So the pieces are beginning to fall into place...

[lolasaurus]

First of all, we pass the means test by like $35/mo if I recall the number correctly. I make more income than would be an automatic pass, but our expenses seem to allow us to pass.

Up until last Wednesday, there was a lot of uncertainty in our future because there was a 50/50 chance I'd get a promotion. I did not get it (which is frustrating in itself but hey, that's how it goes.).

However, since I got a profit sharing payout of $1209 just after christmas, it has become clear I'm going to need to wait about 4 more months before I file.

Here's the deal. As I go through all of my bills and begin to assemble the order of battle here, I'm looking at a lot of medical bills ranging from $3.38 to a couple thousand dollars, I'm looking at about $50k in credit cards between the wife and I, and I'm looking at a house that now zillows for less than $300k while we owe $241k on the first and $80-odd k on the second.

I'd really like to avoid bankruptcy but I view it as probably inevitable at this point. We're just not solvent, we've been robbing peter to pay paul for months now and just barely keeping the utilities on and the credit cards mostly current. This month I'm going to have to pay the second motgage out of next month's paycheck.

I've been thinking however that it might be worthwhile to proactively try to work a deal with all of these various medical companies, collections agencies, credit card companies, and my two mortgage companies in an attempt to avoid BK. After all, if I file BK and am successful, no one is going to get anything, right? It is in their best interest to try and work with me.

I'm thinking that to do this, I would try something like the following:

1. Build a list of every single debt I owe that I am aware of.
2. Write letters to every single company, to the president/ceo of the company if possible, and explain that I am essentially insolvent right now given the totality of the circumstances, and that unless I am able to work something out with them all, I will be filing chapter 7 to resolve it once and for all. Given that I have essentially no assets compared to the debt involved, and given that I'd probably be able to keep most of the belongings I have through a BK, they might as well work with me now as opposed to going through the BK process.
3. Quit paying any debts that aren't willing to work with me so that I can focus on things in the following priority:
   a) shelter
   b) food
   c) utilities
   d) transportation... etc
4. Offer to pay them in the order that they get ahold of me with an acceptable settlement, to incentivize them to actually bother
5. Go bankrupt afterward against anyone who won't work with me, unless enough are willing that I can avoid bankruptcy in its entirety.

The point here would be to try and do my best to work with these guys but at the same time hopefully get out of this really crappy situation. Needless to say the stress has been pretty bad, so one way or the other I need to do something.

My questions for you guys:

1. Would doing this hurt my chances of a successful bankruptcy somehow?
2. If I stop paying and one of the CC companies sues me (Amex comes to mind with an $18k debt) and wins, can the judgment still be discharged through BK? I think I read it can.
3. Thoughts in general? Is this stupid? I agreed to pay these debts so I'm reticent to just file BK without trying to discuss first at least, even if there's no way I can actually keep going on this, especially without the promotion I thought I might get.

[lolasaurus]

Hmm, sorry it got so long

Cliffnotes: Can I try to proactively settle with my debtors ~4 months before I could file CH7 against them or will this ruin a potential CH7 case for me?

[frustrated7]

I never wanted to file BK either. We tried to avoid it for years. We paid minimums and always thought "someday" we would be able to pay off what we owed. It never happened. So we tried a debt management company, which did not work out. Then we tried a debt settlement company, and that was an expensive mistake which accomplished nothing but lining the pockets of the company. So we tried to hire a private attorney to settle our debts for us, and once he received his money he never did a thing. I know you don't want to file BK, but remember that they don't have to accept any settlement offer and they can choose to pursue legal action against you.

Settling with creditors only works if everyone is willing to settle with you and if you have enough money to settle the account in one lump sum. Sometimes they will accept a settlement over a few months, but they usually want the entire amount right away. Where do you plan to get this money?

I would strongly recommend you go to a couple of free consults with BK attorneys, just so you are aware of what options you have. I wish I had known years ago what my real options were. Best of luck to you in whatever you decide to do.

