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NOOB Bankruptcy or debt settlement...I think I screwed myself already...


tweezer
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     Hi.  Thank you in advance to all the helpful and informative people here.  I'm a total nOOb and maybe started a little naive, so I'm trying to figure out how things work and what I should do (or not do).  I read this forum non-stop over the weekend and just joined the site this morning. 

     I moved to FL in the middle of 2012 and became a resident late that year.  I live on disability & small pension, and have  tiaa/cref, annuity and life insurance, which I've been told can't be touched because they are from employment. I have a daughter in college who also is on disability (through mine).

     I haven't decided what to do, bankruptcy or debt settlement or just waiting and paying longer...  There's a big 1215 day residency thing in FL or you are limited to 146K for home exemption.  I paid less than 146K for my house and the money came from sale of my old house in NY, so it probably isn't an issue for me, even though the property appreciated (a lot).  Nonetheless my gut tells me to wait until I'm past this 1215 day residency requirement, so that the trustee doesn't start going over my case with a microscope or auditing me.

     I have talked to 2 attorneys but I'm still shopping around and trying to figure this out.  One attorney's paralegal chewed me out for putting  9K of recent dental work for the kid and I on Care Credit.  My daughter is now 22, so I worry they will do a claw back on her because I paid for her dental work when she was an adult.  At the same time, she is my dependent and is legally disabled. I thought dental work was a medical emergency.  How long can someone go when they need a root canal and crowns?  But if I wait a year then maybe the dental work won't be that big a deal.  Also, I did a few bank cash advances when my AC/heat pump died and could no longer be fixed.  (I fixed it 2X per year since moving here.)  I bought a quality 14K AC/heat pump, plus zones and some more ductwork plus radiant barrier installed.  (Certain areas of the house, particularly upstairs, were unuseable in the summer.)  I got a few estimates and a crapper AC/Heat pump alone was 8K.  At the time I did this, I was thinking of withdrawing $ from my retirement, not doing a bankruptcy, but no one would believe that and I'd probably get arrested for fraud.

     I have a class action medical malpractice lawsuit pending, against a manufacturer.  Plus my elderly mother (with dementia) will be moving in with me eventually, probably in 2015.  Her health is failing rapidly.  I hate to be crass, but um... how far back do they look if you inherit money?  It won't be a lot, maybe 50K at most.

     To top it off, my daughter will probably be kicked off disability soon.  She is in the appeal process.  I think she is about the same healthwise, but she is getting decent grades in college and that will go against her.  Losing her income sucks because it's enough to pay her expenses and keep her car running.

     My debt is 12K on a 2014 Toyota Camry and now about 40K in CC.  I got in this mess due to car repairs (10K on kids's car alone), home repairs, kid medical bills following accident that I paid on credit card, kid summer classes.  I don't travel or buy luxuries or even much aside from necessities, but I could have been more frugal.

     Anyway, I'm thinking that with all these moving parts and things in the air that I should continue to pay the minimum, even if I have to withdraw 5 or 10K from retirement and sprinkle it around.  I've never been late on anything before.  I don't want any judgements or anything on my house.  I would like to negotiate and get my debt reduced without getting a judgement or lien, if that is even possible.  I can see the advantages of bankruptcy, but if I did it now, I'm pretty sure I would get charged with fraud and go to jail.  Plus I have the medical class action lawsuit (which may not amount to beans) and the possible inheritance.  So I think that I should go for debt resolution, which I know nothing about currently.  Then if I can't reduce my debt maybe down the road do a bankruptcy in a few years.

     That brings up another question.... What sort of nOOb things could I possibly do if I try debt resolution, that will screw up a possible later bankruptcy?

TY!

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Well you are not going to want to hear this or like it but the first thing you need to do is stop supporting a 22 year old adult who can attend college on their own.  Spending $10k to repair her car was insane. You could have scrapped it and got her reliable transportation for $3k.  As for the dental work:  that too was likely way too much money and you can get an emergency root canal for less than $1000 then shop around for the crowns.  If she were not your dependent she could be eligible for medicaid and handling her own medical/dental expenses which at her age she should be.

 

The issue on the lawsuit and the inheritance is that the cash would be assets and likely disqualify from being eligible for BK.  It isn't that they would "claw back" her dental expenses they could rule that legally you were not responsible for the debt and not allow you to claim it.  

 

A debt resolution company is your worst nightmare and could very well get you sued.  There are some people who are adamantly against them but a good consumer credit counselor (not profit, many banks and credit unions have one on staff) should sit down with you, your expenses and your budget before you make any decisions.  This is far too complicated for the internet and too much specific information is needed to give you solid answers.

