Settlement or Bankruptcy

[jwmc1]

I have decided to settle all of my debts (at least that is the plan). I am settling mine first as they go to collection and law firms and then I will move to my wife's accounts. Has anyone had the experience with this? I wanted to know which way damages your credit more over a year or so. Will I be better off credit score-wise by settling for pennies on the dollar or filing for chapter 13?

[AngelinaCat]

Please read the fine print of any settlement agreements you might be interested in working with. Do NOT sign anything until you read this fine 'mice-type' print.

Consumer Advocate, Clark Howard, regularly talks about 'Debt Settlement' companies being fraudulent, and I have read elsewhere of situations where the debt companies suck you in and bleed you dry, leaving you thinking that you are resolving all your debt, when that actually is not true.

Please do further research before you sign up for this.

Good luck to you!

[jwmc1]

I never said anything about a debt settlement company, I said I was settling the debt. I know debt settlement companies pobably get a worse shake than people can get on their own.

[MSbklawyer]

I have decided to settle all of my debts (at least that is the plan). I am settling mine first as they go to collection and law firms and then I will move to my wife's accounts. Has anyone had the experience with this? I wanted to know which way damages your credit more over a year or so. Will I be better off credit score-wise by settling for pennies on the dollar or filing for chapter 13?

I used to be a big fan of trying to get people's debts settled as an alternative to bankruptcy. But I'm beginning to lose faith in it as a viable alternative to bankruptcy. For reasons I don't fully understand, creditors, especially credit card companies, will reject 25% settlement offers even though they know that the only other alternative is the debtor's bankruptcy where they will receive close to zero %. Maybe their losses are insured in bankruptcy or something, I don't know.

About the only time it is really feasible anymore is if the debtor has only one or two large debts owed to more or less local creditors.

[HHM]

Debt settlement is a Colossal waste of money.

The only time you do it, and I mean the only time, is if you have "significant" non-exempt assets that cannot be protected in BK and therefore filing BK would end up costing you more than settling. For 99% of the people that get sucked into debt settlement, that is not the case.

Oh yea, guess what, settling debts is JUST AS BAD on your credit report, if not worse, than BK.

And of course, do you even have the cash on hand to settle. Debt settlement is about paying lump sum cash, if you think you are going to get a reduction in the amount owed and a payment plan, then you are just being unrealistic.

[helpmeout]

Debt settlement is a Colossal waste of money.

The only time you do it, and I mean the only time, is if you have "significant" non-exempt assets that cannot be protected in BK and therefore filing BK would end up costing you more than settling. For 99% of the people that get sucked into debt settlement, that is not the case.

Oh yea, guess what, settling debts is JUST AS BAD on your credit report, if not worse, than BK.

And of course, do you even have the cash on hand to settle. Debt settlement is about paying lump sum cash, if you think you are going to get a reduction in the amount owed and a payment plan, then you are just being unrealistic.

And lets not forget the tax consequences. Do you have the money to pay the income tax on the forgiven debt? Because income taxes typically aren't dischargeable in bankruptcy where the debt is. And if the debt is discharged in bankruptcy, there is no income tax consideration.

[frogger]

I like the advertisement theme that the bk attorneys are using in my area........

"We are a debt relief company."

If I owed very much money, there is no way I would consider what you're doing. I'm not saying that it's impossible, but it's pretty much impossible.

[jwmc1]

Well, I would end up paying back about 70% in a 13 so, the 30 to 50% I am settling for is better for me...I will likely be insolvent for the next three years or so. Hopefully I will be able to avoid those taxes. I guess my big question was, which one looks worse on your credit 3 or 4 years down the road?

[HHM]

They are basically the same, credit report wise.

Incidentally, how do you know you will pay 70% back...no offense, most people who say that (without having a full case analysis done by an attorney) are woefully overestimating their chapter 13 payback.

[MSbklawyer]

I like the advertisement theme that the bk attorneys are using in my area........

"We are a debt relief company."

That's a disclosure required by BAPCA in attorney advertising.

[frogger]

That's a disclosure required by BAPCA in attorney advertising.

And I still love it. I know for sure that my attorney is a debt relief company.

[ryan]

This past summer I was thinking debt settlement..Then my eyes were opened by what I was seeing on other forums and a few debtors that I knew.

Typically, they were starting out trying to settle $50,000+ of CC debts owed to 5 or 6 or 8 different ones all different amounts etc. They had success with one or two, and paid out $8000 or $10,000 , BUT then they were out of money. And guess what?...they got sued by CC #3 or #4 or #5 and had to file BK anyway! ...so all that money was wasted.

It now seems to me like a giant crapshoot. Yes, you might get lucky and everybody patiently waits inline to settle with you. But, I'm thinking its less and less likely today.

[nickifan]

Well, I would end up paying back about 70% in a 13 so, the 30 to 50% I am settling for is better for me...I will likely be insolvent for the next three years or so. Hopefully I will be able to avoid those taxes. I guess my big question was, which one looks worse on your credit 3 or 4 years down the road?

Maybe I'm just dense this morning...but if you "likely will be insolvent for the next three years" how do you plan to make -- and keep making -- these settlement payments? You said you're going to go from one to the next then start on your wife's...so you ARE going to be, essentially, in a long-term payment plan. I'm guessing you must still be employed so you have some money coming in...but this all seems like even more pressure than you're under right now. And what makes you think you will avoid the taxes?

Maybe the better question here is, why are you trying so hard to avoid filing BK? I'm just asking, not judging. I'm really puzzled by your plan.

[treehugger1]

In terms of the IRS, you want to take a look at IRS Publication Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). The worksheet is a great resource. This will at least give you some clues as to insolvency under IRS rules. You need to provide your own due diligence. I am not a tax accountant or attorney.

[helpmeout]

Well, I would end up paying back about 70% in a 13 so, the 30 to 50% I am settling for is better for me...I will likely be insolvent for the next three years or so. Hopefully I will be able to avoid those taxes. I guess my big question was, which one looks worse on your credit 3 or 4 years down the road?

You are assuming that the creditors will settle for 30-50%.

Second, if I were an IRS agent, the first question I would be asking is where you are getting the money to settle.

Your chances of avoiding taxes IF you can get your creditors to settle are not very good.