Need some serious Strategy help! Please!

[trader19]

1. 4 credit cards all owed $25k each. $100k total
2. 5 months behind on payments
3. right now just getting phone calls with recordings. And a letter or two saying "we can help"

a. No assets to worry about including no value in house.
b. this year... wife will make 38k before taxes. i will make about 10k
c. year 2 and year 3 may see us make about 100k combined before taxes, before necessary monthly expenses which will eat away all available income.

Now the strategy question.

I owe about $38k to the IRS for 2011 taxes. i was thinking about filing BK soon to get rid of that $100k in credit card debt. But now I am wondering if i should hold strong for 2.5 more years and wipe out the IRS debt? i mean, it would take 50k pre-tax income to pay that 38k. so, it is like a half year of work for my wife and i that we save by holding strong.

what do you think?

what can we expect as far as actions taken by the credit cards in the next 2.5 years? how fast can they move on judgements, how much can they take?

please, need some advice of what you all would do and perhaps an idea of what my life would be like during the next 2.5 years if i just ignore that debt another 30 months.

thanks in advance.

[HHM]

Tough call, that is a long time to wait.

Honestly, you won't make it. The credit cards will sue you before then, and you will need to deal with the IRS in some manner prior to then. If you only had to wait 12 months, maybe, but 2.5 years, too much bad is likely to happen between now and then.

[TheBajan]

Don't wait! Two and a half years is a long time to put your life on hold and just to get rid of 38K (in my opinion). Not to mention, you have no idea what will change in your life during that time. You will purposely pass up opportunities because every financial decision you make will be shadowed with the "How will this affect my upcoming BK?" question. I haven't heard from anyone on this board who said they wish they had waited to file. On the contrary, most of us wish we had filed sooner. I put off filing way too long and it cost me in terms of stress, opportunity lost, and money that I used to pay bills that would have been exempt. Get on with you life.

$38 K is not much more than the cost of a new car. None of us will ever NEED to spend $38K on a new vehicle but some of us will still choose to. It's a luxury purchase that we accept and manage to fit in because we WANT it. I'm not saying you want this IRS debt but I am saying you can cope with it. Being in pre-BK stress for the next two and a half years is the price you pay if you wait. Personally, having btdt, I'd rather deal with the debt.

Get this over with and get on with your life. You will be able to deal with the IRS.

Just my two cents,
The Bajan

[trader19]

guys,

i appreciate your input. i am definitely torn in this matter. one other part of the equation that was not mentioned but most likely never will come to fruition is that I am a 1/4 partner in a firm that is facing perhaps a $200,000 fine. the firm is being treated as a single entity, meaning that the fining party will collect the fine from all, some, or one of the partners involved. the firm has no assets left and it cannot declare bankruptcy to avoid this fine so the fine will go to the partners personally. since i have no ability to pay, the $200k fine will most likely be paid by the other 3... split 3 ways instead of 4. while i do not think they will sue me, i was told they could try to collect on the portion i did not pay. from what i have read, the statute of limitations is 2 years from the day of discovery to sue. this just happened. so i do have to be a little weary of the fact that if i declare BK, i am exposing myself to being sued by them afterwards.

didn't mean to complicate it more... but since both people who responded voted in favor of not waiting, i figured i would add in this variable.

also, HHM.... you say i won't make it. if i know that this year my family will make $30k, year 2 is $70k, and year 3 is $70k after taxes... how much can they go after? there is not too much there to go after. plus, by the time they bring a suit, settle the suit, get a judgement, and start collecting... it has got to be a bit of the ways down the road and getting close to the 2.5 year mark. right?

[HHM]

by the time they bring a suit, settle the suit, get a judgement, and start collecting..

Doesn't quite work like that, but in any event, it doesn't take that long. most of these suits wrap up in about 4-6 months. Plus, you are already 5 months behind, the first suits usually come around the 6-9 month mark. Also, the IRS is probably not going to sit around (although sometimes they do), and they don't need to go court. Even at $30K, you are not poverty level, so they can take your state maximum for garnishment, which, at least in New Jersey is a paltry 10%, but the IRS can take more.

As for the partnership, make no mistake, YOU WILL be named in any lawsuit, and it would be stupid for the partners to not exercise their right to contribution. In that sort of case it is a slam dunk...file complaint, serve it, if you respond, then Motion for Summary Judgment...those are easy. However, you are confusing an issue. You WILL NOT be liable after bankruptcy to these partners because the debt is part of the BK (unless it is non-dischargeable). Debt is Debt. The basic right exists now, it is simply unliquidated, meaning, the exact amount each partner would be entitled to collect from you is unknown because they haven't paid the fine, but they have a type of claim that you CAN INCLUDE in your BK, as well as the underlying claim by the fining agency against you.

I think Bejan makes the most sense, you don't really want to live like this for 2.5 years.

Sounds like you have already made up your mind to try and hold out anyway, and are looking for validation. So far, no one here agrees with that strategy. Granted, the tax debt is not insignificant and if that was the only thing going on, there are a few things you can do to keep the IRS at bay (maybe). But with everything else already in the toilet, it is not going to be pain free to get there. The question, I suppose, is how much pain are you willing to put yourself and your family through? It will get rough, and probably will in the next 6 months.

I have been doing this a long time, and I know all the tricks, 2.5 years is really too long to buy time and I haven't seen anyone actually make without things getting bad. Granted, there are those guys that choose not to file BK and try to wait out the SOL, but you don't want that uni-bomber lifestyle, trust me.

[trader19]

HHM,

thanks so much for your advice. i have not made up my mind at all. infact, i am leaning toward filing early if what you tell me is true.

but let me clarify something...

