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Need advice on settling excessive debt w/o DS?


lostindebtinVT
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I am in serious debt - $135,000 cc's - I'm maxed out and all I have left to do is borrow against my 401k and a small home equity available, probably $65,000. I've talked to a DS and was considering using them, then I went to a BK attorney and he says I qualify for BK 13, but the repayment plan would be too aggressive for me to keep up with right now (that will change in March). The BK atty says debt settlement is a better option right now for me, however, he advises me that he does not want me to use a DS company, he says that it sometimes causes more problems then just doing it yourself, he advises that he doesn't think he should do it either because once a lawyer is involved, they get a lawyer involved, but he will be there for backup and if I get in trouble we can later file BK - Now I'm scared - I didn't want to deal with this myself, but ... the BK attorney has offered me unlimited phone calls and advice - if any other legal help is needed he will charge me for it ... he says most people successfully negotiate their own debt at about 40% - any advice or experience regarding this would be greatly appreciated.

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Wow...not a lot of good options for you, I'm afraid.

First...I never recommend using secured debt to pay off unsecured debts. Particularly things like 401k money which you'll have to pay taxes and penalties on, but...

The truth about "debt settlement" is...in order for it to work, your creditors have to beleive that you are insolvent and that they're better off taking what they can get than forcing you to claim BK.

While most debt fixers use the "if your debts exceed your assets, your insolvent" definiton...creditors are not so sure. And the IRS has another definition entirely. If you're living in a home that you can take $65k out of, you might have a hard time satisfying either one. If you have other high value assets...or are making other large credit payments somewhere...it gets even tougher.

Any...the way the DS game is played...

1.) stop making any CC payments now. (Don't even think about keeping one in "good standing". the others will find out, and DS becomes that much tougher.

2.) Put what money you can afford in a savings account. You'll need it later.

3.) At some point...3 to 9 months later...contact your creditors and ask for the "settlement department". See what they'll offer. Some will play along, some will not. Some might even sue. You takes your chances.

(Another option, which I call the "can't get blood from a turnip" plan, is to sit down, work out a budget. Set aside what you need for housing, food, transportation. What''s left, divide up among your CCs according to balances. Call them. Ask for the hardship department. Tell them what you can afford to pay. Don't agree to anything until you've talked to all of them. You may have to adjust your payments. Most CC's do have a plan...you need to be sure you understand the details. Its kind of a poor man's BK13 without the protection of the courts.)

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Thank you for your advice - I am insolvent and the $65,000 is not coming from my home - most of it is coming from my 401k - my home is maxed at this point and with a declining market I can only get about what I owe on it. I'm being told to work with my creditors monthly, communicate with them and about the fourth month, before charge off they will start to come around. They usually charge a cc off at or around 180 days and then you risk it being sold to a collection agent or it going to lawyer -is this not correct?

I'm in the position because of a huge drop in my income. if the market continues to decline, and economist are saying it will. If I sold everything I had - I'd still owe someone - that's insolvent.

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I'm being told to work with my creditors monthly, communicate with them and about the fourth month, before charge off they will start to come around. They usually charge a cc off at or around 180 days and then you risk it being sold to a collection agent or it going to lawyer -is this not correct?
Communicating with your creditors is a good idea...but, it won't stop them from calling you. The minimum wage phone jockeys are not going to be swayed by the fact that you may have called yesterday...they're quota says they gotta call you and be as aggressive as possilbe to get you to pay up.

For the most part, charge off is a non-event. There used to be some FDIC concerns that made CC's more likely to negotiate "just before charge off"...but, thats not as true anymore. Most CCs are now controlled by "credit card issuing banks" that are not controlled by the FDIC. There's also no set time limit. They probably won't sell the account at charge off. And again, whether they get lawyers involved early or late depends on many different things...some that you have no control over. For example, see http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?p=837411#post837411

...and, like I said, there are different definitions of "insolvent". Not being able to make your credit card payments is NOT one of them.

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I had a 716 experian score last month - I have never been late on anything - I wouldn't need credit if I hadn't of gotten into so much credit card debt - the payments suck up my income - I'm not sure what I will do after the debt is settled - I'll still have payments on the loans I take - but it should be more manageable. I hope I can settle my debt within 6-8 months and I'm figuring that may set my credit back about 24 months.

