Should I accept a settlement offer & avoid BK?

[Trixie007]

Hi all, thanks for reading and for any opinions you care to share! I posted this in my blog today, but thought I would post here to see if anyone has any thoughts.

"Well, today I answered a call to BofA - previously I posted that two of the accounts were going to charge off on Dec 31st - now they tell me that a glitch in the system caused by our payment due dates have caused the accounts to be held over through January.

So now the offer is 15%, or $11,625 paid in six installments over the next 6 months. Wow. They said this is because of our 15 year history and that we never missed a payment until this past year. I would REALLY love to be able to accept this, if only I didn't have two second mortgages to worry about suing me [we have 2 homes in foreclosure by the first lienholders], plus the other 100k in cc debt. And don't forget the 1099 for 66k in forgiven debt...

Well, I need to talk to an advisor (have an appt with one tomorrow prior to meeting the BK attorney) and the BK attorney and really feel out all my options. Maybe selling most of our personal belongings and getting 2 jobs (after my surgery) for the next year or three or five is the way to go. At least that might feel better than filing... This would be a much easier decision to make if I knew whether the two second mortgages will come after us down the road! If I didn't have to worry about that 170k+ hanging over our heads.

What is the likelihood that they would sue me down the road? Any thoughts appreciated. Hmm, maybe I should post in the forum as well."

I guess there's a huge part of me that feels like we don't deserve the clean slate of BK. Too many mistakes. Too much overspending. Too short-sighted to stop the reverse snow-ball sooner. Now I am wondering if maybe everyone settled with me one by one, we could cut 177k in cc debt down to maybe 25k and work like demons this year to come up with that, then make payment arrangements with the IRS for the taxes (over a few years??), and pray the second lienholders don't sue... What do you think?

[lrprn]

So now the offer is 15%, or $11,625 paid in six installments over the next 6 months. Wow. They said this is because of our 15 year history and that we never missed a payment until this past year. I would REALLY love to be able to accept this, if only I didn't have two second mortgages to worry about suing me [we have 2 homes in foreclosure by the first lienholders], plus the other 100k in cc debt. And don't forget the 1099 for 66k in forgiven debt...

You are answering your own question. If you don't have finances that can support paying off the debt you have now, getting rid of one cc won't make much of a dent. Also as you said, you will be required to pay taxes on whatever is forgiven by your cc - that could add quite a chunk to what you owe. Owing the IRS a secured, non-dischargeable debt vs. owing it to a non-secured, dischargeable cc company is a terrible trade-off IMHO.

What is the likelihood that they would sue me down the road?

If "they" means your cc, they will be no more likely to sue you before filing than any other creditor. If "they" means your second mortgage holders, then what are your worries about this?

I guess there's a huge part of me that feels like we don't deserve the clean slate of BK. Too many mistakes. Too much overspending. Too short-sighted to stop the reverse snow-ball sooner.

Last time I looked, no one was wearing a big blue 1st place ribbon for continuing to slip down the never-ending debt slide. If our founding fathers thought that giving all U. S. citizens a legal escape from under enormous debt that they can't pay off no matter how hard they try, then you deserve to file bankruptcy as much as any of the rest of us. Let go of your guilt. What is more important to you? Your pride or your family's well-being?

You need to think about this as making a difficult, unemotional financial decision about what's best for you and your family in the long run....nothing more. This is exactly what your creditors are doing as they raise your APRs and pile on the late fees - never forget that. They want their money any way they can get it. Don't confuse their "you've loyally made payments for 15 years" as anything other than a ploy to appeal to your emotions and make you pay anything they can get you to pay as quickly as possible.

Now I am wondering if maybe everyone settled with me one by one, we could cut 177k in cc debt down to maybe 25k and work like demons this year to come up with that, then make payment arrangements with the IRS for the taxes (over a few years??), and pray the second lienholders don't sue... What do you think?

Frankly I think you are living in a fantasy world. You didn't mention how much income your family has yearly, but I'm betting it's not even close to enough after paying your secured debt and living expenses to make even a minor dent in what you owe within five years.

If you do the figures (and be totally realistic using your current income, not optimistic adding in possible future raises - no guarantees that will happen) and you still can't get out from under this debt load completely within five years, then filing bankruptcy for a fresh start makes the most financial sense. Please forgive my bluntness - I'm not saying this to be mean. I'm just trying to help you see another way of dealing with your debt in a non-emotional way.

Good luck and keep us posted on what you decide to do, ok?

