan to file, but decided to do it so they could understand why I can't hop on an airplane at any time to go visit. I was pleasantly surprised by their response. They seemed a bit shocked at first as they have always known me to be reliable and they highly value paying off what you borrow (as do I). But, when I explained my situation and how a Chap 13 works, they seemed to understand. When I was getting ready to leave, my step-mother, the more judgmental of the two, said "I think you are making the right decision to file bankruptcy." You might be surprised by your father's reaction. Maybe not. We all want our parents to be proud of us, but we are adults and we need to make financial decisions that are best for us, regardless of whether our parents approve. If you decide you won't be able to avoid bankruptcy forever, don't delay it just to avoid having your father find out. Get it over with so you can get to the end of that five year plan as soon as possible.

That's my two cents, anyway. You have a very hard and important decision to make. Make sure you make it for the right reasons.

I love your pseudonym

Thanks. I'm terrible at coming up with screen names and usually use some form of my real name. For obvious reasons, I didn't want to do that here. I was wearing red when I registered, so a name came easily for a change.

[moe]

Thanks Catleg!

So far, we're on the edge. We're on the edge of everything going wrong and having default interest rates and such. We'll get those if we go through with this plan and I don't pay for 90 days. (Does it have to be 120 days?)

But we don't have those yet.

[catleg]

I'll just step in here and point out that no matter how much your debt is inflated by default interest rates (30%) and late/overlimit fees, your tax liability is limited to the original principal balance, in other words the "value" of whatever was purchased on the card or the amount of cash advance. Minus whatever payment you make to settle the account. If you get a 1099 from the lender make sure it's for the correct amount.

[moe]

Thank you ladyinthered. I love your pseudonym.

One reason I am reluctant to file the Chapter 13 now is that I have a preferred payment.

It is to my father. I do not want my father to know about my bk.

In a brief discussion w/ a Bk lawyer, he said the preferred payment would have to come out of my pocket but suggested it could be folded into my plan. (He was not the nicest guy--he spoke fast and was very brusque so I could not get details.)

So, in theory, I could file. But I'd prefer to wait a year to clear out the preferred payment.

If I could get the debt load down to $45,000 then I could pay it off in 5 years--exactly five years--so long as we lived very frugally on a cash only basis. And nothing went wrong.

But I'd be in that exact situation if I could negotiate my $43,000 of debt also. I'd be in the same situation with Chapter 13, as long as my negotiation is successful. My husband cannot declare bankruptcy because it would make his job very difficult. (I realize it is illegal to fire someone for declaring bankruptcy. But he would have trouble.)

The debt negotiation is risky. I might lose $10,000 and still have to declare. Then, I would have to come up with a whole 'nother chunk of change to pay the lawyer.

But then I also have to pay $10,000 to the IRS.

I better ask the attorney about her experience with debt settlement and what her level of success has been.

Wow, what a fiasco this is. It's so hard to figure out. I cannot believe I had to make that preferred payment. It was such bad luck!!!!!!!!!!

[LadyInTheRed]

Since your husband is already late and can't file bankruptcy, try settling his debts. If that doesn't work, or it does work but doesn't solve your problems, then you can file.

You asked how much you will pay in income tax. That depends on your tax bracket and whether you pay income tax in your state. But, I'd count on paying about 30%. I have read that you may not have to pay tax if you are insolvent, but I don't know how insolvency is determined. A good question for your attorney or a CPA.

Also, ask your attorney how much experience she has with debt settlement and what her level of success has been.

If it were me, I'd exempt the $10k if I could and file Chap 13. You say you can't pay your credit card bills and pay your living expenses. Transferring a balance only prolongs the pain. Can you pay all of your unsecured debt in 5 years?

[moe]

This is the difficulty, for me.

I'm not sure I am going to declare. But transferring things and rearranging my debt would prevent me from declaring. Or give me a better shot at not.

But I can't do this because I am not sure. So it's like this catch 22.

It would not be 'new debt.' It would just be the same debt to a new creditor.

I reallyreallyreally don't want to declare bankruptcy. Even with my impossible debt load and inability to pay my bills, I feel like there HAS to be a way to avoid it.

Of course, if they would lower our interest rates a bunch and lower our minimums, we could probably make it. That is so frustrating, to me. The banks borrow money at zero interest so they would still make money at 3 percent interest. If I could have 3 percent and lower minimum payments then I could repay eventually.

Also, they changed the APRs from a lifetime agreement for some bogus reason. And jacked up my minimum by $400 because I WAS TRYING TO PAY DOWN THE HIGHER INTEREST RATE. Are they not such a-holes? The new Obama law says that my higher rates will be paid off first. So they jacked up the minimum so I can't pay back the higher rate!!!!!!

Anyway, that's my vent. I have no desire to declare bankruptcy or commit fraud. But, am I trapped in this particular configuration of debt because I am considering bankruptcy?