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Look...I'm not trying to be hard on you here. I've been where you're at. In our case, it was a failing business that I tried to save by first running up CC debt, and then a second mortgage to pay the CCs, and then more CCs, and then drained out 401ks. Kept the payments going much longer than I should have. Finally, we had to do a BK7 to make it all stop.

Here's the problem. If you have other "loans" that you're paying on now or assets that you intend to turn into loans to settle your CCs...the way its probably going to work is that one of the CCs you stop paying are going to be more aggressive than the others. After you've missed a couple payments, that CC is going to look at your credit reports...notice your other loan payments are current, or that you have assets to draw on...and demand immediate 100% payment. If you cave in to them, the others are going to notice and start making their demands. Settlement becomes that much harder. And, don't forget if you do manage to settle, you'll have income tax to pay on the "found income".

I'd suggest you find another BK attorney to talk to. I'd suggest what you really ought to be doing is planning for your BK. If you have income above the means test, then it will probably be a BK 13. That means that you need to figure out how to take the money you're not paying to the CC's and put it somewhere safe (like your house)...and you need to leave the money in your 401k where it is.

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I had thought of that - but there is more to this - I'm in the business of finance (I should know better to be in this position). However, I'm a statutory employee, I work out of my home for a national company and I'm strickly commission (self-employed). If I fle a bankruptcy I jeopardize my career in this field, if I ever try to find another job that is the first thing they look at, a financial background check, although they cannot fire me for filing bankruptcy, they can not hire me because of it and if there is a better applicant without a bankruptcy, they will get the job. I've been in this business for 22 years and I love what I do, I wouldn't want to do anything else.

Looking at your scenario - if they want 100% - I don't have it - so they go to a collection agency - then to a lawyer - usually the lawyer will settle before a hearing - someone will talk before it is over. Rarely does it go so far that you can't settle - if that happens I just keep saving until I can settle. Could be stressful - but I really don't have alot of other options at this point.

I guess after I stop paying for about 90 days I'll have to make the ultimate decision to settle or go bankrupt, it will depend highly on how everyone is acting. At least I have a plan B - but I would prefer to go with plan A - settle. My house will go on the market in February - I won't net much - it's maxed, but it could help me if I get in the position you are suggesting. My BK lawyer will confirm to any creditor that I am insolvent and could file bankruptcy if they want to talk to them (that should help). They get a piece of the pie or maybe no pie - because by April I can file Chapter 7 if business continues as it is now.

Thanks for your thoughts on that.

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I've met with an accountant - although there are some tax implications for me possibly - at my first settlement I am "insolvent" - publication 908 - Form 982 of the IRS code. At each settlement you have to document your financial position - if your debts exceed your assets - you can use the difference until it is gone - right now I have about $59000 in debt over my assets - so that is my break point - I'm thinking I could save as much as $60,000 - $70,000 (if I'm lucky) so my tax implication is $1,000 -$11,000 to my income and I'm claiming single 0 to offset that. It shouldn't be too bad - better than paying all that debt back.

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Looking at your scenario - if they want 100% - I don't have it - so they go to a collection agency - then to a lawyer - usually the lawyer will settle before a hearing - someone will talk before it is over. Rarely does it go so far that you can't settle - if that happens I just keep saving until I can settle. Could be stressful - but I really don't have alot of other options at this point.
Maybe. In our case, OCs called for a couple months, CAs working for the OCs called for a couple months, then OC lawyers filed suit. This was all within about 6 months. According to our attorney at the time, the OC lawyers felt that as "first to file" they wanted 100% plus attorney fees. Negotiation was out of the question because they felt we had assets they could grab.

Second, the IRS Publication 908 you mention is for Bankruptcy. Not only has it be revised by the new bankruptcy laws, it also doesn't apply UNLESS you actually file bankruptcy. Even after we filed BK 7, we received 1099c's from some creditors and we had to prove to the IRS that we were left with nothing before they would agree that we were insolvent. Like I said, assets minus liabilities doesn't cut it for the IRS as long as you have income.

On the other hand...if you are a statuatory employee...are you paid on a 1099? If so, you may qualify for a Chapter 11 BK which would allow you to "reorganize".

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Sorry to hear that you had such a hard time working with your creditor.

I don't know if you have reviewed Publication 908 since the bankruptcy changes, but although it does deal with bankruptcy - it also deals with debt cancellation on page 21 which would be the same thing as "debt settlement" - so it is relevant to my position. This was verified with my attorney.

