Need some advice 13 vs Debt Settlement

[ucigrad05]

Ok first time posting, here we go:
I owe roughly $85k
30k Personal loans
50k credit cards
5k taxes
Multiple accounts 120 days late(no collections or charge offs on credit report).
Currently I am on the hook to have a $1,600 payment for the next 60 months.

Option 1, bite the bullet, pay about $92k(includes fees) total over 5 years

or

Option 2. I have been calling my creditors the past week and many are offering 30-50% reduction. I am able to bring my total balance down to about 50k, except for taxes have to be paid at 5k. This bring my total to roughly 55k.
I have some equity in primary residence that I have not touched due to terrible rates. However, I am at a crossroads not sure if I should cash-out refi $55k to pay off the debt in one-time settlement payments or go through with the ch 13. My credit has already taken a hit with the multiple 120 day lates. I dont know why I didnt think of this earlier, but life happens.

thank you for reading and any advice.

[shipo]

One thing you haven't factored in is the additional income tax you'll need to pay from the 1099-C forms you'll get from your creditors.

[ucigrad05]

Thank you for that reminder. So im looking at $30,000 roughly in settlement savings at 22%, $6,600 in taxable income in addition to the settlement amounts.

[justbroke]

Unfortunately, not all creditors will settle and most people that go the debt settlement route end up in bankruptcy. The only definitive and predictable way to discharge debt is through bankruptcy. Bankruptcy would also get your past taxes under reasonable management.

I don't know what you mean by "on the hook" to pay $1,600 a month. Are you saying that you'd be in a 100% plan?

[ucigrad05]

Yes 100% plan at $1,600 month

[justbroke]

You'll need to determine if that makes any sense. Remember, that a bankruptcy discharge gives you 100% clarity, no surprise taxes on the amount discharged, and you don't need to negotiate with the unsecured creditors. if that is worth $1,600 per month (over 60 months) to you, then you should go the bankruptcy route. If you like uncertainty and the risk associated with possibly settling for less while depleting an exempt asset (your home), then that's also an option.

I'm not trying to advocate for bankruptcy. I'm trying to just show that it is a very clear and predictable path to a fresh start. You will need to perform your own calculations, what ifs, and determine which is the better path for you. I discharged over $1MM so I know that bankruptcy worked for me.

[bobcat10101]

So if I owe $45,000 in unsecured debt, how much more should I add for Trustee/Lawyer costs? If it comes out to $50,000, can I expect my payment to be $50,000/60 months- $833 per month?

[justbroke]

It's 10% for the Chapter 13 Trustee based on the payments that they make. If they make $50K in payments to creditors, including the attorney, then they are entitled to $5K in commission. A Chapter 13 attorney could be $4,500 to $6,000 or more depending on your circumstances. The attorney would generally want about $1,500 or so up front with the rest in the plan.