Debt Settlement

[Astrolink]

What is the name of your state? MN

I have substancial CC debt, and am unable to keep up. I have talked to, and paid a bankruptcy attorney, who informed me that I meet all the conditions of a chapter 7 discharge for the CC's. I have instructed him to wait until I ask him to proceed with the actual filing. The CC's are all from 90-120 days behind, and none have been turned over to a collection agency as of yet. I've done some thinking, and I've calculated that if my CC companies would take 30% of the total in a debt settlement, I could pay in a lump sum. I hate to use one those online debt settlement companies, and prefer to attempt to negotiate myself. Would many CC companies take 30%, and change my credit report to "settled," if I told them the alternative is an immediate chapter 7 bankruptcy? The vast majority of the debt is with Washington Mutual (formally Providian). If they alone agreed, I could stay afloat. Anyone know their policy? Lastly, can I trust the CC company to actually honor the debt settlement, or will they take my lump payment, take it off the balance, and say I owe the rest? Do I need a response in writing that agrees to the above terms? Thanks.?

 

[moburkes]

You would ask for it to be in writing. That percentage is WWWWAAAAAAAAAAYYYYYYY low. The "threat" of BK means nothing. Everyone threatens it.

 

[Astrolink]

All the CC companies know the bankruptcy is more than a threat. They already have the attorney's name, and all have contacted him. Will a CC company do better than 30% if they write it off, and sell the debt? I don't know. Bankruptcy and discharge are just a phone call away, and I'd do the best financially if that's what I do, but if I'd rather go the other route.

 

[moburkes]

All the CC companies know the bankruptcy is more than a threat. They already have the attorney's name, and all have contacted him. Will a CC company do better than 30% if they write it off, and sell the debt? I don't know. Bankruptcy and discharge are just a phone call away, and I'd do the best financially if that's what I do, but if I'd rather go the other route.

It is completely up to you. But 30% is super low. They can charge off some or all, but you will get the 1099 at the end of the year, regardless. You either need the BK, or you don't, but they certainly aren't going to speak with you any longer, since you've given them your lawyer's name.

 

[wayne-o]

moburkes....I think the op is asking that they take off 30%..he is willing to pay 70%...which is not that low. OP go ahead and ask them. the worst they can do is say no. I had a major bank settle for 50%...they offered me this. anything you do you should get in writing....if its not in writing it did not happen. Also if you file bankruptcy you will not get the 1099 the debt is discharged. If you settle you will get the 1099 which means you will have to pay taxes on the amount they "forgave" (the 30% discount). It is possible to not pay taxes on this if you can prove to the IRS that you were insolvent at the time of settlement.

 

[moburkes]

moburkes....I think the op is asking that they take off 30%..he is willing to pay 70%...which is not that low. OP go ahead and ask them. the worst they can do is say no. I had a major bank settle for 50%...they offered me this. anything you do you should get in writing....if its not in writing it did not happen. Also if you file bankruptcy you will not get the 1099 the debt is discharged. If you settle you will get the 1099 which means you will have to pay taxes on the amount they "forgave" (the 30% discount). It is possible to not pay taxes on this if you can prove to the IRS that you were insolvent at the time of settlement.

You are correct. I read it that he was looking to PAY 30%. My fault.

 

[Debt Guy]

I think you guys are reading it wrong. I re-read the OP post twice and I think he is wanting to settle for 30% of the legal balance.

For the OP -- this is a tough one to call. You must understand that banks are not logical creatures. They do not trust the first line folks (or 2nd or 3rd for that matter) so their authority is really limited. The collector may want to do the deal and may think it is a good decision for the bank -- but they won't be able to go up high in these super large organizations for a decision.

When a bank sells a charge off they generally get 8 to 12 cents on the dollar. Now, one would think that the would jump at 20 cents. They won't. Two reasons.

One, the guy who makes that decision will always get second-guessed. If the review authority agrees with the decision nothing happens and there is no "atta-boy" for doing good. If the review authority disagrees, guess who gets a butt-kicking? This is one of those situations where making a decision has no upside and all downside. If it is a tough call, they just won't touch the deal.

Two, the senior executives of these banks have their own bias about what makes sense for the bank. They do not makes decisions one account at a time (which is what you need). They make decisions 100,000 accounts at a time. They worry about word getting around that they are a soft touch if they start taking "low-ball" offers since they believe that it would reset the floor. There are so many debtor message boards that word would spread quickly. They believe that the bank is better off in the big picture if they stick with the "tough-guy" image. The two that come to mind that most fits this model is AMEX and Citibank.

Finally, you are right to worry about using a settlement company. Most are crooks and will do nothing to advance your cause. But, that being said, there is much advantage in your situation for having a settlement professional to work this for you. A really good one will have contacts fairly high in these organizations and will have a much better chance of getting to someone who can make the right decision.

An ethical settlement professional will charge you a fee based on results. Also, an ethical settlement professional will not charge you anything until they produce a result you are happy with. I know a couple of retired bankers and retired credit card execs who dabble in this. I think the TOS on the board prohibits me from posting names and numbers and such. If you want to send me an email or PM, I'll share and then you decide what you want to do.

 

[wayne-o]

your right debt guy....after I read it for the 5th time..I saw it said take 30% of the balance and not 30% off the balance. sorry about that moburkes....I agree with you 30% is low.....but the OP will never know until he asks.

 

[moburkes]

Yep, re-read it AGAIN, and it does say 30% of, not 30% off.

 

[Astrolink]

Update

I've been able to negotiate with my main non-secured creditor, whom 80% of the total debt is with. They started with 70%, then 60%, and now 50%. I don't know how much better I'll do, but I'm still shooting for 30%. I don't know if I'll get it down that far, but I'm quite sure the final percentage is going to be less than 50%. I'll post another update when it's final.

 

[Ladynred]

As already mentioned, you're opening up yourself to a tax liability on the amount that is 'forgiven' of any amount of $600 or more. Are you prepared to pay the IRS too ?? Yes, you can fill out the paperwork to try to plead insolvency, but from what I've heard lately, it's not at all as easy as just filling out the forms !

 

[TigerD]

I've been able to negotiate with my main non-secured creditor, whom 80% of the total debt is with. They started with 70%, then 60%, and now 50%. I don't know how much better I'll do, but I'm still shooting for 30%. I don't know if I'll get it down that far, but I'm quite sure the final percentage is going to be less than 50%. I'll post another update when it's final.

I wouldn't count on it.