[Phillymanhere]

I got a similar offer from BOA on 20K of debt I have with them. My offer was for a 20 percent settlement, though we never got down to details of payments over a period of time.

I had a similar reaction to the one you're having: I thought, Gee, I should take this, shouldn't I? ... Except I don't have $4,000 dollars sitting around and I owed $26K on other credit cards.

I came to this forum at the time and one key point someone reminded me of was this: were I to magically come up with the money for the settlement, I would have to add the amount "forgiven" into my annual taxable income. So I would have added almost $20K to my income for the year. You have to report the full amount of the settlement discount as income!

Basically, you can't afford this. It's a good deal, but you're not in position to take a good deal. In fact, I guess the moral of the story is there is no such thing as a "good deal" outside of the context of the particular financial situation we are in. I'm sure there are million dollar homes available right now for half the usual price. I'm sure there are yachts right now where we can all get good deals. But we can't afford these deals, so they are not "good deals" for us.

You've got all that other extra debt. I know the emotional tug this might have, but it's emotional. Based on what you've said here, accepting it makes no sense. It made no sense in my case either.

Good luck! ...

[dingdong]

I agree, let go of your guilt. Go down to the BK court and sit in on a 341 and just look at all of the people and types of people filing. Bankruptcy is here for a reason and it is a tool that can be used in your situation to save you years of grief and heartache and stress from over work and bills and the emotional toll that dealing with all the extra stuff you will have to deal with while trying to get out from under all of that debt. And what if you try your best and still have to file?

I like this quote by Abraham Lincoln,

"It is not the years in your life that matter but the life in your years"


Are you going to have any kind of quality of life doing all you can to get out from under the debt w/o BK? Isn't it worth it to bear a small amount of shame/guilt that the BK may cause you personally for the trade off of being debt free and making a fresh start.

I can't tell you the huge weight that is off my shoulders having just finished my 341 today and yeah I felt bad, but that feeling is waning every minute and worth the trouble and stress the BK caused. I am so looking forward to doing things right this time, being extra careful with credit and paying everything on time and really making sure my "fresh start" embarks me on a journey of financial responsibility, being very budget conscious and making smart decisions that will benefit my family in the long term.


Don't let that BK stigma hold you back, it goes away. Do what is best for you and your situation and let go of the guilt.

Good luck!

[Doghouse]

On a personal level, I'd say this is a no-brainer. DECLINE the settlement. Move forward with BK and completely start fresh. Why pay 11K and then pay taxes on forgiven debt of 66K and then worry about judgements, realistically or not, on two mortgages going into foreclosure? Depending on your tax bracket, that 11K can all of a sudden become a 30K liability. Remember, you never paid income taxes on this "additional forgiven" income.

Again, shed the guilt emotions and go for the truely fresh start route.

[StartingOver08]

I have to say the others are right about this one. It is not necessarily the actual deal they are offering to you - that seems fine on its face. However, it is the TOTALITY of the circumstances you are dealing with right now, that is what brought you here to the brink of BK.

You might even want to sit down and figure out where you will be in 5 years AFTER the BK - you will be so much further ahead then if you decided to take this offer and go the settlement route. If you just had a problem with BOA that is one thing - but look at the whole issue - you can not assume those second mortgages will not come after you at some point. Get rid of all of the liabilities you can so you can move forward with your life.

[JRScott]

The others have pretty much told you how it is.

The reason BoA is making these offers isn't to help you. It's to help them. They realize that in the late 1st Quarter of this year or 2nd Quarter there are going to be a large number of delinquencies in credit card payments. They've decided better to get some share of the pie rather than none. So they accept even 30% of the debt. However as pointed out the IRS treats the other 70% as income and you will have to pay them.

Look long term. If you accepted this deal could you make the payments on it and all other bills for the next 6 months. If the answer is no then clearly this is not an option for you. Trust me, some will try to work with you but then you'll have 1 or 2 hold outs that refuse to settle and bring down any house of cards you can make.

Not having more details its hard to know but it seems from what you wrote that even without this you couldn't make the bills and you already owe deficiencies from past mortgages. As such the greater good for you would be served most likely by declaring bankruptcy.

[Trixie007]

Wow! Thanks everyone. I guess I already knew, but it helps to have input from people who aren't so close to it. You all make really good points and I very much appreciate your responses. Most of the time I can look at this all in a detached manner, where I just look at what makes the most sense. I guess right now because I'm so close to actually filing I'm getting nervous and starting to feel like the trustee is going to nail us to the wall.

Well, I have my appointment to talk to the attorney today, so I hope he says the same things and tells me we look good for a Ch7!