What approach to take?

[djmacc]

I have read the step by step tutorial about how handle debt settlement. My question is what is the best approach to take when discussing your situation with customer service? Should I wait for the CC to call? Should I tell them that I am about to go bankrupt so you better grab it fast? I can avoid bankruptcy if I can make a deal on this account? I believe I an going to have to close out my 401k claiming hardship and use that money to help finance the settlements with the C/C's. I am aware of the penalty I am going to take but I don't see much choice. I need a foreclosure notice to trigger the hardship clause and I am not to far from that now. Thanks in advance for any help.

[lostindebtinVT]

You must be patient in debt settlement, I'm no expert but it is what I have been told. If you are still with the original creditor, they usually do not charge off for 180 days; Discover at 210 days usually. If you try to negotiate too early, you will not get a good deal. The advice that I have read so far says when they call or you call them when you are about 60 days, explain your hardship saying you have lost your income, overextended in debt, health problems - whatever the case may be, not too much information just briefly, then say you are looking for alternatives to bankruptcy and are trying to get help from family or friends, you will get back to them. Do not talk settlement yet, sometimes they get too aggressive if you do or they may think you have been coached. Keep your conversations limited to once a month and continue to repeat that you are looking for alternatives to bankruptcy and you do not have any money yet. When you get far enough out, they may start offering you a deal, if not, tell them that your family is willing to help you settle your debts versus your filing bankruptcy and give them a dollar amount that you can afford to give them and see what they do. They may reject it, if they do, wait a few weeks and call back and offer again. I know someone who settled all their credit cards with a home equity loan. He didn't tell them he borrowed money, he just told them this is what he had and they negotiated with him usually at 40% or 50% of the balance and he settled. Don't use percentages when you talk to them use dollar amounts. The rule of thumb is to add up all the creditors and plan on 50% to see if you have enough money before you negotiate.

Another thing I read says if you get a bad feeling from the voice on the other end, don't deal with them, hang up and call again. If someone is rude to you, you might tell them that you are trying to work with them and they don't have to be rude, then kindly ask them if you hang up and call back will you get a nicer person. Sometimes that puts attitude in check, if not, hang up and call back for a nicer person. Most creditors best interest is to settle with you; a piece of the pie is better than no pie.

Another important aspect of settlement is the 1099-C you may receive. You should review publication 908 of the IRS tax code, item 21 pertains to debt cancellation. If you are not insolvent, you may have to claim the savings on your settlement as income on your tax return. However, if your debts exceed your assets; otherwise, you owe $100,000 and you only have $50,000 in assets - you are insolvent $50,000, so the first $50,000 you save in settlement is not taxable and you need to file Form 982 with your tax records and your 1099-C. You must count the value of your 401k in determining your asset position. You will be advised that you should claim the savings as income even if you do not receive a 1099, however, I was told by one settlement company that if you do not get a 1099-C by filing time wait until the next year because sometime they send it the following year. She told me she had a client that counted it and then had to revise her taxes the following year because that is when she received her 1099C. If you don't get a 1099-C the following year, you may want to file an amended return and claim the income, it's a 50/50 chance you will get audited by the IRS if the creditor sent only a 1099-C to the IRS and not you. I've been told that most creditors send the 1099-C, only one settlement company claimed they did not - guess I'll see. That's more money you will need to come up with. However, the IRS will accept an installment plan for five years at 8% interest for back taxes if you contact them.

Regarding your 401k and hardship. You probably should check with your plan administrator. Having excessive credit card debt and inability to pay them is not considered a hardship. IRS sets the rules on withdrawal for hardship and it clearly states that monies can only be taken for delinquent mortgage payments (if you are going to lose your home), to buy a home, education and unreimbursed medical. I already tried that myself and got that info from my administrator (some plans may be different, but since the IRS makes the rules, I doubt it). My only option is to borrow money from the 401k and it's limited to 50% of what you have in your plan and most plans limit you to a 5 year repayment plan; 10 years if you are buying a home. The only way you can get your money is if you quit your job or a true hardship as stated above.

I'm in a similar position and am going to try to settle my debts. I wanted to hire a debt negotiator, but if I do I won't have enough money to clean all this up. As it is, I'm going to have to sell my used car and my home to have enough, with the declining housing market and auto sales down, I'll be lucky if I can move either. I'm also thinking that my house may not net much since house prices have declined. Oh well, what can they do to me, sue me and put a lien against my house, try to garnish wages I no longer have ... all this takes time, usually time that you can settle with them. Also, a debt negotiator told me that only 2% of clients get sued by credit card companies.