1. if the other 3 partners settle on a fine and pay it... basically covering my 1/4 between them.... i can include this right away even though they have not decided to sue. it makes sense what you say that debt is debt. i was just worried they could wait out my filing and hit me up afterwards.

2. you say the IRS can go after more? do you know what the rules are for them? because NJ is 10%. and if that is the case... can the combo of suits from credit cards and IRS exceed 10% garnishment? plus, as a teacher a bunch of money can be thrown into retirement and bunch comes out for union dues and taxes. is it 10% of the net amount?

thanks again!

[HHM]

HHM,

thanks so much for your advice. i have not made up my mind at all. infact, i am leaning toward filing early if what you tell me is true.

but let me clarify something...

1. if the other 3 partners settle on a fine and pay it... basically covering my 1/4 between them.... i can include this right away even though they have not decided to sue. it makes sense what you say that debt is debt. i was just worried they could wait out my filing and hit me up afterwards.

2. you say the IRS can go after more? do you know what the rules are for them? because NJ is 10%. and if that is the case... can the combo of suits from credit cards and IRS exceed 10% garnishment? plus, as a teacher a bunch of money can be thrown into retirement and bunch comes out for union dues and taxes. is it 10% of the net amount?

thanks again!

1. As long as the fine has been levied against the partnership. The claim exists as well as all potential claims resulting from it. You will need to speak to an attorney about this issue. (I doubt it would be a good idea to go into details here).

2. There is a levy worksheet for the IRS floating around, but IRS is not subject to state garnishment restrictions. So yes, if the IRS comes knocking, they can take more (significantly more) than 10%.

When I read the New Jersey statute, it says 10% of GROSS.

[Pjmax]

Don't know if this helps or not, but the IRS takes 15% from me (NJ). Yes, it is gross (literally and figuratively.)

[trader19]

HHM,

i do not have my mind set on anything, i am just trying to pick the brains of those on here with knowledge to put a strategy together that results in my family being back on our feet 3-5 years from now.

again here is a question...

1. forget the IRS for a second and in terms of just credit cards, medical, etc... if the limit for nj is 10% gross, can anyone suing me go after the 90% that is not garnished or does that now become unrecoverable to them. for instance... lets just say my wife and i bring in 100k total. 10k gets garnished and leaves us with about 90k pretax and 70k after taxes. that is about 6k a month. if we cut our bills down to 4k and then 2k is saved up... can they go after that too. because to me, that defeats the purpose of the 10% garnishment rule.

2. just follow my math for a second. please indicate any errors in my thinking. if the above is true and the most i can have garnished is 10% and lets say i work out a payment plan with the IRS for $500/month. again, lets say it takes 6 months to start having my wages garnished and we are making the $100k combined. that would leave 2 years to have wages garnished. 20k total. and maybe another 10k or so in IRS payments. i would probably dodge the last few months before BK knowing it would take that long just to sue me. that is 30k in total possible payouts in the next 2.5 years. if i decide to claim BK in 6 months and work out a payment plan to pay back $38k... it would take earning 50k pretax dollars plus interest + penalties. might cost me 60k in the long run. 60k versus 30k seems like enough to deal with being hassled for 2 more years being sued and having default judgments against me. however, i do lack any knowledge of what to expect as this debt gets into year 2, 3, etc... can someone please shed some light on that for me?

thanks again for all your help.

[ValleYum]

I believe (double check!! with an attorney and others here will chime in, too) they can just seize any money floating in banks and financial institutions AFTER first garnishing your paycheck that 10% if they obtain a bank levy.

Are you really ready to live as a member of MyOwnMattress Bank & Trust?



Sounds too difficult and nerve-wracking to me.

Give me a Vodka Collins with a side of bankruptcy any day versus that.

[Pizza]

what can we expect as far as actions taken by the credit cards in the next 2.5 years? how fast can they move on judgements, how much can they take?

After more than 3 years of non-payment on more than 10 credit cards and other bills, I still haven't received a judgment. Not a single one. From what I have observed here, my case appears to be unique, however. If your income increases and they find out about it, it could trigger lawsuits.

[df04527]

Large balance credit cards almost always sue. Bigger the balance, better chance they wil persue.

[keepsmiling]

Hmmm.... not sure that's true exactly.... we made it to two years without a suit and I was starting to think we'd get to three. But about a week and change ago one of my Chase cards finally sued me. It's mid-range of the others I owe.

And some people have mentioned the "ankle biters" like Discover being the first to sue. Haven't heard that term in a while come to think of it

I don't know if there is really any rhyme or reason to their methods.

[df04527]

Yup agree there is no rhyme or reason for sure but what I have seen that was fairly consistent is the big balance cards stand a much better shot at suing.

Which companies, when they sue, and what number is considered a big balance falls in the no rhyme or reason category. It may have alot to do with what the lender sees when they review the credit report of the debtor. They will lay in wait until they start seeing activity on the credit report such as new car financing or a new credit card as a positive sign the debtors financial situation is improving and pounce at that time.

[HHM]

The decision to sue has many factors. Some come down to where you live. For example, in every state I have ever lived or worked, the "smaller" balance cards (less than $3,000) tend to sue the quickest. Statistically, the creditors stands a much better chance of collecting some or all the balance due on a small balance account than a large balance account. When you look at bad debts from the portfolio view, an $500,000,000 portfolio of under $3000 balance debts will have a much better Return on Investment than the same size portfolio made up of + 20K accounts.

As for you math, to many what if's, as such, that analysis is simply pointless (to be frank).