Settlement or Bankruptcy

[jwmc1]

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.

I have been to 3 attorneys for analysis, 70% is the low end...

[jwmc1]

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.

I am going under the assumption that my situation will begin to improve significantly over the next 3 years as well. Insolvency is a technical term that I believe I would meet, but even if I do not, I think I will be able to come up with the tax payments in a few years and in the meantime I will have paid back my creditors and begun to rebuild my credit. It is a plan that I decided on on after about 6 months of meeting with attorneys and analyzing my situation.

[helpmeout]

I am going under the assumption that my situation will begin to improve significantly over the next 3 years as well. Insolvency is a technical term that I believe I would meet, but even if I do not, I think I will be able to come up with the tax payments in a few years and in the meantime I will have paid back my creditors and begun to rebuild my credit. It is a plan that I decided on on after about 6 months of meeting with attorneys and analyzing my situation.

Just how much do you know about the IRS,taxes, penalties and interest?

Here is why your plan of paying the taxes in a few years won't work:

In 2010, you settle a debt for 30% of what is owed. You get a 1099-c for the difference between what you actually paid and what you owed. When you file your 2010 taxes in 2011, you have to declare that forgiven debt as income. And pay taxes on it, then. If you don't have the money or haven't paid enough in taxes, you will also have to pay a penatly PLUS interest. And just so that it is clear, the interest will continue to accumulate until the taxes are paid off. And that is what you will have to do for each and every single creditor that forgives a debt.

The IRS isn't going to wait a few years to collect the money. They will want it now. And they can garnish your wages. The only garnishment that comes before a tax one is child support. You won't be able to declare bankruptcy on the taxes you owe.

I was very reluctant to file bankruptcy for the same reasons you are, what it would do to my credit score.

As a result of the reluctance, I dug an even bigger hole for myself. And my credit score is already tanked anyway.

But if you want to keep digging your hole even bigger, that is up to you. Just understand that the IRS will not wait a few years for their money. And that most of the creditors probably won't settle for 30-50%. They will probably settle for a higher percentage. They are counting on you not wanting a bankruptcy on your credit score. So they will play hardball. And the ball is in their court, not yours. Until you file for bankruptcy, that is.

[HHM]

To be fair to jwmc1, I think he is planning on spreading out the settlements and trying to wait as long as possible. But, you provide a good analysis of the tax situation. Before you go the settlement route, you must analyze the tax implications.

Also, the big problem with the settlement plan is your hand will probably get forced by a lawsuit. Once it goes to suit, it becomes very difficult to settle (you won't see settlements in the 20-30% range, they tend to be more along the lines of 50-65%.

And, many people do harbor unrealistic expectations about the amount that can be settled. Although it is true that you will get a couple to settle for 25%, you need to PLAN ON an average of about 45%. Also, understand, the collectors (to some degree) do not fear your BK, that simply means a tax write off against profits. From their perspective, if you are truly trying to settle, then the assumption is you have something worth protecting (or higher income), so why would they settle for a mere fraction.

[Martha31]

I am settling accounts at 30% right now. If the remaining accounts go to colections which they will after charge off. My offer drops to 20%. I am collection proof so if they sue they will get a piece of paper that is a wortless judgement. Then the best offer will be 10%. Remember these offers are base on what I owed when I quit paying and does not include interest and fees since then. Already, have two on FDCPA/Florida consumer law violations, which I will initiate suits when they begin thier law suits.
Being insolvent eliminates tax consequense on debt forgiveness. I think it can and will be done. I would rather pick up some bucks from violations than just file BK. Right wrong or indifferent. BTW this forum is wonderful.

[flyinbroke]

Why when you can file BK AND get judgments for violations. Best of both worlds, as far as I am concerned.

[HHM]

I am settling accounts at 30% right now. If the remaining accounts go to colections which they will after charge off. My offer drops to 20%. I am collection proof so if they sue they will get a piece of paper that is a wortless judgement. Then the best offer will be 10%. Remember these offers are base on what I owed when I quit paying and does not include interest and fees since then. Already, have two on FDCPA/Florida consumer law violations, which I will initiate suits when they begin thier law suits.
Being insolvent eliminates tax consequense on debt forgiveness. I think it can and will be done. I would rather pick up some bucks from violations than just file BK. Right wrong or indifferent. BTW this forum is wonderful.

Seems like a waste of money. Think of what you could be doing with the money you paying to settle?

Even in BK, you preserve your FDCPA claims (the trustees don't care about them).

What do you think you are really gaining? All I see is someone throwing money away.

[Martha31]

Settlement

HHm you are probably correct but if I was to declare BK, I would throw everything in such as house and credit union which involves my spouse. I want to keep the spouse's credit clean. I hope I am doing the right thing. Plus as many have mentioned some of the credit card companies may not settle so I will pay zero monies and they can have thier judgement, if they win in the court room.
Thanks for your insight.

[OhioFiler]

HHm you are probably correct but if I was to declare BK, I would throw everything in such as house and credit union which involves my spouse. I want to keep the spouse's credit clean. I hope I am doing the right thing. Plus as many have mentioned some of the credit card companies may not settle so I will pay zero monies and they can have thier judgement, if they win in the court room.
Thanks for your insight.

If you are judgment proof and expect to stay that way why bother settling any of the debt?

[Martha31]

Because in my mind if the debt is settled, I have fulfilled my responsibility. Yeah a little of the morality aspect.

[HHM]

What about your moral obligations to your family (to take care of them), what about your moral obligations to take care of yourself (long term) so you don't become a burden on society.

I really don't see any benefit to wasting thousands of dollars on settlement unless you absolutely have too (meaning a BK would cost more money than settlement).

[Martha31]

Family and personal obligations are being taken care of. Why spend money for BK?

[flyinbroke]

Family and personal obligations are being taken care of. Why spend money for BK?

Protection would be the biggest factor. As the atty pointed out at my first consult, interest and fees come to a stop (they do not in a settlement), phone calls come to a stop, and you don't have the tax liability you would in a settlement case. Plus, they may claim to settle and then turn around and sell the difference to JDBs.

Do you really trust them not to do all the crap they promise in a settlement? Remember, they have to have one way "contracts" that can be changed at (their) will to conduct business. Do you trust them not to screw you?

[Martha31]

The fees and interest stopped when I quit paying the CCs. All 30%settlements are based on that amount or no deal. If and when they go to collections the percentage drops to 20% if they are cooperative. Otherwise they get zero.

[flyinbroke]

The fees and interest stopped when I quit paying the CCs. All 30%settlements are based on that amount or no deal. If and when they go to collections the percentage drops to 20% if they are cooperative. Otherwise they get zero.

According to my bills none of it stopped. Now I think I know where you are coming from...they will use the balance where you last paid or get the big **** you. Good luck there, though. Those that are settling are settling on the last amount they have which is hundreds higher based on post late fees, interest hikes, etc.