Make a lumpsum Payment

[bige1030]

Shoot, now these days you *have* to go to a credit counselor before filing bankruptcy. They may give the OP some options, or they might just tell him that bankruptcy is his best bet. When I saw a credit counselor, they pretty much gave me an unrealistic DMP that left me with a $100/month deficit (even after making the budget incredibly spartan), and they told me to consider bankruptcy - which I did and got a discharge.

[HHM]

Also too, I think you are giving too much weight to how BK might affect job prospects. Be honest with yourself, you really don't know what you will be doing 2, 5, 10 years from now. So why include that as a factor in trying to make a decision...it is too much of an unknown. Plus, the affect a BK has on future employment is a bit overblown.

[frankies_mom]

Yes, I would definitely go the Credit Counseling route first. Especially since you are so young. I had gotten myself in a bit of a jam a few times after college but with better jobs, living at home a bit, and 0 balance transfers, I was able to dig myself out of the hole. Wish I could do so again but with babies, mortgages, lifes bumps and bruises just too buried.

But like bige1030 said, they will make you do an education session anyway so might as well see what they say. Go with CCCS. I went with them first but we were at over a 500 deficit to participate in the plan.

Good luck!

[SamanthaJones]

You don't get a 1099 if the debt was 'forgiven'.

That is right out of the tax code. If you were going to make a lump payment, then you would first get in writing that the balance of that debt is being 'forgiven', before you pay the lump payment. Also, if you are insolvent at the time you would forgoe the 1099, but- could you be insolvent and make lump payments? And, anyone, were IS this money coming from for lump sump payments that people keep talking aabout? And, if you have no income or assets why file baankruptcy, especially for such a small debt load?

[AMISLANDER]

Correct me if I'm wrong but if you make a lumpsum payment, lets say half of what is owed......the credit card company will 1099 you the remaining balance as income. Maybe this is OK in your situation ???

this is absutely true. it happened to me & it brought me into another tax bracket. I would not recommend doing this.

[HHM]

CCCS is really not an option because you don't have income. Sure, you have to consult with CCCS as pre-requisite to BK, but CCCS puts you on a payment plan, they DO NOT reduce the amount of debt owed or negotiate lump sum payments. Thus, to be a candidate for CCCS, you need income...so, if you don't have regular income, then CCCS is not an option.

The tax issue is relative, if you have no income, then even if you got 1099'd on the debt, you probably would have very little tax liability anyway. But your big problem with Debt Settlement is you are not in default. Credit Card's will NOT EVEN ENTERTAIN a settlement until you have several months in default, so in order to settle and make a lump sum, you have to blow your credit anyway. (not really an option, also, when it comes to employment, it's not the BK that hurts you per se, it is your overall credit that is the problem).

If you have the money to make lump sum settlements, put it into an interests bearing account, and just use that money to make the minimum payments until you get on your feet. If you can make a lump sum payment of 50-60% of the debt, and IF YOU STOP USING THE CEDITS CARDS (which you need too), you can probably string that debt along for 2-3 years. By then, you will probably be working, or at least in a better position to weigh you options.

[Walnut]

HHM has the right idea. Maybe find a financial advisor or someone to go over your situation. Just getting in over your head should not result in BK - without an extenuating circumstance. Sit down and think about it. BK is a ten year yoke. While some of us think it is a breeze, it is not. The ten years afterwards is something you will try like hell to hide. Going to get married? Well, your spouse will need to know you filed BK. You are young and while it may seem impossible to pay the bills now, once you get employed after school, these bills will be no big deal. Think about it - would you want to be in Finance knowing you had to do this? How would your clients feel about taking advice? It will show up when they pull your credit file and so will not making payments to push those accounts into default. And while a BK cannot be held against you for employment, it will steer companies away from your resume if they are financial institutions. Any other field, no problem. And this I know first hand - as my major in college was Financial Accounting.

[bige1030]

this is absutely true. it happened to me & it brought me into another tax bracket. I would not recommend doing this.

If you were insolvent immediately before the debt was discharged, you can claim insolvency on IRS Form 982 and exclude the discharged debt from your gross income to the extent that you were insolvent.

From form 982 instructions:
"The term discharge of indebtedness conveys forgiveness of, or release from, an obligation to repay." (Note that discharge of particular debts doesn't have to happen in bankruptcy.)

"You are insolvent to the extent your liabilities exceed the fair market value (FMV) of your assets immediately before the discharge."