Debt Settlement vs Chapter 13?

[ld2366eh]

I have a question and was hoping someone out there can give me some advice. Children's Place (Citi) just contacted me and offered a debt settlement for 40% of the balance that is on my card. We hired an attorney a couple of months ago for a BK13 filing that will happen as far into the future as I can push it (hopefully 6 months to a year from now). I was told based on our income level that we will probably need a plan that repays unsecured credit about 10%.

My question, I'd like to try to negotiate this credit card debt for a debt settlement of 10% of the balance - what I will have to pay into the plan anyway. And the balance is going to keep going up due to interest and late fees, so 10% now vs 10% later plus trustee fees, it seems like a no-brainer to me.

WHY would this be a bad idea? If I was able to settle all of my credit card debt over time at 10%, I might not even have to file at all?

My attorney told me NOT to settle. Are they looking out for my best interest or their's?

And if we aren't filing until we absolutely have to (which could be 6 months into the future) would there really be any "preferential" treatment involved?

Help! Any thoughts or advice would be appreciated!

[spidge]

2366,

In some states, like mine, they can still make a claim and come after you for the remaining balance. In fact I started down this path and an account that I settled is actually on my list of claims of my 13, but they get a very small amount. The 13 is actually the easier and less stressful way to go.
It really depends on your situation, willingness, and ability to deal with collection calls and legal notices.

By the way, we did a strategic 13 and took about 2 years from the first fee we paid the attorney to the file date. You don't have to file until you say go.

[HHM]

Because you won't get a settlement of 10%, it is that simple.

Don't make the "ass"umption that the creditor will buy the, take 10% or I will file BK argument, they hear that all the time, it doesn't matter. From their end, they reason that if you could file BK, you would do so (because it is the more logical choice), so they just dismiss those threats.

As for waiting, unless there is some "real" strategic reason to do so (which for chapter 13, there rarely is), do not wait. The sooner you get started, the sooner you rebuild.

Also, what about your other debts? Generally, debt settlement is a waste of money and you need to come up with funds to do so, in a lump sum (or at best a short payment plan, less than 6 months, but that is rare). If you would really be a 10% chapter 13, it doesn't sound like you have the resources to settle in the first place. Depending on how many creditors you have and the amount of total debt you need to settle, despite all the hoopla and vague internet information on settlements, they tend to "average" out to about 40%. Some creditors will accept less, some only accept more. So, for an overall settlement plan, you need to budget about 40% of the outstanding debt. Also, you are waiting for the other shoe to drop, if you get sued, all bets are off at that point.

[keepsmiling]

You also MAY have to pay tax on the forgiven debt.
Getting all of your creditors to agree to 10% is not likely to happen.
Also,that c13 10% is NOT based on future numbers. It's based on how much dmi you will have. So, it could be LESS than 10%. And in the off chance they don't file a timely claim, it could be 0%.

[frogger]

BK is the "ultimate" debt settlement program. None better.

[SMinGA2]

Debt settlement may work for you, it might not. I have a friend who contemplated ch 13 (would have been very high payback) and ultimately settled her accounts for 15-25% of the balance. I'd say only to consider it if you honestly think you can settle all of your debts.

If the accounts are charged off, they may no longer be charging interest & fees. You should be able to find out about that.

When debts are settled, the creditor can report the forgiven amount as income so it could become a tax liability. If you can show you were insolvent (owed more than you owned) at the time the debts were settled, there is a form you can file to have it not counted in your taxable income.

One thing you may not be thinking about though: the percent you pay into the 13 is not set in stone. The payment amount is based on your DMI, and your DMI won't change because you've paid off this creditor. Lets say you are now expecting to pay $500 x 60 and that would result in 10% to unsecured. You settle this debt, and you'll still be paying $500 x 60, except the other creditors will get more.

[catleg]

The last point is spot on, by settling this debt it will not reduce your payments in bankruptcy by one bit, unless you are in a 100% payback plan.
No matter how good it looks, if you know you're filing just pass.
The only consideration would be if your unsecured debts were close to the ch13 debt ceiling (around 240k, maybe higher now).