MizErin1215

Advice (settlement vs bankruptcy)

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I'm not sure where to turn, but I don't want to ask family/friends as I'm worried how I will look in their eyes.  Seems I had too much of "keeping up with the Jones'" and now I am in debt up to my ears.  My problem isn't that I can't pay my debt back, I am not even late and I pay on time every month.  My problem is that it is now TOO MUCH in the fact that my whole paycheck goes to debt and I don't have any left over in the end for groceries for me and my 3 small children.

 
I'm forced with 3 options, and I don't know which is better..
 
1. Get help from a debt settlement company.
2. File bankruptcy, if I fit into the guidelines.
3. Contact all companies and request a reduced settlement.  If that doesn't work, stop paying these debts, wait until collection agencies buy them.  At that time, validate the debt and ask for settlements per confirmation.
 
I'll be honest with you.. all 3 of these options scare the hell outta me as I'm a person who always pays her bills on the 1st, even if they aren't due until the 25th.  I currently owe a total of about $19,720.80 to 20 different companies.
 
Can you please give me some advice??  I don't know where to turn!!
 
Thanks!
 
Erin Nickel

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1) Debt settlement companies won't do anything you can't do yourself

2) You need to see if you qualify for Chapter 7. Chapter 13 is worse than garnishment.

3) Probably your best bet. If your numbers are correct, then your average account is for $1000, which may not be worth the effort of chasing, and is easier to defend using arbitration if you do get sued.

 

I have heard the best plan (although it is hard) is to reach out to all of your creditors and try to settle with all at once - basically "all or nothing." That is where you get the best deal - for example, tell them you have 5K that will be divided up proportionally to each - either they all agree, or it's no deal. 

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My advice

First off forget (1) you can do what they will do but for a lot less, besides most of the debt settlement companies will take your money and not look back.  Take (3) as your first option.  First...

Get a plan!  Budget by any other word, a simple spreadsheet will work as good as any other.  Pay yourself first, set aside enough to establish an emergency fund of $1,000 ala Dave Ramsay, unexpected problems will sabotage your budget without an emergency fund.  After you have created a budget then call each, I have found they are willing to work, some won't so set them aside for now.  Don't stop paying you will regret that later on.  You don't want to deal with CA's.  There are good guidelines out there you can follow.  Stop using your credit cards to live on.  Don't cancel them, hurts your credit hide them in a safe place.  Are you driving a car that's financed?  If so you probably have full collision, get a lesser valued car and only carry liability.  Can you qualify for subsistance, it's designed for people like you who are working and still can't meet your obligations.  Get on the grid if you can, for now it's only a temporary condition.  

If you can, reduce your phone service to basic, no text/data plans, a simple phone is a must with children.  The other services are unnecessary and costly.  Check your cable service, opt for the lowest package.  Look at ways to consolidate your smaller debt into one payment.  No long term.  Don't borrow cash from your credit cards horrendous interest.  Search on debt snowball method.  Payoff lowest balances first, gives you motivation then snowball up to the next higher balance.  Tackle the money pit of high interest accounts next.  As far as your debt goes it's not extremely high.  I know child care is expensive but subsistance usually can help with that, especially if you show you are willing to work.  Cancel all your unnecessary subscriptions and memberships.  Watch your bank account for fees that you can avoid by switching to a credit union.  Go to a cash basis.  Watch your ATM withdrawals.  Fees and interest will erode your plan.

If all else fails then a chapter 7 bankrupcty should be considered, can be self filed.  A BK lawyer is better in my book, they will handle all the paperwork.  You do have to meet certain criteria to qualify for a 7 but a 13 is still an option.

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1. Get help from a debt settlement company.

 

Hiring a debt settlement firm or even a law firm to do this is a rip off, or worse can be a scam.

 

Instead, self-educate yourself on debt settlement by reading this thread:

 

http://www.loansafe.org/forum/threads/general-playbook-for-cc-debt-settlement.49604/

 

There is also a book (I never read it, but it has some good reviews on Amazon):

 

http://www.amazon.com/Negotiate-Settle-Your-Debts-Settlement/dp/1449961509/

 

2. File bankruptcy, if I fit into the guidelines.

 

Bankruptcy is available in all possible scenarios, but you should consult with a bankruptcy lawyer before you proceed on whatever path you choose.