At this point, one obstacle is not paying my bills. I have a really hard time letting go of the idea of paying my bills.

[BCA2009]

Hi--

But I'm not going to file for a long time. I have an insider payment issue that cannot be fixed. So it actually could be a year.

For me, the point is to avoid filing. So is there a reason not to transfer if you don't plan to avoid filing?

I guess they might be annoyed that they got stuck with a chunk of debt and then you are trying to negotiate with them?

But anyway, do not want to file. My hope is to take every penny and get them to negotiate.

You may be OK transferring, but I would advise making monthly payments on the new debt for a while. If you create new debt without the intention or ability to repay, it could be consider fraudulent. The more time that is between the transaction and the BK filing would lessen the chance of an the creditor from filing an AP. But it is still fraudulent if you don't intend on paying it back.

I'm not being critical, just sayin'.....

[moe]

Hi--

But I'm not going to file for a long time. I have an insider payment issue that cannot be fixed. So it actually could be a year.

For me, the point is to avoid filing. So is there a reason not to transfer if you don't plan to avoid filing?

I guess they might be annoyed that they got stuck with a chunk of debt and then you are trying to negotiate with them?

But anyway, do not want to file. My hope is to take every penny and get them to negotiate.

[ryan]

...SO HERE ARE MY OPTIONS

1. Try to negotiate down my debt of $43,000 Do I have to wreck my credit to do so? I am the only one able to declare bankruptcy. I have excellent credit because I have been paying these bills like clockwork. But now I can't buy food so something's got to give.

Do you have to ruin your credit?

You will not get the CC companies to negotiate at all, usually, unless you are behind in your monthly payments, which will adversely affect your credit score.

I'd agree, you should NOT use one card to transfer balance to another card at this stage. ...could be a problem if you decide to BK.

[BCA2009]

So I actually have five cards but really only three different creditors: Citibank, Chase and Bank of America. I could transfer the small B of A debt to Citibank. In fact, I should do that anyway.

Don't transfer any balances. That is new debt. And depending on how soon you plan on potentially filing, it could be non-dischargable.

[moe]

Yes, phooey. Many creditors. Well, let's see...I think husband has more different types of cards than I do.

So perhaps I should settle? We each have about 43,000 in debt.

I can declare if it comes to that but he cannot, for professional reasons.

So I actually have five cards but really only three different creditors: Citibank, Chase and Bank of America. I could transfer the small B of A debt to Citibank. In fact, I should do that anyway.

I HATE not paying my bills. HATE IT. Just the thought of not paying my bills freaks me out. But we can't pay for anything else at this point.

Would it be possible to pay down $43,000 or so with a $10,000 chunk of cash?



I think I would like to bring in an attorney because it makes me feel safer in terms of avoiding them selling my debt and getting a firm agreement.

Dang though, I do worry about paying the IRS....How much will we owe in taxes then?

We'll also save ALOT on attorney's fees by paying down the debt, rather than declaring bankruptcy. At least half of the chunk of $ would go to that, anyway.

SO HERE ARE MY OPTIONS

1. Try to negotiate down my debt of $43,000 Do I have to wreck my credit to do so? I am the only one able to declare bankruptcy. I have excellent credit because I have been paying these bills like clockwork. But now I can't buy food so something's got to give.

2. Negotiate down his debt. He can't declare. But he does have worse credit since he missed a few payments. Also, the CC cards are worried about him. They cut off his balances.

3. Do neither and wait a year and then declare? (We can't declare right now...we have an issue with an insider payment)

Do you have to not pay your bills for 120 days?

Do you have to ruin your credit?

How long does it take for your credit to be rehabilitated?

Is this the wrong forum for this question? Should I move the question to another forum?

[debtinohio]

The other problem is the balance goes up pretty fast with fees and interest charges, the $45000 could easily become $60000 in no time.

Best offer I got was 15% from an agency representing Amex. I gave up as I had over $200K in unsecured and it was hopeless, each month my total unsecured increased a few thousand in fees/interest.

I'd rather declare 13 and exempt the 10,000.

[ryan]

Are you talking about trying to settle the $45,000 or th $85,000?....

from all the debt settlement materials I acquired sometime ago, I'd say the $45,000 MIGHT be possible, IF its only a few individual creditors. ...the problem I can see, is if you have many creditors and some prove unwilling or slow to settle, its more likely you'll be sued by one. When that happens, if you are then forced to file BK, all the money/settlements paid to that point was wasted.

That what I've come to see as the "catch22" of debt settlement.

[flyinbroke]

I'm a Chapter 13 and I'd like to avoid BK

I am a little confused. Isn't filing CH 13 defined as declaring BK?

Hope it works out to get your debt settled to your favor.

I am guessing he meant that he only qualifies for a CH13. Personally if I have the BK ding on my score I would rather have a 7 too.