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

[LadyInTheRed]

Maybe I misunderstood your earlier post. Maybe you can see why I thought it had to do with the color, not the monetary definition.

Yeah, I understood why you thought it only had to do with what I was wearing. I initially only explained part of the thought process.

[Mensa1]

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.

It does refer to my financial status. "LadyInRed" came to mind first. "LadyInTheRed" logically followed as it described the reason I'm on this board.

Maybe I misunderstood your earlier post. Maybe you can see why I thought it had to do with the color, not the monetary definition.

[LadyInTheRed]

MyBailOut:

Yes, I'm not ready to accept that bankruptcy is inevitable. It's just such a ridiculous situation. It seems like there has to be a way. Maybe there isn't...I'll just try this. And if it doesn't work, so be it. It's not the end of the world.

Does it really make a difference if I mess up our credit before bk? Does it really make a difference if I get rid of some debt we might not be able to get rid of some other way? It might ease things for a year and then I can declare. If that's necessary then. Maybe we'll get lucky somehow and it won't be.

If you are able to settle with one or more of your unsecured creditors, but then find you still have to file bk, you threw away money that you may have been able to exempt or put towards paying your attorney or the IRS.

Make sure you are looking at your situation realistically. I would want to know that there was a good chance of successfully avoiding bankruptcy before throwing more money away to unsecured creditors and prolonging the inevitable for a year. I sure wish I had considered bankruptcy a year ago so I would now have only 4 years of payments left!

You are the only one who can figure out whether BK is inevitable. But, use logic. Don't rely on hopes that you'll "get lucky somehow" just because "it seems like there has to be a way."

[LadyInTheRed]

That is intersting, screen name based on "what you were wearing at the time" Red.
Here I thought it was referring to the accounting version of "being in the red", as in at a financial loss.
So maybe instead of a pseudonym, you really have created a homonym.

It does refer to my financial status. "LadyInRed" came to mind first. "LadyInTheRed" logically followed as it described the reason I'm on this board.

[Mensa1]

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.

That is intersting, screen name based on "what you were wearing at the time" Red.
Here I thought it was referring to the accounting version of "being in the red", as in at a financial loss.
So maybe instead of a pseudonym, you really have created a homonym.

[moe]

MyBailOut:

Yes, I'm not ready to accept that bankruptcy is inevitable. It's just such a ridiculous situation. It seems like there has to be a way. Maybe there isn't...I'll just try this. And if it doesn't work, so be it. It's not the end of the world.

Does it really make a difference if I mess up our credit before bk? Does it really make a difference if I get rid of some debt we might not be able to get rid of some other way? It might ease things for a year and then I can declare. If that's necessary then. Maybe we'll get lucky somehow and it won't be.

[MyBailOut]

[flyinbroke]

If you have 45K and you pay 10K the IRS will hear about 35K....and you have to document that 35K as income. It may be less since it has to be based on principle, but with the way they finagle the accounting I would not be shocked if they managed to keep all of this intact. The IRS gets a 1099 for whatever you did not pay. If you paid 50 percent, they hear about the other 50 that is now your income. If you successfully negotiate a 25 percent payback, the IRS will hear about the 75 percent you did not pay back...this is now your income.

Now there is the insolvency that you can file for with the IRS...basically as explained already. If you owe more than you have in assets then you are insolvent.

Ultimately, you have to weigh the pros and cons of each and see which will bite the least.

BCA2009: I have $10,000. (Or I will have $10,000.)

I'm trying to settle $45,000 of debt.

I can't file Chapter 7. So it will be 6 months of not paying, right? Will it take 18 mos. to settle with them?

So clearly the best thing for me would be 25 cents on the dollar. But even 50% would not be bad. Because if I don't declare, then I will be paying 100% on the dollar. I guess you have to pay 30% of what you settle for to the IRS? So if I were extremely luck and managed to get them to take the $10,000 for the $45,000 I would have to come up with about $10,000 to pay the IRS.

Any debt we can get rid of could potentially help us. But only if they don't raise our APRs astronomically and then not settle. Then, we're screwed.

It's really a tough one. I wish someone would make it easier to negotiate debt without bankruptcy.

[moe]

BCA2009: I have $10,000. (Or I will have $10,000.)

I'm trying to settle $45,000 of debt.

I can't file Chapter 7. So it will be 6 months of not paying, right? Will it take 18 mos. to settle with them?

So clearly the best thing for me would be 25 cents on the dollar. But even 50% would not be bad. Because if I don't declare, then I will be paying 100% on the dollar. I guess you have to pay 30% of what you settle for to the IRS? So if I were extremely luck and managed to get them to take the $10,000 for the $45,000 I would have to come up with about $10,000 to pay the IRS.

Any debt we can get rid of could potentially help us. But only if they don't raise our APRs astronomically and then not settle. Then, we're screwed.

It's really a tough one. I wish someone would make it easier to negotiate debt without bankruptcy.

[flyinbroke]

I believe universal default is dead as a result of the CARD act. Many have decided against it before the new regs came into play. I have defaulted on five so far. GE Money is the only one to raise my rates. No one else has yet.