 

3. Contact all companies and request a reduced settlement.  If that doesn't work, stop paying these debts, wait until collection agencies buy them.  At that time, validate the debt and ask for settlements per confirmation.

 

If you self-educate yourself on debt settlement strategies, then you will soon realize this is not the usual order how these things are done.  Read the links above.

 

There is always the possibility the Original Creditor (OC) can still sue you, without selling the debt to the Junk Debt Buyer (JDB).  Furthermore, the typical defenses won't work against an OC, as others on this forum have found out the hard way.  Bankruptcy, in this scenario, can be the last resort in the case of an unfavorable judgement.

 

There are also tax consequences to any debt settlement, although exceptions are available.  If you declare bankruptcy, debt discharged through bankruptcy is most likely not taxable.  But seek the advice of a tax expert to be sure.

 

Finally, get your financial house in order, like what @CreditVortex said.

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My bad, I failed to mention that anytime you arrive at a settlement or agreement with either the OC or a CA/JDB/Law Firm MAKE SURE!!! you get it in writing.   As the members are so fond of saying, 'If it isn't written it didn't happen'.  I have made two deals for 'settled for less', one for a cancellation & line item removal & one for debt cancellation along with the 1099C (G), I have copies of their agreements in my files on their letterheads.  All four have been positive for my situation and all four are with the OC.   My CR reflects the two settled for less and nothing shows on either of the other two.  I made sure I had the letters before I send any money.   I have two more to deal with one is still with the OC and the other was sold to a CA. 

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A bankruptcy lawyer got in touch with me this morning after I researched my options yesterday, and I'm really thinking this is the best option for me.  She explained that with my income and 3 small children to care for, that Chapter 7 is made for people like me, who have just gotten in over their heads with debt.  Any opinions on Chapter 7??

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A bankruptcy lawyer got in touch with me this morning after I researched my options yesterday, and I'm really thinking this is the best option for me.  She explained that with my income and 3 small children to care for, that Chapter 7 is made for people like me, who have just gotten in over their heads with debt.  Any opinions on Chapter 7??

During the last two years I had an on again off again communication with a BK lawyer.  I was definitely looking at Chap 7.  Then just during the last 6 months I had positioned myself beyond the qualifications to file 7 so then I looked at 13, didn't like the look of that.

Bankruptcy is not the end, it's a fresh start.

I'm really not sure of your situation but can tell you a few things I've read.  A BK 7 stays on your CR longer.  Your credit cards if any will be cancelled by the issuer through 'Universal Default'.  Used to be if you kept your bills paid up to date after 2 years the BK didn't have the effect on your credit as it did immediately following your filing or discharge.    You can start to get a little credit after that.  

BUT, the important thing is to recognize what got you into the mess in the first place and a good time to start a 'plan' is after the filing/discharge.  

1.  Create a BUDGET.

        It's harder to tell the players without a program.

2.  Build an emergency fund, aim for $1,000 keep adding a little each payday.

        Even $50 a month will build up fast.

3.  When you can try for a low limit credit card, you will be paying higher interest.  

        Your bank/CU are the best places to apply.  

        Use it only for emergencies and pay it off each month.

4.  Eliminate unneeded expenses, you only have so much income.    

        You will need shelter, transportation, food and enough for basic living expenses.

5.  Stay within your budget at all times.

        Treat yourself once in awhile it's good for the soul.

Good luck!

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Thank you!!  My plan is to go ahead and file, and get this "early 20's" part of my life behind me.  I've definitely learned a valuable lesson through all of this, and it will not be to start right back up with my old habits or 20+ cards and 20K in debt.  For the first time, I feel a weight is being lifted and I can see the shore through the waves.. don't get me wrong, though.. I'm still nervous as hell to just sit back and not pay any of my debt come the first of the month.  This is a whole new concept for me, but in the future, will be extremely careful with my money!  Appreciate all the advice given here!

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