Getting settlement offers from CC

[overthedebt2]

If I'm filing CH 7, does it help my credit score to pay off some of them? I don't have any disposable income just yet but I'm getting offers for roughly 30% of my balance. It would take quite a while to get the $$ together for those lump sum deals but I was curious if it would help me down the line or not. Thanks!

[AngelinaCat]

If I'm filing CH 7, does it help my credit score to pay off some of them? I don't have any disposable income just yet but I'm getting offers for roughly 30% of my balance. It would take quite a while to get the $$ together for those lump sum deals but I was curious if it would help me down the line or not. Thanks!

No it will not. In fact, it can actually hurt you.

Leave all CCs alone if you intend to file. BEWARE of any and all offers of some CA wishing to 'work with you' about the debt. Once you file BK, if you enter into any kind of 'side' agreement with a particular creditor about 'their' debt, you run the risk of having your entire BK case thrown out.

You need to talk earnestly with your BK attorney about these matters.

[justbroke]

Even worse, you will probably have tax consequences as well. The creditor would need to file a 1099-C (Forgiveness of Debt) and you'd pay taxes on the 70% that you didn't pay back -- as if it were a gift. That's not the least of your worries. Many of these unscrupulous junk debt buyers (JDBs) will sell that 70% to someone else -- rather than file a 1099-C -- and then a NEW company would be bothering you!

If you're going to settle, you must make sure that the terms are in writing and you understand the 1099-C or resale of debt issues. They must be spelled out in the contract.

If you're at the point of bankruptcy, then you need not be worrying about your credit score. It is an absolute fact that the overwhelming majority of people that file for Bankruptcy, are able to obtain credit within 6 months of filing, and many can purchase homes within 2 years. Try that with debt settlement.

[overthedebt2]

Thank you AngelinaCat and justbroke!! I should call my atty more. I feel like I always have an endless list of questions that come to my mind every day!

[jetsfan2010]

Thats a last ditch effort from those companies, as they rather get something than nothing.

[sunshinepa]

Your money is better spent towards the attorney you mentioned and getting filed in my opinion. Think of it this way, most of us got to BK with credit.......why worry about helping a score at this point? As Justbroke mentioned, credit can be obtained after filing and the score built from there. My score went up immediately after filing and I get offers for credit every day, I choose not to use them anymore but that's personal preference.

[AngelinaCatHub]

Thank you AngelinaCat and justbroke!! I should call my atty more. I feel like I always have an endless list of questions that come to my mind every day!

This is not a problem. That is why we are here. Experience and opinion. 'Hub

[keepsmiling]

We are all always learning from each other. Keep posting.

[bcohen]

The only time settling debts makes sense is if you cannot file for bankruptcy for some reason, or if the total debt load is too small to justify filing AND all of your creditors are willing to settle for an amount you can afford. In any other circumstances, attempting to settle is a waste of time and money, because you will STILL end up filing for BK; the only difference is that now you will have wasted money on a preferential payment (which the trustee might go after) plus you will receive 1099's on the forgiven amount(s).

Depending on your circumstances (i.e. whether or not you are LEGALLY insolvent on the day you settle, per the IRS's definition), you may end up with a significant tax liability if you settle, which CANNOT BE DISCHARGED IN BANKRUPTCY. On the other hand, if you do not settle, and merely file BK, there is no tax liability for debts discharged in bankruptcy.

Insofar as the creditor's (or collection agencies') claim that settling helps your credit compared to filing for bankruptcy, that's a load of bulls**t. The damage to your credit rating was done when the debt charged off. Paying anything--even 100% of the balance owed--WILL NOT IMPROVE YOUR CREDIT SCORES. Only time can heal your credit, and this will occur regardless of whether you pay a penny toward the debts or not.

Furthermore, discharging your debts in bankruptcy will actually improve your credit score if it's already in the 400's or 500's range. The balances on all your debts will be zeroed out, which will give your score a huge boost.