Negoiate with Creditors

[howdidithappen]

How is it done and how successful is it? Thanks!

[jal1129]

What creditor and what is it your wanting to negotiate?

[howdidithappen]

Credit Card debt

At least a much lower interest rate- can you negotiate a lower balance??? IS it then a lump sum payment?

[reallynervous]

In our experience...

We tried to work with our creditors to have our interest rate lowered. Chase raised our rates to 29.99% after we were one day late with payment. Dh had been in the hospital in CCU and I totally missed paying it on time because the bills really weren't on my mind.

When I realized I had missed the payment (I made it online on the day it was due but it didn't credit until the next day), I called them and told them the scenario and asked that it not be held against us as we always have paid on time, etc.. The lady I spoke to asked me why I was calling. I told her I didn't want to have our rate raised. She told me they wouldn't raise it but I would owe the late fee. I told her I understood that and thanked her.

When the next statement came, our rates were raised on all 3 Chase accts (2 were buyouts Chase did). When I called, they told me that if I paid on time for the next two months, to call back and they would lower them again. After 2 months, I called back, to be told it needed to be another month. This went on for 6 months, until finally the person I spoke to there said they would never lower the rate as long as I was continuing to pay them the higher rate. She advised I skip two payments and then they would be willing to talk to me about lowering it.

We hated to do it, but truly couldn't make the payments without putting all our living expenses on the credit cards which we did for months going further into debt to be sure we paid the payments in hopes they would lower the rate and we might get back on track. (In the meantime we were also experiencing about $500 a month in additional med expenses for dh).

So, after 2 months of not paying, they were willing to work with us. They put us on a Balance Liquidation program, and were approved for a special rate of 2% due to the medical condition and our hx of good payment. (It took quite a battle to get the 2%, they originally offered 6%).

Anyway, by the time that was negotiated, our other cards raised our rates because we hadn't paid Chase timely. So, then we tried to work out plans with them. All the while, adding more living expenses to our cards, hoping to get those rates reduced. In then end, once we got reduced interest plans set up with all our accounts, we still couldn't make it without using any cards and by then we were pretty maxed out as several also lowered our credit lines.

So, we knew that we really did need to look at BK. I wish we hadn't done all of that because we went further into debt and spent months trying to save ourselves, all during an extremely stressful time with dh's health. I had to repeatedly tell our situation over and over again every time I called the credit cards. They also asked so many questions about our special needs' ds's medical condition, etc.. But at least we really did try to pay them.

Of course, after not paying trying to work out the reduced rates, our credit scores took the corresponding hits.

Since we have notified them about the BK, we have gotten a few offers to settle for a percentage of the balance - in the 30-60% range. We don't have any money to do so, and there is also an issue that the amount they write off is considered payment to you and would be subject to taxes at the end of the year.

That is just our experience. Yours may differ as your situation may be different.

Good luck. I hope everything works out well for you.
reallynervous

[SinkingFast]

Different Creditors, different Settlements.

Discover might offer you 30%-40% reduction, if you pay a cash, lump sum payment.

BoA might offer you to pay 25% of what you owe, in payments, over 18 months.

Depends on the Creditor. How much you owe. How long you've not been paying. Lots of factors.

Negotiating is doable if you have 1, 2, maybe even 3 Creditors. If you have many, it's probably not gonna help.

AND, the forgiven debt becomes taxable income to you. The Creditor will issue you a 1099C for tax purposes.

[HenriettaHen]

This echoes my experience almost exactly. I felt like I was being squeezed in a vise.

It started slowly with a few late payments and galloping fees and interest rates on those accounts. In the beginning when I was first starting to slip, they said that they couldn't work with me until I was more delinquent. This started the spiral of interest rates (credit card companies talk to each other), and lowering of limits that you described. Within two months the interest and fees had accumulated to take me over the reduced limit, which added yet another layer of fees across the board. 33%, plus late fees and overlimit fees. It only took three months for my debt to increase astronomically - and that almost a year after I had cut up the cards!

It was my experience that credit card companies will not work with you when you first realize you need it. I think they're following the "kill 'em quick" philosophy of actually driving you into bankruptcy so that they can have the write-off.

All part of the "system".

Settlement offers? Right! You'll owe income tax for whatever total amount you are "forgiven" - credit card companies are widdle fuzzy kittens next to the IRS.

It's QUITE the racket, isn't it?

[howdidithappen]

The interest rates they are allowed to charge is outrageous. Make one late payment and you'll never get caught up. We have our elected officials to thank for this!

[HHM]

Before you decide to negotiate with creditors, the first question you need to ask yourself, is whether doing so will really "solve" the financial problems you are having...I can say with near certainty, that for 95% of individuals facing financial problems, debt negotiation is a waste of time because even if the individual could get their creditors to give-in on something, it won't help.

A couple points about debt negotiation...

1. Generally, before a credit card will even entertain any type of reduction in balance, you have to be delinquent in payments.
2. There can be income tax consequences for the forgiven debt if you are successful in your debt negotiation. (However, if you meet the IRS standard of being insolvent, you won't pay income tax on the forgiven debt).
3. It is helpful to have some easily documented explanation for your financial troubles, (i.e. Medical, disability, job loss).
4. Debt negotiation is "usually" about making lump sum payments (unless you have a documented explanation for your financial problems.