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You don't have to worry about going to jail for fraud.  Debts are civil matters.  If you did a BK and the trustee questions recently-incurred debt, the most likely result is the BK is disallowed.  You are better off waiting to do the BK, so the FL residency kicks in and the $9K dental work is more distant history.  And, if it is possible you will get some cash assets, either through inheritance or winning a lawsuit, hold off on the BK.  You can use that money to settle the debts and probably avoid BK.

 

What I would do, is keep paying the minimums, and in the meantime do a lot of research on what is called "informal bankruptcy."  What this means is you stop paying creditors, but don't file an actual bankruptcy.  Research asset protection and becoming judgment-proof (actually collection-proof).  Learn your rights under consumer laws such as the FDCPA.  Also look on Debtorboards.com, as there is a lot of good info there as well as on this site. 

 

If you are willing to learn how to defend yourself in court, you may be able to defeat creditors that sue you.  You may be able to make enough money from FDCPA lawsuits against collection agencies to settle the debts.

 

FL is a good state for debtors in terms of asset protection.  In most states, the BK exemptions are also the exemptions from a judgment.  Meaning, if you could lose an asset in a judgment, you WILL  lose it in a BK.   It sounds like you are judgment-proof, at this time.  That would change if you received a lot of cash, such as from the lawsuit or inheritance.

 

Also, consider doing a selective default.  Some creditors are more aggressive about suing than others (AMEX and Citibank are aggressive).   Some may have good arbitration clauses, which means you can use the arbitration strategy:

 

http://www.creditinfocenter.com/community/forum/199-arbitration/

 

So, you could default on the ones that are less likely to sue and for which you can use arbitration.  And keep paying the aggressive creditors.

 

Seven years ago, I was in your position with even more debt.  I did not do a BK, as I could not without losing my house.  I have only been sued three times.  I beat two of the lawsuits and have very favorable payment terms on the third.  I have made more money from FDCPA lawsuits than I have paid to any creditor since default.  As a result of suing CAs, I am undoubtedly on WebRecon, the list you want to be on, as the CAs won't touch you with a 10-foot pole.  Except for the stupid ones, which are likely to violate.

 

Also, check your credit reports.  If they show previous employment, be sure to ask the reporting bureaus to update that to disabled, not working.  The creditors look at credit reports, and IMO, if they show employment, meaning wages to garnish, they are more likely to sue.

 

Don't be scared.  You can beat this.  But, be aware it will take a lot of work and study and thinking outside the box.  And, for any debt settlement, learn to do it yourself and never hire a debt settlement company.  Most of them are rip-offs.

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Some more thoughts and suggestions:

 

The position you are in is pre-default planning, a term which you should research.

 

You won't be able to settle debts for less than the amount owed unless you go into default.   You might be surprised at how good the settlement offers will be (the offers will get better the longer you wait).  I have received offers from OCs for settling at about 25%.  When you are ready to settle,  don't let them know how much money you have available.   Also be aware of the tax consequences of settling:  you will receive a 1099-C for the amount forgiven, which the IRS will consider taxable income.

 

One thing you should do before defaulting is open one or more new checking accounts.  Choose new banks where you do not have any loans or credit cards.  And never use the new accounts to pay any creditors (except things like utilities).   Keep your present account(s) open, but consider them potentially compromised, as the creditors know about the accounts.  In fact, they have the routing numbers, and can fake a check.  This happened to me.  If you pay any creditor post-default, use  money orders.

 

You should also invest in a good, fireproof safe that can be bolted to the floor, and preferably hidden in a false room in the house.  This is needed because you will be moving into a cash position.   When in default, you don't want to keep a lot of money in bank accounts.

 

And remember, if things get too hairy, you can always do the BK.  That option is always there, but don't rush into it.  Especially if you are at risk of losing anything in a BK.   But from what you have posted, I think you can settle these debts yourself, if you get some cash to do so, and if you get leverage over creditors (arbitration is good for that).

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  • 3 weeks later...

TY for the responses and messages, especially to NOBK4ME.  You opened my eyes to a different option.  I will read. study, & learn so that I can choose the best path (for me) and navigate it successfully.

 

As for dealing with my kid, I will continue to follow the advice of the professionals involved (medical and psychological).  We did try the "own apartment & bills" thing once and it was a total disaster.  Next time I expect she will be better able to handle it.  Only the most severe cases qualify for SSDI (on a parent's record), so there are bumps along the way. 

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