Negotiating with CC Companies

[goingout]

[HHM]

How much money do you have to pay a "lump sum" to settle? If you are current on your CC's, it will be really difficult to get any settlement less than 50% (i.e in your case $25K), and I'd be surprised if they would accept any sort of settlement. Most CC's won't even entertain a settlement offer until you default on your payments.

Do a search of this forum, there are many threads that discuss the ins and outs of debt settlement.

[CATCHMEIFYOUCAN]

I would be weary of the cost involved having someone settle your debt for you or another company. Without filing Bk, you are subject to wage garnishments, lawsuits etc. Do you homework, and find a company that is backed by the US Bankruptcy courts, you should pay no more than $50! If anymore than that you are getting ripped off. Trust me, I went to a debt settlement company (unapproved by the courts) before I considered BK, and was about to get ripped off big time. I stood to lose $3500 upfront to this company and no protection from the "automatic stay," that BK offers you.

Best of Luck, CMIYC

[HHM]

I would be weary of the cost involved having someone settle your debt for you or another company. Without filing Bk, you are subject to wage garnishments, lawsuits etc. Do you homework, and find a company that is backed by the US Bankruptcy courts, you should pay no more than $50! If anymore than that you are getting ripped off. Trust me, I went to a debt settlement company (unapproved by the courts) before I considered BK, and was about to get ripped off big time. I stood to lose $3500 upfront to this company and no protection from the "automatic stay," that BK offers you.

Best of Luck, CMIYC

I need to correct some of that, debt settlement is different than credit counseling (it is credit counseling firms that can have court approval, but there is a MAJOR caveat here...the CCC firms approved by the court are ONLY approved for their pre-BK counseling course, the court DOES NOT otherwise certify that the actual programs offered by these CCC firms are better or more legitimate than anyone else's). As such, debt settlement does cost significantly more than credit counseling. There is NO debt settlement company or attorney that charges $50 for debt settlement. In reality, debt settlement is actually a lot of work for someone to do, because unlike credit counseling firms that are supposed to be non-profit and have pre-arranged deals with creditors, debt settlement companies and attorney's do not.

Also too, you should discuss with your accountant the tax implications of debt settlement, unless you satisfy the IRS standards for being insolvent, you will get a 1099 on the amount of forgiven debt and pay income tax on that amount.

[goingout]

It seems to me, the way these companies work is if you pay on time month after month they keep sending you new deals, lower rates if you transfer to thier card. If you get to a point where you can't pay then they might be willing to settle for less money because it's better than nothing.

So, I'm thinking we should concentrate on making minimum payments for a while, see if we can eventually get better rates, then when the money runs out if we haven't figured something out see if they'll settle after we've not payed them for a few months.

[HHM]

It seems to me, the way these companies work is if you pay on time month after month they keep sending you new deals, lower rates if you transfer to thier card. If you get to a point where you can't pay then they might be willing to settle for less money because it's better than nothing.

So, I'm thinking we should concentrate on making minimum payments for a while, see if we can eventually get better rates, then when the money runs out if we haven't figured something out see if they'll settle after we've not payed them for a few months.

I have to laugh a little bit, no offense, so many people think that, but it simply DOES NOT WORK THAT WAY. Take for example, Chase Manhattan (JP Morgan - Chase), for the quarter ending March 07, it did over $29 Billion in revenue with a Net Profit of over $4 Billion (that is just for 3 months). Do you really think your measly few thousand dollars makes a difference. Most of the time, large creditors (especially credit cards) are better off taking the tax deduction for the loss and selling the debt to a secondary debt buyer than settling with you, that is just cold, hard, accounting reality.

For the most part, "original creditors" do not settle (some might, but it is the exception to the rule). Settlement is far more common with collection agencies and debt buyers.

You haven't really given us any background on your situation, so we can't really offer any advice. In general, if you have $50,000 in unsecured debt, you would need $25,000 to $35,000 of liquid cash assets to settle those accounts; if you are thinking you can settle $50,000, with original creditors, for something like $5,000, that is just wishful thinking. If you have $25K in cash assets, that begs the question of why you would need to settle?

