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$59K in debt. Need advise.


jnw2122
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Hi. I'm new here, so please bear with me if these questions have been asked before.

I work in the construction industry and lately I can only manage making the minimum dues on each card and even balance transfered, in order to make payments on rent. I have never been late on my payment, yet. The construction industry is looking to slow down in the near future and I fear that I will not be able to make payments.

I am considering bankruptcy, but I am as well looking at other alternatives. From what I've read, DMP is not recommended, so I'm looking at Debt Settlement through an agency or doing it my own. Or if you think that bankruptcy is a better option, please tell me.

I understand that my credit report/score is going to be pretty ugly, and I understand that I will be able to build my credit back once I settle these accounts. I do not have any asset. I am still paying for a truck and I only have that one truck.

My current unsecured debt amounts to $59K, spread out to 10 different creditors. 2 accounts with American Express, 2 accounts with Chase Manhattan, Providian Bank, Bank of America, MBNA, Capital One, Household Bank and American General. The biggest is with MBNA ($23200).

First of all, should I file for bankruptcy?

Secondly, if I go for debt settlement, should I just hand it over to an agency or should I do it on my own? If I do it on my own, where do I start, what should I do, and what should I expect from each of those credit companies?

Any guidance is greatly appreciated. I would like to know what options are available, as I said, anything from bankruptcy or debt settlement or dmp?

Thank you in advance.

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Hey, welcome aboard...and wow, not an easy question to answer.

IMHO, as you already stated, any of the "debt handler" kinds of company should be avoided. That includes both the "management" kind and the "settlement" kind. Neither does anything you can't do yourself and both will cost you money.

If you think that your work will pick up, and your income will increase within the next year or so, then I'd suggest contacting each of your creditors and tell them that you're having problems. Most do have "hardship" programs that, if you can show evidence of job loss or medical expense, they'll let you make smaller payments and maybe even set your interest to 0%. Do be careful that you understand what you're agreeing to, because if you can't keep up, you'll wind up in deeper.

On the other hand, if you're pretty sure your income won't recover, with 59K worth of debt, you should at least talk with a BK attorney. Most will give you an initial consultation for free. The BK rules have changed, but it sounds like you'd still qualify for a BK 7.

The only other alternative is to use the "debt settlement" techniques that are discussed here. Be aware that most companies that offer settlements want all the money up front...most won't do payments. And, you'll wind up paying taxes on any portion that's forgiven.

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Thank you for the information, willingtocope. I do have another question.

I work for myself, and I deposit a weekly check into my bank account. How do I proof the state of my income? By my bank statements?

Being self employed usually means you would need to show tax returns

or federal 1099 forms. In the case of a large secured loan like a mortgage you would probably have to show tax returns because

the 1099's does not show your expenses.. therefore they do not show your net income. I was self employed once and learned a lesson.. never try to overestimate your earnings because if they ask for tax returns you are srewed. This is also a good reason never to overestimate your

expenses with the IRS ( beside being illegal ) is because that will decrease your net income. Keep copies of your tax returns and 1099's available when you are self employed because sooner or later they will be needed.

Peace

Rich

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I am glad you replied.. I had kind of suspected from your question about stating income that you where a non-filer. Now that I know thats not a problem... whew.. anyway... I am not sure but personally I would always like the IRS to owe me money than for me to owe them. I dont think that should be much of an issue with the BK court as they know you have an obligation to pay taxes... however they may want a portion or more

of your return.( possibly all ) Please remember that I am FAR from being a professional in these matters.. just someone who has ALMOST been through it... LOL by almost I mean my wife has filed and she is also self employed.

BK court looks at everything.. they dont even allow people who work for someone else to contribute to their retirement account untill the BK is satisfied... which in my case is a major task in itself because of the silly red tape where I work. Being self employed may have a small advantage here because you will always need operating costs...

OH HELL!! Seriously.. I would like to give you advice.. but now I am in way over my head. Time for some others to chime in! I dont want to say anything that could get you in trouble.

Then again.. a lot of what I have said does not apply to a chapter 7,

and if work slows down enough you may be eligable for that. ( what my wife did ) My freind who went chapter 13 has had a lot of problems sticking with his.. but has managed with only about 6 months left.

Peace

Rich

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Be sure to talk to at least three BK Attorneys. You'll likely get three very different strategies, like I did.

Your income will have to be low enough to qualify for BK7. I chose to settle my debts instead of filing for BK13 in which I would have to repay all debts due to my assets.

Its going to take you some time to figure out what is best for you. Ask questions while you do your research. Eventually you'll put together YOUR plan of action and will likely find the support you need here.

Be prepared, once you have a late payment show on your credit report your accounts may go into Universal Default at which time the interest rate will likely hit 29.9%. This can happen to all of your accounts even if they are in good standing.

