Settlement offer: 15% of 75,000 with B of A?

[tyfoon]

Bank of American has offered to settle four of my accounts having a total balance of $75,000 for 15% or $11,250. Been 120+ days since I paid anything on those accounts. Payable 1/3 a month for three months. Going to be tough to come up with the cash, may have to sell one of my three cars (i have four of them).

Other unsecured obligations total about $40k and include sears $12k, discover $7k, kohls $2k, chase $4k and GM cards $13k. Have paid very small payment to kohls and discover so I am not as behind. So far I get a few calls but not many from the creditors.

Upside down on my home mortgage (owe $130k, worth $100k) and the one car that I still owe on (owe $12k worth $10K).

Lawyers say I would have to file chapter 13. Chapter 7 is out of the question. Make too much $ and have too many cars. Probably would have to pay $700 a month to the unsecured creditors if I went chapter 13. Over five years would be $42,000.

Regarding possible settlement (if i can manage to come up with the $11250 to begin with), I know there is a 1099c issue. But I thought since my net worth is negative, there would be no tax due?

The BofA settlement sounds good to me. Eliminates 65% of my unsecured debt quickly. But, since the other card companies may still come after me for the remaining $40k, I am not sure if it is a good idea.

I am looking for comments and suggestions.


Thanks

[walkthaplank]

If you can't get them all to settle with you, you'll probably still end up filing BK. Think of the 13 as an enforced settlement offer that is interest free without the tax issue.

I'm not sure negative net worth is the same as insolvency. If you make too much money to file a CH7 more than likely you will be paying taxes on that added $64k in income next year.... you won't have that car to sell to pay it and you won't be able to BK on it.

IF you can get all of your creditors to settle and IF you can afford the additional income taxes and IF your creditors don't send the deficiancy amounts to collection agencies (some have been known to do that*) you might be able to avoid BK. Those are some giant "IF's".


*I don't know how or why that would be legal, either they accepted the settlement as payment in full or they didn't.

[optimistic1]

Be aware that JDB's might buy up the forgiven debt from BofA and still hound you for the balances, what HHM calls "the dirty secret of debt settlement". I would utilize your bk rights and be done with it.

[Brighterdays]

Have you had any luck negotiating with Discover? I have heard they are tough to deal with. My two cents is jump on the BOA 15% deal,Especially if you can't file ch 7. that is the biggest chunk of your outstanding debt.

What I have read on the net is that 120 is the magical number of days and your debt is due to be sold off to a JDB real soon. The original creditor is the easiest to deal with. The JDB usually pull all sorts of crap and as the above person said, are notorious for selling your account even after you have settled it. Everything I have read is that the original (BOA) doesn;t do that. hear is a good site that has helped me. I hope it helps you.

http://www.creditinfocenter.com/debt/settle_debts.shtml.

[tyfoon]

Thanks for your comments. I am going to look into the 1099c tax issue. I know that one has to fill out form 982 to claim insolvency and pay little or no tax on the settlement. Maybe i will redo my 2008 tax return assuming that i took the settlement and see if i would have owed anything on it.

Regarding BofA selling forgiven debt. That sounds crazy. In my case I have a signed settlement offer in my hands. I have no idea how they could get away with selling the remaining debt. I might ask them if that is even a remote possibility or to indicate that they would not do so in the written offer. Have to do more research on that.

I know that it will be real tough to get the rest of the creditors to settle. A couple of days ago I asked Chase ($4k balance) for a 15% settlement and they said absolutely not and pretty much hung up on me. Have had little or no contact with Sears and GM card collectors. They must be too busy working on other customers accounts to care about my "small" $12-$13k balances.

Most likely will eventually end up filing ch13. But, like everyone else, I am looking for the option that makes sense to me. At this stage I really do not want my employer to find out about my financial condition. Bankruptcy would require part of my salary to go to the courts which obviously requires our payroll/personnel staff to be informed.

[tyfoon]

Have you had any luck negotiating with Discover? I have heard they are tough to deal with. My two cents is jump on the BOA 15% deal,Especially if you can't file ch 7. that is the biggest chunk of your outstanding debt.

What I have read on the net is that 120 is the magical number of days and your debt is due to be sold off to a JDB real soon. The original creditor is the easiest to deal with. The JDB usually pull all sorts of crap and as the above person said, are notorious for selling your account even after you have settled it. Everything I have read is that the original (BOA) doesn;t do that. hear is a good site that has helped me. I hope it helps you.

http://www.creditinfocenter.com/debt/settle_debts.shtml.

Only thing i got with Discover is that for a year they will reduce monthly payment to $80 a month (from the $160 I was paying). Must come direct from your bank account. I went with it to stop some of the calls. I made that agreement with them a couple of months ago. They were very persistent. Called me at home and office.