Generally speaking, debt negotiation is NOT an "alternative" to BK. My advice is generally that debt settlement is for people who are unable to file BK (i.e. too many non-exempt assets, high income, or are barred from filing BK due to timing).

[howdidithappen]

Just saw a lawyer

who told me that due to the equity in my home, most likely I would have to payb my bills in full but probably could get a reduction in the amount due in the summons I received from Chase... Told me to try to refinance - scares me a bit with all the foreclosures you hear about lately.
I'm still confused. So in order to file a Chapter 13, you pretty much have to have no assets as well???? I thought that you could get the amount of debt reduced if you filed a Chapter 13?

[JollyGG]

who told me that due to the equity in my home, most likely I would have to payb my bills in full but probably could get a reduction in the amount due in the summons I received from Chase... Told me to try to refinance - scares me a bit with all the foreclosures you hear about lately.
I'm still confused. So in order to file a Chapter 13, you pretty much have to have no assets as well???? I thought that you could get the amount of debt reduced if you filed a Chapter 13?

The lawyer may be right if you have more non exempt equity in your home than you owe in debt. However, be sure to meet with a few more lawyers as well. That will give you a clearer view of your siuation and your options. I would also suggest signing up for an approved pre-bankruptcy credit counseling session. If it is a good program you will learn some of the basics of your situation and they will look at some other options with you as well. The certificate you get in the class is good for six months.

[SinkingFast]

NJ has no Homestead Exemption.

BUT, NJ filers can choose to use Federal Exemptions.

Effective April 1, 2007,...............

The federal homestead exemption will increase from $18,450 to $20,200.

http://www.nolo.com/support/detail.c...BEC13DDA914F1A

The Homestead Exemption applies to the equity in your home.

Fair Market Value less reasonable Costs to Sell, less your mortgage/what you owe, is your equity you have to cover with an Exemption.

[howdidithappen]

Can you explain

non exempt equity? I'm sorry if I'm a pest but I'm extremely nervous over this. Thanks

[howdidithappen]

so if my equity is over $20,200 after selling costs - what does that mean??

[SinkingFast]

You have to pay into a Ch 13 Plan as much as the Court would get if the Trustee seized and sold your house for the benefit of your Creditors.

Let's say, your house is sold. After reasonable costs to sell, you have $100K in Home Equity.

Using Federal Exemptions, you can protect $20K (nice round number to work with).

The Trustee pays you your $20K Homestead Exemption, and the Trustee splits the remaining $80K amongst your Creditors.

Based on what that attny told you,........... That you'd have to pay back at 100% in a Ch 13 Plan,.......... You must have as much, or more, equity in your house than you owe in debt.

As a side note,........... This is just my humble opinion from having done it myself,.......... Your gut instinct to not refi your house is right on. NEVER convert equity in a Secured Asset to pay Unsecured debts.

Sell the house outright to pay your debts if you need to. Take the excess profits and start over. But do not leverage your equity in your house to pay your Unsecured Creditors.

[treehugger1]

Here is some additional information to HHH's reply above.

Creditors are a funny cast of characters. I owed 9500 to citi and they agreed to a 24 month $100/month payment for 24 months (0% interest, no late fees, etc). I owe 5300 to BOFA and they agreed to a five year plan at 1.75% interest. I owe 3200 to MBNA and they agreed to a five year plan at 2% interest. It is important to understand that I have had these CC's for 15 years and always paid on time. I had to get 90+ days overdue in order for them to offer me a plan. DO NOT go for a debt reduction settlement unless you can afford to pay the taxes on the forgiven portion of debt (In my opinion you are better off letting them send you to collections where you can negotiate with third party collectors with no tax consequences). You really have to analyze your entire debt. My unsecured debt comes to $70K in unsecured + $75k student loan (put kids through college and myself). There is no way ot know if and when an original creditor might give you a reduced payment plan. Local creditors who you owe a couple of grand to are not likely to negotiate as they can file a small claim and proceed with other avenues of collecting.

The home exemption thing is "dumb" in my opinion. Where I live there are approimately 190 homes available through bankruptcy. I think the trustee used some formula based on recent market conditions to set asking prices for the homes gobbled up in a BK. With the currnet home market setting in my county (790+ properties listed), I don't see how the trustee will ever get back as much of the equity disclosed by the recent (before crash) market value. This sucks! It seems to me that some folks lost their homes in BK based on some locally inflated value that is not currently holding. However, if the trustee's analysis is based on a very conservative sale price and your equity greatly surpasses the exemption, you can be led down the path to a 13.

My take is that one can be below the state wage median but they have equity that might put them in a 13. On the other hand, one can be above the median, but their expenses leave nothing for unsecureds, and for all practical purposes they are essentially filing a BK 7, but on paper it is a 13 to protect assets. It seems to me that there is one more level between a 7 and 13 that is not well-adressed by BK laws.

My advice is the same as always: Keep current on your payments to secured creditors on those items you "hope" to retain. Let the unsecrued creditors have nothing and see if they can agree to new terms. There are no guarantees, but at least you tried to protect secured creditors.

The rules are not quite clear when it comes to BK. Once you sign the papers and submit them, the outcome is in the hands of a judge or trustee. you need a solid legal counsel who has a good understanding of how the local trustee/judge is likely to rule in your case. Good luck. Try to negotiate with unsecureds as they have more to lose then you do.