I am nearing the end of my settlement phase and will begin credit repair next. I would be glad to share what I know with you. I not really much of an expert but have had good success.

The hardest part for you may be deciding what course of action to take. This was the most time consuming and difficult part for myself. I made the right decision because of the knowledge I found here and research I did elsewhere.

Good Luck

Gettinout

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Thank you Rich and Gettinout.

It's great to know that I can find answers in here.

Being that I am either considering debt settlement (on my own) or bankruptcy and I am still very current on my all of my payments, should I stop paying them now?

I have contacted some BK attorneys, and they will get back in touch with me this Monday. However, I must say I am leaning towards debt settlement. Correct me if I'm wrong, stop paying the credit cards, keeping the money that I'm not paying into savings, and 3-4months down the road, try to settle with the credit card companies.

If debt settlement is the way for me to go, and I start to skip payments in February, I would assume that the banks will contact me. What should I say or should I just ignore their calls? (I've read somewhere, that I should tell them that "my agent" will get in touch with them, so that they think I have legal representation(?), can my DW be my "agent"?)

(I have so many questions in my head. I must apologize for this, but I really do want to make myself clear on this)

Do I need to attempt settlement on ALL of my credit card accounts? Can I keep one?

Different banks have different cut-off times, how should I know which is when? As I mentioned earlier, I have Amex, American General, Bank of America, Chase, Capital One, Household Bank, Providian and MBNA.

I really need a step by step guide for this.

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IMHO, avoid suggesting that you have an agent. At this point you want to make the CCs sympathetic to your plight and you want them to think that you'll do everything you can to see that they get paid the full amount. Saying that you've got a 3rd party involved won't help. (On the other hand, some of them won't care much anyway).

I'd call them BEFORE you miss a payment...again, you need to think that you're trying to do the right thing here.

And...no...its unlikely that you'll be able to keep one card going. CCs pay attention to credit reports and if they see "hardship", and you didn't include them, they're probably going to invoke the universal default crap. You'd be better off to contact them all (and for that matter, put all the cards away until you get on your feet again).

The "put money away" approach to settlement is risky. Some cards (CitiBank for example) are pretty sue happy. They might just jump at suing you quickly so they can get their hands on the money. Besides, there are tax consequences for settling for less than the full amount.

There really isn't a step by step guide. Read, read, read some more. There's lots of people here that have been in your shoes.

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BK 7 would probably be a bad option not only because the laws recently changed, but because you are not really bankrupt at this point. Also going into court and citing the reason for filing as falling behind on credit cards will not play out well with the Trustee. If you were to cease working for a couple of years and go into court to stop a lawsuit, you would likely fare a little better. As a result of your income you may be forced into a Chapter 13 plan which is not a bad option if you have the steady income required to stick with a repayment plan. A portion of the debt would also be eliminated. You have plenty on company as there are many others with the same dilemma as yours and the reason the banks lobbied so hard and succeeded in getting bk reform to pass.

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IMHO, avoid suggesting that you have an agent. At this point you want to make the CCs sympathetic to your plight and you want them to think that you'll do everything you can to see that they get paid the full amount. Saying that you've got a 3rd party involved won't help. (On the other hand, some of them won't care much anyway).

I'd call them BEFORE you miss a payment...again, you need to think that you're trying to do the right thing here.

And...no...its unlikely that you'll be able to keep one card going. CCs pay attention to credit reports and if they see "hardship", and you didn't include them, they're probably going to invoke the universal default crap. You'd be better off to contact them all (and for that matter, put all the cards away until you get on your feet again).

The "put money away" approach to settlement is risky. Some cards (CitiBank for example) are pretty sue happy. They might just jump at suing you quickly so they can get their hands on the money. Besides, there are tax consequences for settling for less than the full amount.

There really isn't a step by step guide. Read, read, read some more. There's lots of people here that have been in your shoes.

Okay. So, I will call them up before I start missing payment. Should I be informing them that I am going to miss a payment and ask them for an extension? What do I say to them and do I just speak to a customer service agent or is there anyone in particular?

I have an checking and savings account with Citibank, however I do not have a credit card with them. Would that be a problem? If I do not make any savings of the money (that I'm not paying them in order to pay them), how do I settle in the end? Do I open a separate savings account?

And what are the tax consequences?

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Call and ask for the "hardship" department. You may have to be persistent. Some of the telephone answerers just work from scripts...

If you don't have a Citibank CC, that's good. You could keep you savings there. But...do some research on how quick the others are to sue...

And...realize...I'm not really recommending the "put money in a savings account" approach to settling you're debts. It really does ding your credit badly, and it only works if all the CCs play along. It only takes one to sue early to screw it up.