Kohl's collectors were friendly. Almost made me want to pay them . Agreed on $44 a month for my $3000 balance. No calls since.

I will look into site and may call GM and Sears to see if they will make me a offer. But I do not want to also owe taxes on the difference.

Not sure when companies turn over to outside agencies. I company I work for turns them over at 180-210 days without any payment. Really think one could go along time before a account is turned over to a outside agency if he/she occasionally pays something on the account.

thanks

[Cheeseater]

I have 67k with BOFA and am teetering on settlement or BK7. The problem is i'm well over the median but will probably means test out. Is yours amount spread out on different accounts or 1 card? Mine is divided among 5 cards. I owe discover 7k and told them I wasn't going to be paying for months, one quiet week so far. I am approaching 60 days on Discover, citi, and 90 on some Bofa. Did you approach them about the settlement? Did you consult with Nova Debt? Sorry for all the questions but like you if I can get them off my back I can probably come out as well as in a 13. Since I might get forced into one anyway I'd rather settle if possible. Please keep me posted. Thanks.

[paulf8]

If your filing bankrupcy dont even think about paying enybody.Its totally lost money whoever you try to pay .It wont matter at all in chapter 7 or 13

[tyfoon]

I have 67k with BOFA and am teetering on settlement or BK7. The problem is i'm well over the median but will probably means test out. Is yours amount spread out on different accounts or 1 card? Mine is divided among 5 cards. I owe discover 7k and told them I wasn't going to be paying for months, one quiet week so far. I am approaching 60 days on Discover, citi, and 90 on some Bofa. Did you approach them about the settlement? Did you consult with Nova Debt? Sorry for all the questions but like you if I can get them off my back I can probably come out as well as in a 13. Since I might get forced into one anyway I'd rather settle if possible. Please keep me posted. Thanks.

I have 4 BofA cards with combined balance of $75k. They approached me about the settlement. Started out at 20% but "settled" for 15%. Did not consult with Nova Debt or any other service.

[tyfoon]

If BoA was your only creditor take the deal, it might be worth the risk. But since you owe others your more than likely to end up filing a CH13, in that case the trustee would consider it preferential treatment and take the money back from BoA within a 12 month window. So then the money you would have been able to 'protect" is now being paid to all your creditors. That money could have gone into an exempt retirement account and not paid out.

So really, the CH13 is the better route it provides the best protection, you won't have to sell a car and no JDB in your future trying to collect the balance.

There is NO magical 120 day number it simply does not exist. Four months delinquent will rarely get you out of the OC office and over to CA. One number that people confuse is 180 or six months, this is when you account charges off and at that point it means nothing. Its only an internal accounting measure and is required by law to move your debt off the CC balance sheet. That IS ALL IT MEANS. An OC can keep your debt in house (Amex is a prime example) until the SOL kicks in.

So please consult an attorney and DO NOT follow the misguided advice of some posters on this thread about debt settlement, they have no idea what they are talking about and the same with some of the sites that have been linked in this thread.

The typical scenario goes like this: debt payment reduction plan> debt consolidation> some debt settlement> bankruptcy.

Most likely I will end up Ch13. But it is tempting to try to settle for less than a CH13 would cost me.

I have talked to three attorneys. They all say file for CH13 but I would expect them to since I would end up paying them about $2500. My issues are (1) car valuation may be higher then I think so creditors will want more (2) notifying my place of employment (3) possible stopping of $10k in 401k loan payments until the five years are over (4) it will be very tough to live on whatever is left over of my pay (note: I probably deserve to have a tough time meeting obligations) and (5) courts will not let you borrow any other funds without their permission. From what I understand many CH13 do not work because you are forced to live on very little and what if your pay gets cut again. Back to the courts. I live in Ohio, so your state law may be different.


If all creditors would accept 15% I would sell one of the cars, pay them off and have $ left over. In theory this is great. Reality is that Sears, Chase and GM card may not settle. May even sue me. And chances are that I would have to pay with cash for many many years to come since no one will give me credit due to the settlement issue

I hope I have some time left before making a decision. Why rush especially since no one has forced me to pay them yet. Best to completely understand the situation.

[Cheeseater]

A very good point about taking your time. The tax liability issue has me very concerned and I will research it further. A seven would be an almost no-brainer but the 13 has many issues as you've stated. We normally get an annual bonus and while it's not guaranteed it has always come. I know that would go to the trustee every year. We wouldn't be able to use our 401k to buy a car or pay emergency expenses. I have my own small business and don't want the microscope on me for 5 years. I wish you luck and please let me know if you receive any other offers.