I work in the field of finance and pull credit on people every day, from what I see, hardly anyone gets sued for not paying credit cards. I see a lot of credit card chargeoffs and collections, but very few judgements from credit card companies and I've never seen a garnishment on a paystub from a credit card company and I've been working in banking and finance for 22 years.

I have hired a BK attorney to verify that I can file bankruptcy and will if I am sued. Bankruptcy can affect my career as it can affect my ability to be bonded and should be a last resort for me. After consulting with the BK Attorney he advised that he will help me if I get sued and he has offered me unlimited phone conversations for advice on settlement. He says that hiring a debt negotiator can cause more troubles, from his experience, creditors want to deal with their customers and if you have money for a negotiator, you have money for them. He also says he will not talk to my creditors unless he has to, he says when I bring a lawyer in, they will bring a lawyer in.

I feel better knowing I have a lawyer in the event I get sued, but also, I can give his name to a creditor and he will vouch for me that I truly am trying to avoid bankruptcy, this is not just a threat that they hear every day from consumers; it's real. It may convince them to settle with me and it could go the other way ... this will be an education.

I know this is a long post, but there is so much to all this and I've been doing my homework for a few months now and wanted to share what I have learned so far and maybe hear others experiences and thoughts if they feel I've got the wrong idea. These are only my opinions and I'm not an expert and everyone should follow their own path in debt settlement, we all have different issues.

[djmacc]

I know this is a long post, but there is so much to all this and I've been doing my homework for a few months now and wanted to share what I have learned so far and maybe hear others experiences and thoughts if they feel I've got the wrong idea. These are only my opinions and I'm not an expert and everyone should follow their own path in debt settlement, we all have different issues.

[lostindebtinVT]

Being late on your mortgage is a hardship, but my understanding is they will only give you what you need to bring your mortgage current, then you pay tax on that amount by claiming it as income when you file taxes. I believe for a hardship withdrawal, there is no penalty. If they take this to foreclosure and forward it to an attorney, you will have attorney fees as well, which I've seen clients pay a few thousand for on top of their late payments. It's best to avoid this if possible.

I had a situation where I had unreimbursed medical expense, I requested money from my plan. They told me if I didn't have a loan I would have to take one versus a withdrawal so I borrowed what I didn't need so I could take a hardship withdrawal. You may want to borrow what you can first for debt settlement or attorney fees and then request your hardship. It all depends on how your plan works, some companies manage them differently.

Have you had a free consultation with a BK attorney? If your income is under the median income you could do Chapter 13 and pay only pennies on the dollar back to the credit card companies. Typically BK 13 has a 3 to 5 year payment plan to bring you current on secured debt and the court trustee decides how much you have to pay back on unsecured debt based on your income. A Chapter 13 is a reorganization of your debt and affects your credit about the same as debt settlement. Most lenders are willing to give you money two years after a BK 13 so it's not as bad on your credit as a Chapter 7. A Chapter 13 can stop a foreclosure and help get your payments current.

My income is over the median income and I would have a very aggressive repayment plan, it makes more sense for me to settle based on my financial position. Also, I want to get this over with as soon as possible. However, with that said, if the housing market continues to deterioate, I will soon be under the median income, but I still want it over with now, I'm afraid to wait and keep liquidating to see what is going to happen and then run out of resources that I could have settled debt with. At least now I have assets I can sell and borrow against, if I continue to pay with those liquidated assets, I'll have my back to a wall with no reasonable way out.

[djmacc]

Being late on your mortgage is a hardship, but my understanding is they will only give you what you need to bring your mortgage current, then you pay tax on that amount by claiming it as income when you file taxes. I believe for a hardship withdrawal, there is no penalty. If they take this to foreclosure and forward it to an attorney, you will have attorney fees as well, which I've seen clients pay a few thousand for on top of their late payments. It's best to avoid this if possible.

I did not consider that they would only allow me to tap enough to make the mortgage current. Do you know if that is a fact? Who actually determines the amount? I am over the median income so I do not know where I stand with BK. I did not know that the settlements were scored as bad as BK either. Thanks for the info.

[lostindebtinVT]

I'm quite certain you can only have what you need. You can call your administrator to be sure, but that is what I was told.