To settle or file chap 7 .....

[DrowningInDebt]

What is the name of your state? SC

I have 14K that I just received from sale of some property. My total debt is $29,000. I have a lawyer that was in the process of doing my chap 7, then the sale of property came through. I discussed this with the lawyer. He said hold off on filing for a few months and spend the money on living expenses.

I was considering doing settlements. The lawyer wasn't sure about it. Then he called me the next day and said bring me more $$ and we can do the settlements. He wasn't too confident that the CC companies would go for it though and said if they don't I can just go ahead with the chap7. (Then why bother?)


My questions:

a) If I settle, doesn't the amount written off count as income that I have to pay taxes on?

b) Can I really spend that money on living expenses without it being questioned by the trustee? I thought they scrutinized everything the year prior to filing?

c) Which would give me a chance to get back on track sooner? If for example I choose a few years down the line to sell my home and purchase another one.

d)I would like advice on which is the best option. to take. I can't seem to get a straight answer.

Thank you!

 

[MidnightSwinga]

We might need to know a little bit more about your situation. But how about using that $14,000 to payoff your debts. That would bring you down to only owing $15,000.

I'm not sure how much you make, but you could easily get a part-time job and have $15,000 paid off in no time! Much better than filing a Ch 7 in my opinion.

 

[bigun]

Without more specifics, I'd agree with MidnightSwinga. Reduce your debt in half in one fell swoop and then start paying off the rest. $15K is a lot to owe but, it's not insurmountable if you're employed.

 

[Ladynred]

I too would agree, use the $$ to pay off your debts.

Settlements do work, but it takes work to get the creditors to agree. If you're dealing with original creditors its more difficult than dealing with charged-off accounts in the hands of collection agencies. OC's won't typically entertain a settlement unless you're very close to charge-off. Few will go lower than 50%, but some will go less, you just have to keep negotiating.

The key is to get EVERYTHING in writing as to the terms, the amount, etc. before you give them a single dime. You want a signed agreement before you pay, and you want a letter of satisfaction once you pay them. You also want to negotiate for a positive tradeline on your credit report, full deletion if you're dealing with a CA. Anything less than 'paid as agreed' or 'paid' is a NEGATIVE entry and will tank your scores. 'Paid settlement' is a killer.

Go over to www.creditinfocenter.com and read up on their section on Settlements, it may help you decide.

As for the taxable income piece, the answer is yes. Anything $600 or more of 'cancelled debt' is considered income and you must declare it on your taxes. The thing is though, if the creditor doesn't issue that 1099-C (cancellation of debt income) form, its NOT a done deal and collection agencies especially will resell the remaining balance of a settled debt. Then you get to deal with yet another CA down the road over something you *thought* was settled permanently !