Overwhelmed - Please Advise

[SNC]

Pandora - so you are saying that for my credit that is in collections that the collection agencies will not set-up monthly payment arrangements, but will only do a settlement on the debt?

[Pandora]

No. Collection agencies will take payments, however... the terms are usually very high and you'll be paying more than you should and be bound for years to a debt that they technically, didnt have to pay 100% for. So its better to offer to settle the debt (or try to) for around 5-10% if you can. These companies pay pennies on the dollar for the full debt, so if you owed 10K to one creditor, who charged it off, and then sold it to a collector, the collector didnt pay probablly more than 3% for purchasing the full rights to the debt at 100% of what you owed; so maybe $300. Again this is just an example, but its usually how they work.

Most collection agency's wont settle for less than 40-50% of the debt (or so they'll tell you) and that can be paid in installments if they allow it along with an interest rate in some instances, and ususally has to be direct debited out of your account (dont do that - ever!). Then there are some that require it to be paid in full in one lump sum, so it depends. If they wont accept anything less than 40-50%, then they'll just keep selling it to another collection agency; the longer it stays on their books, the more pressure they use to collect the debt in one sense, but in another, it makes them look bad at their job, so they'll sell it to another debt collector, who then will again try to collect and so on and so forth.

First thing you should have done when you started receiving notices from the collection agency's is validated the debt; did you? Make them prove to you they own the debt - you need to read up on FDCPA and consumer rights on creditors and collections. Second thing, is if you're being served with papers, which apparently you are, it sounds like someone won a judgement against you for a debt. If you dont answer the complaint, a judgement in the full amount will be granted to the collector, which is never a good thing and I dont believe you can request validation of the debt after the fact.

At this point - BK is probably the best option for you given its been so long.

[epiphany]

One more consideration: if you start to pay again, you reset the statute of limitations (sol) on these debts. I see no point in doing that if you are going to stop paying again soon after.

Also realize that you will be liable for federal taxes on any debt amount that is forgiven...inotherwords, if you settle a 20K account for 5K, you will have to pay taxes on 15K.

I agree with others here---your credit score should not be a consideration in this decision. It's already tanked. Figure out your situation first, and worry about your credit score later if you must.

I know how hard a decision this is for you but the sooner you face it, the better. I wish I had filed sooner than I did...could have spared myself and my creditors some pain.


Good luck to you.

ep

[SNC]

So, from what I am hearing back from everyone, if I qualify for Chapter 7, I should go ahead and file since my credit score is already down to 555. I could re-build my credit faster if I just go ahead and file now, as opposed to setting up a payment plan with my creditors that I know I may not be able to pay every month in the future due to my unstable employment situation. As for a settlement option - that is not even really an option for me because I do not have 40-50% of my debt saved in cash to pay my creditors off.

[SMinGA]

I think the general consensus/bottom line/whatever you want to call it is: credit score really should not be a determining factor in whether or not to file bankruptcy.

[SNC]

I don't understand then what should be the determining factor? I feel like my situation is so tricky because I could probably afford to pay minumum payments to the collection agencies right now (without saving to an emergency fund), but I know that I wouldn't be able to afford the payments if I become unemployed in September.

Maybe I should just wait to file in September, because I will know by then if I will be unemployed or not, and I will still pass the means test at that point in time...

[SMinGA]

Determining factors: whether or not you have other viable alternatives to resolve your debt.... whether or not your income situation is likely to improve in the near future... whether or not you would be able to pay off your debts in full in the next 5-10 years on your own...

Minimum payments will not resolve your debt. Minimum payments for 5 years could mean that you'd still owe 90% of your balances and be no better off in 5 years.

I don't understand then what should be the determining factor? I feel like my situation is so tricky because I could probably afford to pay minumum payments to the collection agencies right now (without saving to an emergency fund), but I know that I wouldn't be able to afford the payments if I become unemployed in September.

Maybe I should just wait to file in September, because I will know by then if I will be unemployed or not, and I will still pass the means test at that point in time...

[Pandora]

I don't understand then what should be the determining factor? I feel like my situation is so tricky because I could probably afford to pay minumum payments to the collection agencies right now (without saving to an emergency fund), but I know that I wouldn't be able to afford the payments if I become unemployed in September.

Maybe I should just wait to file in September, because I will know by then if I will be unemployed or not, and I will still pass the means test at that point in time...

You need to look at this a different way: you havent paid these debts in at least a year, so you cant go back and pay on them now with the org. creditor. You cant fix your credit at this point in time, whats done is done and cant be undone.

Unemployed or not, it wont matter. What matters is if more judgments get brought against you for these debts and liens get placed or worse, you get garnished. Question is why on earth would you want to pay the collection agencies ANY money at this point in time when you can just get most of it discharged (except for your student loans, of course). If its the "stigma" of filing for BK and your credit you're concerned about - trust me - your credit is way trashed and will continue to be trash even IF you make payments to the collection agency's. You're better off filing BK at this point and starting over; either way its going to be on your credit for 7-10 years no matter what.

Thought you stated in your first post you were able to file Ch. 7? Do you not know if you qualify for it yet?

[SNC]

Thanks so much everyone for continuing to field all of my questions... It is helping me so much because I have been so overwhelmed and confused with this whole thing...