[HHM]

Most likely I will end up Ch13. But it is tempting to try to settle for less than a CH13 would cost me.

I have talked to three attorneys. They all say file for CH13 but I would expect them to since I would end up paying them about $2500. My issues are (1) car valuation may be higher then I think so creditors will want more (2) notifying my place of employment (3) possible stopping of $10k in 401k loan payments until the five years are over (4) it will be very tough to live on whatever is left over of my pay (note: I probably deserve to have a tough time meeting obligations) and (5) courts will not let you borrow any other funds without their permission. From what I understand many CH13 do not work because you are forced to live on very little and what if your pay gets cut again. Back to the courts. I live in Ohio, so your state law may be different.


If all creditors would accept 15% I would sell one of the cars, pay them off and have $ left over. In theory this is great. Reality is that Sears, Chase and GM card may not settle. May even sue me. And chances are that I would have to pay with cash for many many years to come since no one will give me credit due to the settlement issue

I hope I have some time left before making a decision. Why rush especially since no one has forced me to pay them yet. Best to completely understand the situation.

The odds of all creditors accepting 15% is slim, so don't base your plan on that "assumption". When it comes to debt settlement, you need to "plan" for about 40%-45%

As for your chapter 13 concerns
1. Asset valuations are what they are, but most people tend to over-estimate value. 2. Unless you are in a district that requires mandatory payroll deductions, there is usually no reason an employer would be notified, 3. 401(k) loan repayments are an ALLOWED EXPENSE. 4. The benefit outweighs the short term issues. If you do your budget correctly, you can easily make it. You will be debt free in 60 months. 5. True, you cannot use credit. But you are basing your fear of chapter 13 on false assumptions. Yes, a chapter 13 is a lifestyle change, but it is a change for the better. I think you need to do a little soul searching if you don't think you have the commitment to make your situation better.

[tyfoon]

The odds of all creditors accepting 15% is slim, so don't base your plan on that "assumption". When it comes to debt settlement, you need to "plan" for about 40%-45%

As for your chapter 13 concerns
1. Asset valuations are what they are, but most people tend to over-estimate value. 2. Unless you are in a district that requires mandatory payroll deductions, there is usually no reason an employer would be notified, 3. 401(k) loan repayments are an ALLOWED EXPENSE. 4. The benefit outweighs the short term issues. If you do your budget correctly, you can easily make it. You will be debt free in 60 months. 5. True, you cannot use credit. But you are basing your fear of chapter 13 on false assumptions. Yes, a chapter 13 is a lifestyle change, but it is a change for the better. I think you need to do a little soul searching if you don't think you have the commitment to make your situation better.

Very good point. Unfortunately in our district (Northeast Ohio) I have been told that payroll deductions are mandatory (courts also will take over my car payment) and that I can be told by the courts to stop paying back my 401k loan. All three attorneys I have visited indicated so. I have the commitment to make things better for myself, but not all the answers yet.

If the remaining creditor would settle for 50%, I would pay BofA $11,250 and the rest $20,000. Total of $31,250. Per the attorneys, if chapter 13 I would have to pay around $700 a month for next 60 mo to unsecured creditors or $42,000 (based upon a real conservative estimate of the worth of my three other cars). As I previously indicated, I am not sure of the tax implications but will look into it. Again, just trying to make sure that I am as informed as possible before making a decision.

[tyfoon]

Again your banking on a house of cards since you cannot predict what they will go along with and as mentioned "the dirty little secret" of the amount left owing to a creditor as being sold to a JDB.

As much as people don't like the idea of a trustee dealing with your financial affairs for 60 months, you get the protection of none of it coming back to bite you later. Plus your creditors must accept the plan the trustee sets up.

Point is you can lose a whole lot more money before you go seek BK protection. But I guess you can view it as the cost to learn.

Just reviewing all of my options. At this stage only cost is time. I really appreciate the good feedback from you and others.

Regarding the tax issue, I am insolvent to the tune of $90,000 (liabilities are $90k more than assets including my 401k). Therefore I would owe no tax up to an additional $90,000 reported on 1099c's.

Now I have to some research on the "dirty little secret" that the amounts left over are sold to a JDB which in turn would try to collect from me. Seems underhanded. But apparently it is happening.

[HHM]

Now I have to some research on the "dirty little secret" that the amounts left over are sold to a JDB which in turn would try to collect from me. Seems underhanded. But apparently it is happening.

Don't let that fact, alone, deter you from doing DS. But it is something you need to be prepared for. Now, all things being equal, if DS and BK came down to roughly even (which is almost never the case because 9 times out of 10, BK is the better, more cost effective option), then I would go the BK route hands down to bring legal certainty to the status of your debt and to allow recovery to happen much much more quickly.