[lolasaurus]

I never wanted to file BK either. We tried to avoid it for years. We paid minimums and always thought "someday" we would be able to pay off what we owed. It never happened. So we tried a debt management company, which did not work out. Then we tried a debt settlement company, and that was an expensive mistake which accomplished nothing but lining the pockets of the company. So we tried to hire a private attorney to settle our debts for us, and once he received his money he never did a thing. I know you don't want to file BK, but remember that they don't have to accept any settlement offer and they can choose to pursue legal action against you.

Settling with creditors only works if everyone is willing to settle with you and if you have enough money to settle the account in one lump sum. Sometimes they will accept a settlement over a few months, but they usually want the entire amount right away. Where do you plan to get this money?

I would strongly recommend you go to a couple of free consults with BK attorneys, just so you are aware of what options you have. I wish I had known years ago what my real options were. Best of luck to you in whatever you decide to do.

Well even without the promotion I make a pretty good salary. Without credit card bills and second mortgage we'd have a lot of money left over every month... but I'm not sure that would pay for the stress of the calls that would surely start

I could definitely make good headway if I could get them to stop charging interest or reduce balances or something like that.

[kathy4530050]

From what my lawyer told me and from what I have learned on this forum, I think you could potentially be shooting yourself in the foot. If you only make payments to those companies that will work with you, but then still have to file Chapter 7 in the end, you could be guilty of "Preferential Somethingorother" which means that you chose to make payments to some creditors, but not others, and I guess that's just not allowed. It appears we can't pick and choose who gets our money; our payments should be equitably distributed among our creditors. From what I understand, someone (the bk court? the IRS? I don't know) could go after whomever you paid and demand payment back so that it could be shared among ALL of your creditors. AND in the even that you still have to declare bankruptcy, you paid those creditors for nothing and just dug yourself into a deeper hole . . .

[lolasaurus]

From what my lawyer told me and from what I have learned on this forum, I think you could potentially be shooting yourself in the foot. If you only make payments to those companies that will work with you, but then still have to file Chapter 7 in the end, you could be guilty of "Preferential Somethingorother" which means that you chose to make payments to some creditors, but not others, and I guess that's just not allowed. It appears we can't pick and choose who gets our money; our payments should be equitably distributed among our creditors. From what I understand, someone (the bk court? the IRS? I don't know) could go after whomever you paid and demand payment back so that it could be shared among ALL of your creditors. AND in the even that you still have to declare bankruptcy, you paid those creditors for nothing and just dug yourself into a deeper hole . . .

That was my concern as well. Anyone know how long after I did this I'd have to wait? Guessing 6 months?

[TEW]

Wouldn't it be great if it could work this way.
even if you get some of the creditors to work with you and write down some of the debt you will end up paying taxes on the amount they wrote off.
If you pay one CC and not another the one you do pay is Going to jack your interest rate sky high.
When you file you include we ALL debt you CAN NOT pick and choose.
keep in mind you are going to have endless calls mail and anything else the can do to try to get money from you.
The creditors have the law on their side and they know it.
So threats to file BK on them means nothing to them besides the fact that it maybe extortion.

[fltoo]

That was my concern as well. Anyone know how long after I did this I'd have to wait? Guessing 6 months?

Kathy is right about preferential payments. If you can't negotiate and pay off all creditors, why not just file BK.

The look back period for these preferential payments is 90 days.

[lolasaurus]

Hmm. Seems like the consensus is that this is a generally bad idea. What a shame, I'd really like to work it out with these companies without the phone calls :\

[eddiep]

If you pass the means test by $35 how much can you afford to pay them? If you could even get all of them to agree they are going to want more than that each month. I have heard that they will settle for pennies on the dollar but I believe they will want that paid in full, in one payment or maybe spread out over six months. You have to remember who you are dealing with, they are morons, they are why this country is in a recession. they would rather take nothing than work with you!

[lolasaurus]

If you pass the means test by $35 how much can you afford to pay them? If you could even get all of them to agree they are going to want more than that each month. I have heard that they will settle for pennies on the dollar but I believe they will want that paid in full, in one payment or maybe spread out over six months. You have to remember who you are dealing with, they are morons, they are why this country is in a recession. they would rather take nothing than work with you!

We pass the means test because of the allowed expenses but we don't actually spend anywhere near what we're 'allowed'. My wife is a huge bargain shopper, negotiator, etc. We live on a fraction of what the IRS says is the norm so that we can make the other payments.