Is settling accounts better than bankruptcy

[WHEREDOIGO]

What is the name of your state?

Jeffery, Cleveland Ohio!

I have credit cards all in collections, the only thing I am up to date on is my home payments. I have had all these credit cards that add up to about $12,000 in collections for more than 6months.
I already settled with one company, gave them back just the money I borrowed. I went from a credit score of 675 to maybe
negative, :-(

Question: Am I really better off settling on accounts whenever I can, maybe leaving them in collections for a yr. or more. Or should I just file bankruptcy and start over.

 

[Ladynred]

A notation of 'settled' or 'paid for less than full balance' is a NEGATIVE on your credit report. IF you feel you must settle, then negotiate to have the collection agency's trade-line deleted in return for payment and request either 'paid' or 'paid as agreed' from the original creditor, OR get a 1099-C from the OC. A 1099-C is reported as income on your taxes for anything over $600 of a forgiven debt. Sounds bad, but if you don't get a 1099-C, then they can and will sell the remaining balance to yet another collection agency.

Settlements will stay on your credit report for 7 years, and be poison that entire time. You also risk lawsuits while the debts are out there unpaid.

Bankruptcy will likely wipe it all out in 3-4 months and you'll be able to recover and rebuild a lot sooner than 7 years.

 

[WHEREDOIGO]

That sounds like it is actually just better to file for bankruptcy! I did settle the one credit card. They sent me a settlement letter for that one..


Oh, thanks for replying

 

[Ladynred]

Well, they want you to settle, of course, to get money. What they don't tell you is the damage it'll do to your credit report.

Bankruptcy is meant to be a fresh start, and even though its a negative as well that'll stick for 10 years, the impact lessens with time and it really is much easier to rebuild your credit after a bankruptcy. Its not without its pitfalls, but when you weigh out the consequences and the risks, sometimes its the better decision. Its all very much an individual decision.

 

[WHEREDOIGO]

I guess I will be calling a bankruptcy lawyer then.. Hmmm, can you file on your own, that would be great.

Yea, I had plans of taking care of all my credit cards. One is for 5,500, I would ask them to send a settlement letter to pay only what I borrowed from them, no late fee's or finance charges. But as what I am hearing through this website is that I am actually worse off doing it that way. What a shame to have to file bankruptcy over $12,000.00 in debt.

I am so happy I found this website... You guys will see more of me, I love to absorb extra knowledge. Thanks again people.

 

[Ladynred]

Yes, you can file individually. Just be aware that if you have any joint or co-signed debts, the other party will be pursued for what you have discharged.

 

[WHEREDOIGO]

Please forgive me for all my questions. I have never sought this type of help.. Kinda exciting to get help from you people. Too bad your out of town, I would buy a drink for you. Hmmm, and how does one go about filing on my own?

 

[Ladynred]

1 - Read, read, read up on the bankruptcy process

http://www.thebankruptcysite.com is a good one

Here's another good one for the time-line of a bankruptcy:
http://www.doney.net/timeline.htm

2 - Go buy the Nolo Press book "How to File for Chapter 7 Bankruptcy", its very good, explains everything, and walks you thru all the forms. There are forms in the book, or you can d/l them from the web:

http://www.uscourts.gov/bankform/

I paid about $35 to buy and d/l forms that can be filled out in Word so I wouldn't have to handwrite the darn things.

3 - Read up on your local bankrtupcy rules. Each state has its own rules for bankruptcy. You can find them here (all states):

http://www.uscourts.gov/rules/bk-localrules.html

You can use form-filling and filing services such as ZIINET, many people have had success, but they offer very little guidance.

Filing fees for Ch 7 are set at $200, then you pay ZIINET another $200 (I think) to fill in the forms and do the filing. There are other services.

Even though you CAN do this yourself, most of us here will highly recommend you have a lawyer. BK law is very complex and one mistake can cost you, big time. Most lawyers offer free initial consultations, so get 2 or 3 to get a feel for cost and the lawyer. Many will take payments of their fees and when they have it all, they'll file the papers.

