What % settlement?

[jb4lcm]

Once a debt has been charged off and sold to a collection company, what percentage settlement is reality? I understand the collection companies buy the debt for around 10% of the original amount - correct? - so what amount is a "good" amount/% to try to settle for?

JB

[salsa]

Hope you have better luck. I have found the JDB's are worse to negotiate with than the original creditors. Offered 30% and no go, which is why we will be filing a chapter 13.

[jb4lcm]

You offered 30% of the original amount? Did they do an asset search on you and found you have more to lose than 30%?

[salsa]

My mistake. I offered about 22% of the new amount, which was over 60% of the original amount... Don't know if they did an asset search, but if they did we have nothing. We are both working, so garnishment was a possiblity although they haven't been aggressive about that.

[HHM]

Stories about % settlement vary widely, but if you average it all out, a comprehensive settlement with all creditors is between 35-45%. Some will settle for 20-25, but others won't, so when you think about budgeting for settlement, you should budget 40%, and yes, that is 40% of the balance due, not the original balance. when you stopped making payments.

Settlement is the WORST option for solving debt, you should only settle if BK is not truly available.

[jb4lcm]

"Settlement is the WORST option for solving debt, you should only settle if BK is not truly available."

WHY is it the worst option? If granny will lend us enough to settle and stave off BK, why is that worse than BK?

[HHM]

For starters, it is more damaging on your credit report to settle. You have to default on payments, and once settled, then the account gets reported as settled. Multiply that affect by the number of creditors, and that equals credit score destruction, way worse than any bankruptcy and those negatives are on your credit report for 7 years.

Second, what a waste of that money. If you can bankrupt your debt, why pay anything or if you can pay less in a chapter 13, do so and SAVE the money. Paying $30K to settle debt, or investing $30K (or allowing grand ma to keep) is a much SMARTER choice.

The reality is, most people who go down the settlement road end up in BK anyway, because not all creditors play ball.

[jb4lcm]

please excuse my ignorance - I'm new here.

If the debt has already been charged off, why does a settlement look worse? It seems to me that settling a debt looks better than BK to a creditor because I paid something.

if I can settle an 85K debt (unsecured charge-off amt from 2 c/cs) for $12k - that seems to be pretty cheap and seems better than BK. What am I missing?

[catleg]

You are missing tax liability on 73k for starters.

[lotsahats]

Settlement is the WORST option for solving debt, you should only settle if BK is not truly available.

Why do you say that? I've heard some say the opposite. I'm still trying to decide which way to go, myself.

*****Never mind. I should have finished the thread before asking. I can't delete this post, so disregard my above question.

[catleg]

1. you have federal and maybe state income tax liability on forgiven debt; this is not dischargeable. it is supposed to be based on the original principal amount but try arguing this with the IRS when some JDB 1099's you and you are in IRS 1099 hell.
2. you can still get sued for the same debt when due to "computer error" they sell it to another JDB down the road; even if your settlement agreement holds up it is still a major expense and hassle
3. your credit score makes a faster recovery out of bankruptcy, especially if you file fast before too much bad history builds up, and especially if you can avoid judgments
4. you can get scammed by debt consolidation or settlement services and never actually pay off anything.

[frogger]

Settlement is the WORST option for solving debt, you should only settle if BK is not truly available.

This is the advice that you should heed.

BK is a much better option than debt settlement.

[HHM]

please excuse my ignorance - I'm new here.

If the debt has already been charged off, why does a settlement look worse? It seems to me that settling a debt looks better than BK to a creditor because I paid something.

if I can settle an 85K debt (unsecured charge-off amt from 2 c/cs) for $12k - that seems to be pretty cheap and seems better than BK. What am I missing?

For starters, the settlement UPDATES the account, so puts a NEW negative.

You assume creditors look at this from a rational standpoint, they don't. It is a pure scoring model issue, the fact that you paid more money to resolve your debt is not a factor, the factors are that you defaulted on the payments and did not pay as agreed. Anything short of that, is negative, even consumer credit counseling is a negative.

Not even that, let's say it was "slightly" better, your credit recovers after bankruptcy in 2-3 years anyway, so why WASTE the money? DS will take just as long to recover. So, it is not worth paying $12K to settle (assuming you can even get that settlement), then there is the tax issue, and then there is the headache of the resale of the deficiency as still a live debt (yes, that happens more than you think, you settle, and the debt buyer turns around and sells the deficiency to someone else to collect). Just pay $2K and wipe out the debt.

[frogger]

then there is the headache of the resale of the deficiency as still a live debt (yes, that happens more than you think, you settle, and the debt buyer turns around and sells the deficiency to someone else to collect). Just pay $2K and wipe out the debt.

Debt settlement is the gift that just keeps on giving........

[keepmine]

"Settlement is the WORST option for solving debt, you should only settle if BK is not truly available."

WHY is it the worst option? If granny will lend us enough to settle and stave off BK, why is that worse than BK?

In addition to the other reponses, I'd just add don't involve others in your financial problems.
BK the debt then, post bk if you need help ask granny for some assistance.