As for tax consequences, the IRS states that an OC, CA, or JDB must issue you a 1099c for any portion of a "forgiven debt" over $600. That will be considered income to you and you must pay taxes on it.

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You'll need approx. $8k to settle the MBNA account. That is, if they are willing to settle. In hardship cases they will settle for as low as 25%. I was able to settle with MBNA for 30% of a balance similar to yours. Settling will require lump sums of cash to be succesful. Consider what you have as resources to come up with the settlement offers. If you dont have anything, or very little, the process will be a rough ride and may only lead to a BK anyway.

If the overdraft is tied to a CC it will likely be closed under Universal Default.

It wouldnt hurt to open another checking account with a Credit Union or some bank that isn't tied to your cards. Once your credit score plummets from the late pays you may not be able to open new accounts. I was initially denied a business account due to my low personal score.

Be sure to let us know what BK options you come up with. With no assets it may very well be the way to go. I have not come up with a clear answer, but settling looks like a faster way to repair your credit. I may be very wrong on this, and only time will tell.

Gettinout

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I was initially looking into BK7 with discharge, but because of the possibility that they might look into details of my tax records in the recent years, that comes to my concern. My wife has offered to talk to the creditors on my behalf as I do not have that much time to spend talking with the creditors while at work.

My income has decreased and I do not see the near future to be bright, as a few work that was originally offered to me, the project can't and have not gone through. (I am an electrical contractor).

As I've mentioned earlier, I am currently making minimum payments. I was thinking if I were to settle in the future, to keep the money that I use to make the payments (amounting to approx. $1300 a month) to savings and would be able to talk to the creditors and offer them a settlement and probably talking them into dividing that settlement into installment payments within a 6 months period.

If I decide to go for settlement, could I ask any of your help to know how long each bank is going to go before sueing me.

I recently contacted a Debt Settlement company and they quoted me a payment of $800 for 40 months, which I thought was pretty good, considering the fact that I do not need to deal with the creditors. From what they quoted me, they are able to reduce the debt to $20K and they are charging $10K for their service. The $800 is the debt and their service.

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Be very careful of Debt Settlement companies. Many of them are scams and or not skilled in what they do. There are a few good ones out there.

This might be helpful. http://www.debt-consolidation-credit-repair-service.com/phpBB2/viewtopic.php?t=38453

Most on this board believe you should do the work yourself. If you do feel the need for the services of A Settlement company you must do some research to verify you have chosen a good one.

SIFXPERTs advice has mirrored what my experiences in settling have been. He has also given me contact info that has led to an easy succesful settlement. I can vouch for his knowledge and his intentions seem very well honored.

If you really want to work with a settlement company I would check out what SIFXPERT has to say about finding a reputable company.

You must do thorough research before jumping into any plan of action.

Read Read Read the posts on this board. You have found the best source of info by locating this forum.

Gettinout

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Guest sifxpert

I appreciate your kind words Gettinout and I am very pleased to know that my help has benefited you.

I've read through this thread and I have a few words of advise...first, I'd like to know the name of the company who offered you a program of 40 months @ $800.00 per month so that I can give a call and tear them to shreds. I despise companies who low ball potential clients...this payment plan will get you sued. All they are trying to do is make a low monthly attractive to you since too many people are only looking for a lower monthly and not looking into the conseqences.

Second, you mentioned B/K...do not do it! Not with such a high balance on MBNA. Your balance on that card alone is nearly 1/3 of your debt. MBNA will settle anywhere from 15-30% depending on hardship and assets. Normally 25-30% is what I settle for. You mentioned being able to afford $1300.00 per month. You can knock out 1/3 of your total debt in 6 months.

You also mentioned how long these creditors would wait before they were to sue...good question. The creditors you have are really non-problematic with the exception on MBNA. Once MBNA charges off it goes to either a JDB or to Wolpoff & Abramson. These guys are the absolute slimiest of the slimy. I can advise you on how not to let that happen. But again, the other creditors are not much of a problem.

It would be helpful if you were to provide me a list of creditors and all current balances. I can tell you how much each would settle for and how much you should be saving each month.

You can either PM me the details or post here. However you prefer.

Of course, settlement is not the only option but in my opinion, with the information you provided, this would be a wise choice to seriously consider.

B/K consequences linger for 10-13 years...not settlement. I suggest anyone with the means to settle choose settlement over B/K. With a bit of work and smart choices you can have your credit back in a few years.

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I'm sorry, but paying $10k to a company that MAY be able to help you (there are no gurantees, and they probably won't support you if you do get sued) is not IMHO a good idea.

And remember, unless you can prove insolvency to the IRS, you'll owe another $5000-$10.000 in taxes on the forgiven debt. How much depends on whether the #10k to the debt handler is deductible...which I don't think it is.