 

[turnipsun685]

File for bankruptcy. I speak from personal experience on settling redit cards and we've been royally screwed that way (by settling) its almost worse than bankruptcy IMO

 

[empowerment]

Personally, I think if you can work out a contingency settlement plan with your creditors then you could avoid filing bankruptcy. After all such filing will stay on your report for quiet sometime. Many people have file bankruptcy and started their lives all over but I think the decision rest upon you. Are you ready to do such a filing and are you that much in debt to the point you don’t see anyway out even if you did work out sometime of contingency settlement plan?

A contingency settlement plan is when you contact your creditors by mail only (Certified) stating that you are willing to pay x amount of dollars on your outstanding debt if they agreed to report to the CRA’s (Credit Reporting Agency) that you no longer have the account and they moved to have it removed from your credit file. Settlement and Negations happened everyday and it really bored down to what you are will to settle at and what your creditors are willing to do. The objective when you are willing to settle a debt with a collection agency or the original creditor is to get them accept your money only if they agree to have the item deleted from your report. Paying any debt without having some type of agreement will remain as negative rating (as the other posted stated). It may show a zero balance but it still show a negative rating. Of course this rating affect your score.

 

[WHEREDOIGO]

Thank You for the advice. I have about 12,000 in debt. It has been outstanding for about a year now. Everything is in Collections. I will write letters to all these creditors asking to settle. So, I guess I did the first one wrong. It was 1,300.00 and I settled for 600.00 exactly what I borrowed from them. They sent me a settlement letter. Thats not the same as the certified letter your talking about. If I settle these accounts through the method you stated, then it will show all these late payments but free and clear. I assume that bankruptcy will show that I bailed out on them? Hmmm, still a bit confused but loving all this attention I am getting from all of you lifesavers in here.

Jeffery

 

[Ladynred]

Just some things to note here.

Settlements are a feel-good solution if you're morally convinced you have to pay back the debts and IF you can afford to pay AND take the risk of being sued while you save up enough money to settle.

Settlements are NOT good on your credit report !! Getting a collection agency to delete a collection trade-line for a settlement isnt' all that hard, but they won't ALL agree to it. That's NOT your biggest problem. The original creditor is STILL going to show at least a charge-off, VERY BAD for your CR. If you settle with a CA, you ALSO have to try to get the OC to agree to update THEIR entry to 'paid' or 'paid as agreed'. A few will, MOST of them will REFUSE to do this.

So, given that, the settlement and deletion of the CA's entries are NOT going to help you credit wise.

There's also NOTHING to stop a CA from saying 'ok, we'll take xx% as paid in full and delete our entries', then they take your money and turn around and SELL THE REMAINING BALANCE to another CA !! You have to start ALL over again, and you end up with YET ANOTHER CA on your credit report !!!

Unless you can get a 1099-C from the original creditor (and most CA's can only issue those under certain circumstances), the debt is NOT forever cancelled ! You cannot stipulate that a CA won't resell the balance, that would be considered 'restraint of trade'.

So, you settle.. you feel morally better, you paid your debts. What do you get for the warm fuzzy feeling you now have ?? BAD CREDIT for 7 years and very little chance of getting any new credit for that entire time.

Bankruptcy does stay on your CR for 10 years, but after 2-4 years, you'll have unsecured credit again (if you don't dig yourself back into a hole) and you can even qualify for a home loan with some lenders.

It IS and individual decision, but unless you can get ALL the negative hits to your credit report mitigated with a settlement agreement, AND get a 1099-C to PERMANENTLY CANCEL the debt, you're going to keep going 'round and 'round with CA's for a long time to come.

Think hard, think about what you want in the next 5-10 years credit-wise.. then make your decision.