Pandora - According to my lawyer (who I haven't officially retained yet), he said I qualify. I am meeting with him in person on Tuesday morning (he's out of town now) and will ask him about the issue someone else brought up on this forum of the fact that I have about $700 left over at the end of each month based on my current budget (this is without paying on any credit cards and without putting any money into savings).

I guess I didn't realize that my credit score was that "trashed". And I thought that by paying minimum payments to the collection agencies that it would rise back up. But I guess from what I'm learning it is just better to file bankruptcy and start over.

[Pandora]

No...paying the CA wont change your credit score at all - it is what it is now and will continue to be trash unless you get them discharged thru a BK or.. are able to get them reversed to "paid in full" or "settled" by the CA or Org. Creditor (which you said you dont have the money to settle). Its just a number... its not who we are ;) So dont focus too much on the FICO my friend. As others have said "S**t happens to good people"

When you're doing your budget, make sure you account for everything - car tags, inspections, maintenance, health ins., co-pays for OTC and RX meds, co-pays for doctors thru-out the year, etc. If you're under the means test but have a + amount left over at the end of the month, it can throw you into Ch. 13, so its up to your lawyer to work for you, but you also need to make sure you account for everything in that case.

Search through the forum and you'll find copious amounts of budget items people have listed in both Ch. 7 and Ch. 13. There are even schedules you can fill out somewhere... I know I saw them.... just as a trial run so you will have a better idea of what you're up against. Generally if you're under the median, thats only one part of the equation, its the schedules I & J that really will tell you what you actually have left over.

[lmaosm]

Thanks so much everyone for continuing to field all of my questions... It is helping me so much because I have been so overwhelmed and confused with this whole thing...

Pandora - According to my lawyer (who I haven't officially retained yet), he said I qualify. I am meeting with him in person on Tuesday morning (he's out of town now) and will ask him about the issue someone else brought up on this forum of the fact that I have about $700 left over at the end of each month based on my current budget (this is without paying on any credit cards and without putting any money into savings).

I guess I didn't realize that my credit score was that "trashed". And I thought that by paying minimum payments to the collection agencies that it would rise back up. But I guess from what I'm learning it is just better to file bankruptcy and start over.

That's why people file for bankruptcy. Minimum payments would take you 30 years to payoff.

Find a reputable bankruptcy attorney. One that specializes in this area 24/7/365.

Don't pinch pennies to find a good one either. Just call various firms and get quotes and make a decision on the average of those firms. But, if X firm is top dog and cost 10% higher than the average, go with X and pay the extra 10%.

Paying $2.5k to $3k (including filing fees) to dump $80k of debt is worth IMHO. Hopefully, you haven't used any of the cards in the last three to four months.

[Pandora]

Here is Schedule I

http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/BK_Forms_1207/B_006I_1207f.pdf

and Schedule J:

http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/BK_Forms_1207/B_006J_1207f.pdf

maybe it'll help you gather info perhaps you're forgetting

[Cristo]

SNC,

This is my first post to this forum, but I have been lurking here for a long time. I'm getting ready to file and I had the same concerns about my credit score as you did. Forget it. BK will not make your score worse than it already is and may in fact help it because you will have 0 debt instead of $74,000.

Why I'm really posting this to you now is because you say that you are 33 and have $74,000 in cc debt and no retirement account. Making minimum payments on the cc debt will take you until you retire to pay off and you still will not have saved for your retirement. Take care of yourself!! File the BK and start saving in an IRA or 401k. I know it's scarry but filing bk does not mean you are a bad person. It means that you are getting your financial life in order and you really need to do that. We all have been there. No one will loan to you in this economy with $74,000 in outstanding debt anyway so don't worry about the credit score. The thing I learned is that once you have the first few 30 day lates on your score it's done for, you may as well file.

I kept thinking I would settle my cc debt ($85,000) with money from a retirement account so I "woudn't have a bk on my record" this was the worst thinking there could be. Having a bk on your record is not worse than having cc settlements. I feel lucky that I did not go the settlement route becasue I finally realized that even if I got a couple of cards to agree to settle there would probably be one that would hold out and sue me and then I would have to file bk anyway to avoid judgement so the previous settlement money would have been wasted.

If you start to pay ccs again and loose your job the money you will have paid them will be wasted and could have been used to tide you over during unemployment.

Good luck to you.

[SNC]

Thanks!!! What about expenses I have periodically throughout the year, but not necessarily on a monthly basis (for example, my cat's asthma med or oil change). Can I include those in my monthly budget (for example, if i'm going to have to pay $120 for my cat's med over the entire year, I would put $10 in my monthly budget). Also, what about expected expenses? For example, I expect to be paying around $75/mo for medications once my health insurance kicks in next month and I can see a doctor to get the perscriptions. Can I include that estimated cost in my budget even though I do not technically have that expense at this very moment?

[Pandora]

Thanks!!! What about expenses I have periodically throughout the year, but not necessarily on a monthly basis (for example, my cat's asthma med or oil change). Can I include those in my monthly budget (for example, if i'm going to have to pay $120 for my cat's med over the entire year, I would put $10 in my monthly budget). Also, what about expected expenses? For example, I expect to be paying around $75/mo for medications once my health insurance kicks in next month and I can see a doctor to get the perscriptions. Can I include that estimated cost in my budget even though I do not technically have that expense at this very moment?

yes to all of the above


and +1 to what Cristo said!