BCA is right. THe only thing that won't tank your credit is keep on slogging as you are. There are no guarantees there either since CC companies are closing accounts without warning, and dropping credit limits to make you look maxed out. If you want to settle you have to quit paying. If you are filing CH7 there is no point in paying any more payments.

I can only file for a 13, I did not qualify for a 7. Thus I am only hitting the nuke button if I really have to but my credit will still suck. Then again, it pretty much did when I was in the 700s because of all the games they played with balances.

Bottom line...they will not settle as long as you are paying as agreed; they see you can make the payments and they are fine with the status quo.

[BCA2009]

WAIT! But what about this policy where you don't pay one and they jack up your rates for all others?

Doesn't anyone know about this policy? That's what's going to screw us up big time. Because if our rates go up, we are DOOMED. If they stay where they are, we have a chance with negotiating debt.

If you don't get behind, they won't settle at all. If you don't get at least 4 to 6 months behind they won't go below 50%- 60% of the outstanding balance. The only way they will settle is if they think that is the best that they can get from you. Sorry, but settling multiple credit card debts will destroy your credit just like BK. Settling is probably worse than filing Chap 7. Unless you have alot of cash on hand, it could easily take two years or longer to settle multiple credit cards. In the mean time you have to quit paying them to get them in a position to accept a settlement. So you could have two years worth of bad payment history on your credit report before you can start rebuilding. In a Chap 7 you can start rebuiliding as soon as you are discharged.

I'm not trying to discourage you from settling your debts, but there is no way to do it without tanking your credit.

[moe]

WAIT! But what about this policy where you don't pay one and they jack up your rates for all others?

Doesn't anyone know about this policy? That's what's going to screw us up big time. Because if our rates go up, we are DOOMED. If they stay where they are, we have a chance with negotiating debt.

[BCA2009]

I am in the same dilemma. Of 18 accounts I can't pay 5 of them...I chose the ones that were closed as part of opting out. I have about 35 accounts on my CR and all but 4 are in good standing (Citi has not reported me yet and I got a settlement letter today). Filing a 13 (all I qualify for) traps me for five years and decimates all 35 accounts. Default and settlement wrecks five of 35. I know the good 30 won't count as much as the bad 5 but it is a tough call....

It's a personal choice, if I had not been able to file chap 7, I would not have gone chap 13, I would have done the settle one at time thing. I would not hire a lawyer or debt settlement company, I would have just doen it myself. You have to decide if you can live on a 5 year plan under a trustee. I know I would fail, so I wouldn't even have tried it.

Good luck with whatever you decide.

[flyinbroke]

I am in the same dilemma. Of 18 accounts I can't pay 5 of them...I chose the ones that were closed as part of opting out. I have about 35 accounts on my CR and all but 4 are in good standing (Citi has not reported me yet and I got a settlement letter today). Filing a 13 (all I qualify for) traps me for five years and decimates all 35 accounts. Default and settlement wrecks five of 35. I know the good 30 won't count as much as the bad 5 but it is a tough call....

[moe]

Thanks to all people here who have taken the trouble to answer my questions.

I truly appreciate it.

Lady: Yes, there is definitely a feeling a shame but there is also a huge thing about bankruptcy in my family. It's complicated to explain so I won't go into that.

The thing I've realized from this forum: It's really to our advantage to get my husband's debt settled, if at all possible. I've seen some that are 15%...I've seen some that are 50%. Let's say we could take $10,000 and settle $30,000. That might give us some breathing room...Maybe...

Maybe that's overly optimistic. My husband's credit would be ruined for some period, who knows for how long.

Then, if the breathing room were not sufficient, I could declare Chapter 13.

That's what it looks like is the most rational strategy at the moment.

The thing about your debt/asset ratio on taxes sounds way complicated but maybe we could go that way to avoid a huge tax bill...

I personally find the idea of debt repayment so alluring not just because of the shame but because, if you could get enough debt wiped out, you'd be freer. Yes, you'd have no credit for years but you aren't locked into anything.

Plus it seems nuts to pay a lawyer 4-5,000 when I could get tons of debt wiped out with that money.

I also don't like the 5 year trap of Chapter 13--but obviously, it may become unavoidable.

Plus, paying back was what I planned all along. Things just got out of hand because of unemployment. So far, it's not that different from what things have been like so far. We've been broke forever, because we've always had these extensive periods of unemployment/underemployment. We'll run out of credit (although I actually have gobs of free credit cards) eventually. We're just delaying the inevitable. I can live on a cash only basis now--we both have full time jobs. FINALLY. The only thing keeping me from living on a cash only basis is the credit card payments. Catch-22.

The problem is getting a good lawyer and getting one to cooperate with us. I honestly DO NOT think this is a fraudulent plan. I am not taking on debt in order to declare bankruptcy. But I'm not sure the lawyer will go for it, as she knows my husband cannot declare bankruptcy and so perhaps she feels we are not dealing fairly with the creditors in pretending that he can. We would sort of be implying that, but we needn't lie about it.

I know people said that you could do it without a lawyer but I'd rather have a lawyer involved when it comes time to ensure they don't sell my debt after the settlement.