Decision time - Debt settlement or BK

[onthebrink]

MODERATORS - MEANT TO POST THIS IN "GENERAL BANKRUPTCY" - PLEASE DELETE POSTING FROM THIS SECTION. THANK YOU.

The s*** is starting to hit the fan. A couple of the CC companies called my wife's boss yesterday and the missus is starting to freak out, understandably so.

We stopped making our mortgage and CC payments between 2 and 3 months ago. I have been unemployed for 6 months but have started a consulting project, which pays well and might put us in a position to have enough cash to settle with CC companies in 2 to 3 months.

Here is the dilemma. According to a BK attorney we qualify for Ch 7 based on the means test if we file in April. The "problem" is that I have finally found some work. It is a 2 1/2 month consulting project that will pay about $60K and there is also the possibility that it might get extended, which could mean another $20K. It could also lead to to other projects either with that company or with others. We currently have about $50K in checking/cash/stock. This means we would have over $100K in about 3 months, which could give us enough to settle plus have money to cover our living expenses for a few more months.

We owe $120K in CC debt. $40K of which is in my wife's name. Our home is underwater by about $200K, this includes a $120K HELOC. We also owe $7K in property taxes.

We have looked into a loan modification but I am not optimistic that we will be able to get a principle reduction, so I am turning my attention to getting rid of the CC debt first and then will focus on our home situation.

We have found a BK attorney that also does debt settlement. The cost of using them for debt settlement versus filing BK is about the same. I have considered doing the debt settlement on my own but don't have the stomach for it, although I may divvy up the task with the attorney to minimize costs.

My hesitation in filing BK is based on the following concerns:

1. As soon as the TT finds out we have $60K in income over the next few months plus $50K in cash-equivalent, he will either push us into a Ch 13 or demand that these funds go to the creditors. BTW, in CA, you can exempt $22K.

2. I will not sign up for a Ch 13. I am 52 years old and am not going to subject myself to having to answer to a TT for 5 years. If I continue to get consulting work, there is too strong of a possibility that we get placed in a 100% plan, which is worse financially than debt settlement.

3. I am trying to start a business that might potentially require outside investment and I am afraid that having a BK will increase likelihood that potential investor would back off.

4. For this consulting engagement the client did a credit check. I am afraid that most large companies will require credit checks even for contractors. It's competitive enough as it is.

I have checked with CPA and we would be insolvent at the time of debt settlement so would not have to pay taxes on forgiven debt.

I am leaning heavily to hiring the attorney today to start the debt settlement process, initially focused on settling my wife's debt. Since she has a FT job and I don't, she could get her wages garnished. Also, want to relieve her of the pressure at work.

Would really appreciate people's opinion, especially if you have considered or done debt settlement. I am also considering getting another attorney's opinion. I like the attorney we found but only spoke with one other and have found a couple of others that also do BK and DS.

If I didn't have the consulting project and prospect of others, then the answer would be very simple - file Ch 7. If I can hire an attorney to handle the DS, I can focus my energies on trying to make a living and start a business to climb out of this mess.

[keptdigging]

I have no expertise whatsoever except having researched and run the same hypotheticals in my mind over the last couple of months. The rule of thumb seems to be that you can settle for about 50% (by bargaining hard for less because you'll have to pay a few more.) The thing that can make it work for you is that you have liquid assets to use for settlement.

I'm about your age (though in massive denial) and yes 5 years of a 13 is 5 of your most prime years. (OTOH my debts are about twice yours... remember an advantage of a 13 is that interest stops so a 100% plan would be around 2K/month... also if your HELOC is 100% unsecured you can strip it.)

There are some interesting threads here from people who have settled their debts though, interestingly enough, I haven't read one who had an attorney work it for them. It appears that you really have to play hardball and be willing to go to the brink to convince them this is their only hope of limiting their losses. One woman opened up a separate bank account, would put $5K in it, and tell creditors that was absolutely all she had. Someone would eventually take her offer and then she'd repeat the process.

In your shoes I would pile up the cash and be very stingy about parting with it to settle. But settlement would be my plan.

But I don't have a good feeling about your prospects for a Ch 7 with that kind of consulting income coming in. And you'd lose a chunk of your 50K anyway.

One thing though: unless you're very good about getting creditors to not report you, settlement will also show up on your credit report.

But like I say all I have to go by is having read a lot on this forum and run the same hypotheticals in my mind.

Good luck.

[treehugger1]

50 - 60+ years old! There are many of us! Your dilemma is very close to other's. For me (mid-50's,) the last thing I needed was a TT to shut down my ability to pay 5% - 15% of my gross wages into optional tax-deferred retirement plans. This decade in my 50's will be the highest wages I've ever received. You can read some of my posts related to my approach to my own bankruptcy. I continue to go about this process very informally. Eventually, I will probably need to file BK, but in the meantime I do need to build a nest egg of exempt funds. I'm a single high-wage earner with grown children. I can live comfortably on 75% net salary after wage garnishment. Since I have no other non-exempt assets, I can be pretty calm about collections, suits, etc. I have to admit it took a couple of years for me to understand and accept that there was very little anyone could do to me if I had to stop paying my unsecured debt.

I finally spoke to an accountant to help me see what my options were, and what might be the best option for hte next 5 - 10 years.

By the way, I did try the settlement method. I had some good luck, but in the end I would get behind a payment, or some other creditor would sue me and garnish wages rather than agree to settle. Once this happened, I simply stopped paying all unsecured. Now, they all have a level playing field. It's known as my local circuit court.

There are probably tens of thousands of boomers who are in the middle of a financial crisis. Only a few seem to be filing BK. The others must be attempting something outside of formal bankruptcy filing.

Keep us informed as to how things play out for you.