So if I get sued and they don't want to work me, it's no choice and hands up, like you, I'll head to court for bankruptcy for protection and then they may get nothing or only pennies on a dollar if I have to file Chapter 13. They would be smarter to take the settlement.

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Well, if you've got an attorney and an accountant working with you, that will certainly help. Ours got too busy to take our calls, once we stopped paying them.

You might want to look into "call blocker" for your phone lines. It will help you weed out the people you don't want to talk to...the OCs can be pretty nasty after a couple of months.

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you may be able to BT your way out of this...with a 716 score, u should be eligible for some Business CCs that do not report---Advanta comes to mind.u must apply in stages so as not to alarm your current creditors

Apply for a business Card that offers 0% BT and will not report..you can potentially swipe 10-30K off

The lower util may allow for another card and keep BT'ing the higher APR cards to the 0% offers..be sure to keep current on all other debt,hold tight on the 401K ---use it as a last resort

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Hey there lost. I also did what you are going to do. i had a decent amount of debt (in the 50K range) which would have been somewhat manageable but had medical issues in the family with both wife and daughter so couldn't manage it. Long story short, I did what you did, stopped paying. I had some luck in settling, but it varied. One card (MBNA) offered took 33% of the debt (of course you have to count amount that accumulated while not paying, so not quite 33% of original debt). The other cards mostly enrolled me in their hardship program with a low interest rate, removal of late fees, etc. So one thing you should think about is the amount of penalties and interest that will rack up while you are not paying. I believe on the card I settled, it added probably 20-30% more to the balance. So 33% sounds nice, but it was probably closer to 50-60% if you look at the balance before I defaulted.

I unfortunately let one slip through and it got c/o and sent to a CA. I'm currently dealing with that one. One thing to think about is that for this approach to work, you really have got to hoard cash/savings while not paying. The reason being, if you default, you'll be negotiating all of them around the same time frame. It gets expensive b/c if you settle, they are going to want their settlement amount now (if you are lucky maybe over 3 months). If you go on a hardship type program liek I did, all of them required accelerated payments, so I was paying prob. triple the minimum to get the acct current. So if I were to do this again, I prob. would stagger the default date to help avoid this issue.

So that's why one "slipped through the cracks." I unfortunately had ZERO cash to work with after settling/negotiating my other credit cards. T his one was my largest one and I just couldn't offer anything. I've found that once it goes to a CA, it becomes 10 times harder to work with them. The OC's were all pretty willing to work with me, keep it with them if at all possible. Good luck. Be prepared for some stressful times, I was stressed a ton for 6 months and still am about this last one, which I'm sure th ey'll file suit on me at some point.

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I'm stressed out and i haven't even started yet, I will have plenty of money to work with when I'm done taking out loans and etc., about $70,000 - that's more than 50% - I hope to settle them all before summer so I can enjoy my summer and move on.

I've heard that if it goes to a CA you can DV them and sometimes they will send it back to the OC? Have you tried that yet? DV is Debt Validation.

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I've heard that if it goes to a CA you can DV them and sometimes they will send it back to the OC? Have you tried that yet? DV is Debt Validation.
Usually, the routine goes something like the OC calls for 2-3 months, then they contract it out to a CA who may call for 1-2 months. If that CA has no luck, they may send it back to the OC...who will then decide what's next. They may send it to another, more aggressive CA...they may send it to a CA who has "Lawyer" in their name...they may just sue.

As I said before, its really hard to predict.

Part of their decisions will be based on what they see on your credit reports...do you have assets? are you making large payments elsewhere? what's your total debt load?

Most of their decisions are based on things you have no control over. Who's in charge? Shareholder value? Current default rate? Business climate?

Its a crap shoot....

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I've heard that if it goes to a CA you can DV them and sometimes they will send it back to the OC? Have you tried that yet? DV is Debt Validation.

I was told this would happen. I only had one of my CC's go to a CA. I had contacted the OC before they sent it out. However, on the aforementioned card which I let get C/O'ed, they did pass it to a CA who was relentless and just plain jerks, violations, etc. I DV'ed this new CA and before I knew it they passed it to an "esteemed" law firm. So in my case, it didn't work. I guess it got kicked back to the OC but before I coudl act (I don't know how you could time it anyway), they pushed it to a law firm. So in my case, didn't work as planned.

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