Well my bankruptcy journey 2009 has come to an end. I was able to avoid bankruptcy and settle with my cards, which is better for my situation.
This is a long post and I apologize in advance.
Introduction
My situation only works for people who have access to extra money for lump sum payments. For me it was a tax refund, bonus from work, and 401k loan. In addition, I work for a financial company and would need to inform them of a bankruptcy. That could lead to my termination or handicap me for raises / promotions. In addition, I have a corporate credit card for client visits which would be cancelled in a bankruptcy situation and could also lead my managers to decide that I cannot properly do my job without the card and terminate me. This option may work for you in a similar situation or if you have access to make a lot of money quick via overtime at work, a 2nd job, or selling collectibles / assets.
I will discuss my situation so that others contemplating Chapter 13 can evaluate and see if settling may be a better decision for you. In many cases settling will not be the best situation for you and chapter 13 will be. This board has helped me a lot and I think everyone who contributes. Without this board I probably would have not made as smart of decisions in this process as I have.
My situation came to fruition at the end of October 2008 when I had around 63k in credit card debt. This is the month the stock market did very bad and lost over 900 points in 1 day. Within a week my Amex cards (2) made a decision to remove over 15k of available credit. I had an interest rate of 18% on these cards. My BOA card with over 20k of debt decided to move my interest rate from 10% to 26%. Basically these 2 things happening at the same time along with no available cash put me in a situation where I could not make minimum payments. My 401k and IRA were also down almost 50% between Oct and February.
October / November 2008:
I talked to a lawyer a friend of mine used for a chapter 7 last year. He was an ex- trustee and basically said I need to file within a month and would be a chapter 13 paying back 100%. He told me straight off that I would need to defer my student loans and halt 401k contributions. I ran the numbers and it just did not make sense with my budget. I talked to a second lawyer and he seemed more flexible. This was back in November 2008. In December I brought him all my information and we started to run the numbers. The software he used said I would pay back 100%. We started to play with the numbers a bit and would ask for reductions for the Student Loan ($230 a month) and 401k contribution (6% of my salary which the company matches). I had received a bonus from work in early 2008 for the 2007 fiscal year but the company was struggling and the 2008 bonus was in jeopardy.
January / February 2009
In early January I was informed I was getting a bonus from work equal to what I received the prior year. This meant the bonus needed to be on my Ch 13 forms and meant I may have to pay back 100% or close to it based on the formulas. We waited for the bonus and tax refund (from mortgage interest to be paid to me in late February. At the same time I got an appraisal and had evidence that I was 30k under water on my property.
Trying to modify / refinance mortgage
The only thing that remained at this point was to try and get out of the mortgage arm (2.5 years remaining) since doing so while in bankruptcy can be very difficult. Wells Fargo was not very responsive so I was watching for the Senate to take action. In April the Senate decided not to take action on the mortgage plan. So I was preparing to file in mid-may with about 10k in my bank account from the bonus and tax refund (was scared to spend it since the trustee may set my payments to a point where I would have needed that money to break even).
Debts at time of settlement (approximate):
BOA: $27500
Citi: $22500
Amex 1: $8800
Amex 2: $5200
Discover: $5200
Settlement Situation:
In mid May I received a call from BOA who held my largest debt (about 40% of what I owed) and offered to settle at 15 cents on the dollar. The account was about to be charged off within a week and they were eager to make an agreement. Previously Discover and one Amex card made offers to my lawyer (February both around 35%). With 10k in my bank account, I took a day to think it over. I checked out this board for information from those who settled. I learned about the insolvency form to possibly avoid some of the 1099C tax obligations. I also called some of the other cards. Citi indicated they could not match 15 cents on the dollar and said they could do 30 cents on the dollar. At this point I had BOA for 15%, Citi for 30%, Amex 2 and Discover also willing to settle for less than 50%. Now I looked to see where I can get the money. My 401k was down in November through February. It was once over 40k and fell to 13k in February. By mid-may it was up to 26k with half able to be borrowed at 4.25%, which would have been a better return than my investments between November and February. So I had 10k in my bank account and another 13k available to borrow (23k available to me).
Settlements:Taxes:
Based on my tax bracket I will pay 28% to the government and 6.3% to my state. I ran the IRS form 982 work sheet and see that because of my assets and debts I may qualify for insolvency and not be required to pay the taxes from the 1099Cs. If I do have to pay, I will owe about 8k after applying my 2008 tax refund and hopeful bonus. I will apply for the IRS payment program in that case.
Comparison for me of Chapter 13 vs Settlement:
Ch 13:
-Pay 69k over 60 months.
-Have to submit tax returns and refunds to trustee
-need permission if my car breaks down to buy a new one
-need permission to refinance my mortgage when the arm resets
-need to tell my boss / compliance at work
-lose corporate credit card and possibly my job
-not have freedom to make decisions
Settle:
-Pay $19200 now (28% of what is owed)
-will try for insolvency on tax return or have an $18000 tax obligation.
-if need to pay taxes then will have paid $37200 (54%). Number may be high if there is interest bit still much less than the potential 100% that was likely with a chapter 13.
-borrow $12500 from 401k at 4.25% (possible tax implication if lose job and cannot pay back)
-locked into job until loan is paid off
-no need to tell work of my situation
-have freedom to make own financial decisions.