 

[empowerment]

Lady in Red brings up some tremendous points in her last posting. As you’re thinking about what you going to do and not going to do, keep in mind if you work out an agreement (contractual) with any of your creditors (original) or collections agency and they failed to honor the contract providing that they agreed by affixing their signature, then it seems that you may have a suit on your hand in your favor. While many people suffer in debt problems, it is always good to know that in some cases providing if you do your research and are determine to fight to save your credit rating or better your credit rating then you most use every weapon or plan necessary to achieve the results that you would like. Clearing and improving your credit is no overnight sensation. It takes long and sometimes frustrating work. The decisions to dispute negotiate, settle, file bankruptcy, and in some cases haul your creditors or collection agencies in to court for breach of contract can be somewhat overwhelming. There are many sites on the Internet such as this one, which relate to Credit Improvement and Empowerment where many of the responders share their success along with their method of actions. So you are not alone in your struggles, because there are many people with situations similar to yours. Credit Improvement begins with a “plan” and “determination.” While such forums of this nature will aid you in your battle, it will also somewhat confuse you as well. As the other posting stated, “read, read, read and read again” will give you the necessary information you will need to carry out your plan. There are various methods you can use when battling a collection agency.

1. Simple Dispute (With the Credit Report Agencies)
2. Cease and Desist Letter
3. Procedural Request
4. Letter to Negotiate
5. Settlement Letter (Meaning that if they signed and returned it back to you agreeing to the terms with the settlement, then they are obligated to follow those terms or face legal action by you) A Settlement in which the terms of the agreement is to have the creditor or the collection agency to have the item completely removed from your credit report. In other words "NO LONGER SHOW ON YOUR REPORT." NOT a Settlement Letter in which, you make a payment to pay x amount of dollars and it will still exist on your report as a zero balance with a negative rating. Zero Balance (regardless how you paid) that show a negative rating does NOT help your credit score.
6. 100 Word Consumer Statement telling your side of story to be entered onto your credit report by the CRAs in which you submit a letter to.
7. You may even need to retain an attorney (in those cases you might need to strengthen your settlement case or have a motion filed to vacate a judgment on your behalf and of course for basic counseling)

While all of these various methods are time consuming and in some cases costly, one must understand that no creditors or collection agency is required to work out any deal with you. So understand that there are some good sides to this and some bad sides. However, I have found that when you communicate with your creditors and show that you are willing to make some type of restitution on your past bills, in most cases they are willing to work it out with you. The task is getting them to work on your conditions. In the end you have educated, empower and hopefully receive some self-gratifications.

 

[bri-kid]

bankruptcy vs settlement

hi Ladynred and empowerment
Im from NJ.
Im a hard working father of 5. My wife works part time and has had credit cards that i did not know about and some that i did. None are joint accounts. She has put us $16,000.00 in debt with these cards. As of about 1 1/2 years ago i have known about these balances and have been trying to help pay them off. But we are getting nowhere. With the interest and finance charges we are getting NOWHERE. I have always paid for what i have and do not like to charge except for our mortgage which in itself is a big charge i guess. She has about 8 cards and most are 3 months or more behind with 2-3 in collections now. I have been reading your posts about bankruptcy and settlements and the differences with them. My parents can lend me about 80% of what my wife owes and it will not hurt them financially. I can pay them back faster at no interest or charges. I would rather pay as much of what we can of what she owes than go the bankruptcy route---my preference i guess. I saw the remark about a settlement offer . Do i first send it RRR without discussing it with the creditors over the phone. They wont speak to me anyway until my wife gives them permission verbally-not my accounts i guess. Funny how they ask you for payment but they wont talk to the spouse about it[non-account holder]. Anyway do i send an RRR letter stating my settlement offer and that they send me a 1099-C AND to completely clear the item from my credit report and get it back in writing from them? Is that how it should be worded? I read it all but am still a little confused. Any help in exactly how i should word this letter would be appreciated. Thank you. Have a great day. Bri-kid

 

[FSWII]

I've been trying to straighten out my credit for ten years following a series of unfortunate and unexpected events. I was morally convinced that I had to settle with everyone. I've learned the hard way that not everyone wants to settle and NO ONE can be trusted. I'd be a lot farther ahead financially today if I'd just filed and been done with it. I might as well have tattooed the word "sucker" on my forehead.