If you're wife is willing to give it a try, go for the hardship programs. Note that some CC companies may not talk to her because she's not the debtor, but its worth a try.

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The company that is offering that program of 40 months @ 800 a month is called DebtShield. I found them on the internet, www.debtshield.net.

I definitely do not want the account(s) to go the the CA. I found a great forum that is providing me with the information that I need.

Sifxpert, I'm pm-ing you the details of my accounts. Thank you helping me look into it.

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If you add your wife as an AU on your CC's, they can report any negatives on her reports also. It depends upon the state you live in, but that might not be a good thing.

I guess I'd suggest just letting your wife call and see what they say. If she has your account numbers to work from and identifies herself as your wife, they might talk with her.

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Guest sifxpert

I know Debtshield very well...and I know their president very well too. We will have words.

Do not put youre wife on any of the accounts...willing is correct.

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Guest dudeman10

sifxpert sounds like you really can provide some insite. I too have a similar problem of about $57k in unsecured debt. Here is a list of my crediters. I currenlty am not late but I was layed off last year and finally have a new job making less money and dealing with more debt. I will be very soon unable to make my monthly payments. I do however have a home and am not behind on mortgage payments.

citibank 18k

citibank 5k

MBNA 6k

Discover 11k

Capital one 2k

Capital one 900

Sears(citibank?) 8k

Rooms to go (citibank?) 7k

What can i do?

dudeman10

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  • 3 weeks later...

Can we keep this thread going? My situation is very similar.

I have 30K in credit card debt. I live in Los Angeles and work in TV. I am being laid off this week.

When I was working, I was making just enough to afford my minimums each month (approx. $600).

But I am being laid off this week and will likely be out of work anywhere from 1-4 months. I figure maybe use this time to file BK7 and clear all my debt and start fresh? Because I do not think I would qualify for BK7 while I am working.

My 30K is on two cards and they both just put me on their hardship programs, but it is tough for me to even make that minimum being unemployed.

Let's say it would take me 5 years to pay back the 30K. Is it dumb to choose to do a BK and instead save up $40K and use for a house in 5 years?

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Guest sifxpert
sifxpert sounds like you really can provide some insite. I too have a similar problem of about $57k in unsecured debt. Here is a list of my crediters. I currenlty am not late but I was layed off last year and finally have a new job making less money and dealing with more debt. I will be very soon unable to make my monthly payments. I do however have a home and am not behind on mortgage payments.

citibank 18k

citibank 5k

MBNA 6k

Discover 11k

Capital one 2k

Capital one 900

Sears(citibank?) 8k

Rooms to go (citibank?) 7k

What can i do?

dudeman10

Hey dude,

You have some rough creditors. Citi sucks and you have 4 of em. Disoover is no better but the benefit of a good debt settlement co. is that discover will hold our accounts from attorney placement after charge off. Settlement amount is 50-55%

Crap1 40-50% non-problematic accounts. the settlement amount depends on 3rd party placement. again, crap1 usually does not look to sue when represented by a DS co.

mbna 25-30% settlements with MBNA directly. i always settle mbna before charge off to prevent the account from getting to wolpoff.

Citi is a touchy one. Never send anything in writing to them. if you ignore there calls the account will go to a collection agency and you can always settle for 50%. there is always the chance that the account can go to litigation after charge off. any account can but citi is sue happy lately.

Sears is Citi also but these accounts are handled differently than your normal Citi accounts. I'm guessing this is a sears mastercard not a store card? settlement amount is 50% unless it is sold which happens often with sears charge off acoounts. you can settle purchased accounts for 30%.

The way settlement programs work is you make your monthly payment into your own account each month and stop payments to the creditors. You must fall behind on each of the accounts and continue to save funds in your account until you have sufficient funds saved to settle your first account. Continue your payments until all accounts are settled and then start working on your credit disputes.

Contrary to popular belief there are many benefits when working with a good DS company as opposed to doing things on your own. Lower settlements, no collection calls from even 1st party (all calls are forwarded to DS co.) and you are less likely to be sued when your DS co. is in contact with your creditors. Of course, there are no guarantees and many co.s are no longer accepting Citi accounts due to the problems they are having with settling these accounts.

Hiring a co. for these accounts would not save you very much more money than handling on your own in all honesty. The benefits would really only be having professionals handling your accounts and protecting you from litigation...of course, if they know what they are doing.

If settlement is what you opt for, you should be saving no less than $800.00 per month. $1000.00 would be best.

Something else to consider is to fall behind on Citi and then call in a few months and request to enter into their 12 month 0% program. This will buy you a good 17-18 months to save towards settlement with them.

Hope this helps.

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