This is a long post and I apologize in advance.
Introduction
My situation only works for people who have access to extra money for lump sum payments. For me it was a tax refund, bonus from work, and 401k loan. In addition, I work for a financial company and would need to inform them of a bankruptcy. That could lead to my termination or handicap me for raises / promotions. In addition, I have a corporate credit card for client visits which would be cancelled in a bankruptcy situation and could also lead my managers to decide that I cannot properly do my job without the card and terminate me. This option may work for you in a similar situation or if you have access to make a lot of money quick via overtime at work, a 2nd job, or selling collectibles / assets.
I will discuss my situation so that others contemplating Chapter 13 can evaluate and see if settling may be a better decision for you. In many cases settling will not be the best situation for you and chapter 13 will be. This board has helped me a lot and I think everyone who contributes. Without this board I probably would have not made as smart of decisions in this process as I have.
My situation came to fruition at the end of October 2008 when I had around 63k in credit card debt. This is the month the stock market did very bad and lost over 900 points in 1 day. Within a week my Amex cards (2) made a decision to remove over 15k of available credit. I had an interest rate of 18% on these cards. My BOA card with over 20k of debt decided to move my interest rate from 10% to 26%. Basically these 2 things happening at the same time along with no available cash put me in a situation where I could not make minimum payments. My 401k and IRA were also down almost 50% between Oct and February.
October / November 2008:
I talked to a lawyer a friend of mine used for a chapter 7 last year. He was an ex- trustee and basically said I need to file within a month and would be a chapter 13 paying back 100%. He told me straight off that I would need to defer my student loans and halt 401k contributions. I ran the numbers and it just did not make sense with my budget. I talked to a second lawyer and he seemed more flexible. This was back in November 2008. In December I brought him all my information and we started to run the numbers. The software he used said I would pay back 100%. We started to play with the numbers a bit and would ask for reductions for the Student Loan ($230 a month) and 401k contribution (6% of my salary which the company matches). I had received a bonus from work in early 2008 for the 2007 fiscal year but the company was struggling and the 2008 bonus was in jeopardy.
January / February 2009
In early January I was informed I was getting a bonus from work equal to what I received the prior year. This meant the bonus needed to be on my Ch 13 forms and meant I may have to pay back 100% or close to it based on the formulas. We waited for the bonus and tax refund (from mortgage interest to be paid to me in late February. At the same time I got an appraisal and had evidence that I was 30k under water on my property.
Trying to modify / refinance mortgage
The only thing that remained at this point was to try and get out of the mortgage arm (2.5 years remaining) since doing so while in bankruptcy can be very difficult. Wells Fargo was not very responsive so I was watching for the Senate to take action. In April the Senate decided not to take action on the mortgage plan. So I was preparing to file in mid-may with about 10k in my bank account from the bonus and tax refund (was scared to spend it since the trustee may set my payments to a point where I would have needed that money to break even).
Debts at time of settlement (approximate):
BOA: $27500
Citi: $22500
Amex 1: $8800
Amex 2: $5200
Discover: $5200
Settlement Situation:
In mid May I received a call from BOA who held my largest debt (about 40% of what I owed) and offered to settle at 15 cents on the dollar. The account was about to be charged off within a week and they were eager to make an agreement. Previously Discover and one Amex card made offers to my lawyer (February both around 35%). With 10k in my bank account, I took a day to think it over. I checked out this board for information from those who settled. I learned about the insolvency form to possibly avoid some of the 1099C tax obligations. I also called some of the other cards. Citi indicated they could not match 15 cents on the dollar and said they could do 30 cents on the dollar. At this point I had BOA for 15%, Citi for 30%, Amex 2 and Discover also willing to settle for less than 50%. Now I looked to see where I can get the money. My 401k was down in November through February. It was once over 40k and fell to 13k in February. By mid-may it was up to 26k with half able to be borrowed at 4.25%, which would have been a better return than my investments between November and February. So I had 10k in my bank account and another 13k available to borrow (23k available to me).
Settlements:Taxes:
Based on my tax bracket I will pay 28% to the government and 6.3% to my state. I ran the IRS form 982 work sheet and see that because of my assets and debts I may qualify for insolvency and not be required to pay the taxes from the 1099Cs. If I do have to pay, I will owe about 8k after applying my 2008 tax refund and hopeful bonus. I will apply for the IRS payment program in that case.
Comparison for me of Chapter 13 vs Settlement:
Ch 13:
-Pay 69k over 60 months.
-Have to submit tax returns and refunds to trustee
-need permission if my car breaks down to buy a new one
-need permission to refinance my mortgage when the arm resets
-need to tell my boss / compliance at work
-lose corporate credit card and possibly my job
-not have freedom to make decisions
Settle:
-Pay $19200 now (28% of what is owed)
-will try for insolvency on tax return or have an $18000 tax obligation.
-if need to pay taxes then will have paid $37200 (54%). Number may be high if there is interest bit still much less than the potential 100% that was likely with a chapter 13.
-borrow $12500 from 401k at 4.25% (possible tax implication if lose job and cannot pay back)
-locked into job until loan is paid off
-no need to tell work of my situation
-have freedom to make own financial decisions.
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