[goingout]

Yeah, that was a late night post and not well thought out.

So, I guess you don't think the accountant is likely to be successful. He says he's done it before.

[lrprn]

So, I guess you don't think the accountant is likely to be successful. He says he's done it before.

I'd be asking for some specific cases where he's done it and when he did it along with references you can call personally.

As HHM already said, the chances of every single one of your creditors agreeing to a lesser amount owed and/or a reduction in APR is near zero. And even if this guy does manage to get some to agree, you will still have to deal with the tax hit for the "forgiven" amounts owed - that can be considerable. Ask this accountant about that too.

Frankly, most people in serious debt don't have success doing debt management through negotiation. The majority eventually end up filing bankruptcy anyway.

[goingout]

I already dicussed the tax issue with him. We won't owe. Our debt is from closure of our small business. We have already loaned the business 190K this year. That is greater than our incomes alone, so that loss combined with the loss the business will have...we won't owe.

[treehugger1]

I've posted my experiences with "settlement" elsewhere on this site, but I'll summarize some of it for those with an interest. Once I knew I was in deep financial trouble (almost 12 months to the date), I spoke with a BK attorney. I did a great deal of research into BK 13. I am a high-wage earner with no assets (I own two cars that I'm upside-down on both). I have $75 K in student loan debt and another $60k+ in unsecured. There was a time when I would have been in a 100% payback plan had I filed. My income decreased. I then learned about the issues cropping up with student loans going into deferment with the interest still building.

Here is what I did:

I called citi, BOFA, MBNA, and Crapitalone to see what they could do. Their first response was nothing. After 60 - 90 days, CITI and BOFA (included their recent acquisition of my MBNA card, LOL) and got the following agreements:

CITI - 12 months 0% interest and $100 per month payment. This has now been extended until MAY 2008. (I owe them $9000).

BOFA - 5 year payoff plan at about 1.8% interest. Monthly payment of $100 for five years (balance was $5500, now 4900).

MBNA - 5 year payoff plan at about 1.9% interest. Monthly payment of $60 (balance was $3400, now 2900)

Credit union cc - Closed account and negotiated 9.9% fixed rate on $8000 of debt. I'm paying about $230 per month. (currently down to 7200)

Capitalone - Claimed they have no programs, so I continue to pay them just enough to keep out of internal collections. However, I have heard from others and read on other forums that Capitalone might work with folks. Since beginning next month, I can no longer afford my ridiculous CAPONE payments, I'll let them default. (Total balance will be close to $10500 in 90 days after they add fees and accrued interest).

CitiFinancial high-risk unsecured loan (owe $7500). They claim to not have a program. I'll find out, because I intend to default on payments with them.

I have another approximately $1000 in other cc and unsecured debt I'm chipping away at. All of these are amounts under $1500 loans and cc's. I have to be careful and work with these folks as they can easily get a judgment through small claims.

Why do I think citi, BOFA, and a few others are working with me? All of these cards are at least a decade old. I'm a "solid" customer (LOL). I do have income. As HHH mentioned, none of these companies would even speak to me until they could clearly see I wasn't going to pay them another dime. I was always very honest with everyone. I gave them phone number and even gave them my work number. I called them every 15 days to see what kind of program they had to help me out. I even played out the chapter 13 payments they might expect to receive (at this time, 70 cents on the dollar). Once you get them to understand that BK 13 is less than 100% payback in 5 years, but your plan is 100% payback in five years, they might work with you. While it is true that these are billion dollar companies, your money is just as good as everyone else.

I'm not sure about Capitalone. Since I can no longer afford their payments, I intend to wait them out and see what programs they might truly have. I also have a car financed through them, but there is no financial tie to the cc's. Again, they always get their money for the car so they are happy.

Keep in mind that when the big bank/cc companies lobbied to get congress to adopt changes in the BK law, they stated in front of Congress and the American public, that they are willing to work with folks to keep them out of BK. I can't remember where to find the official statement and dialogue but it is around. i mentioned this many times to the big company callers.

See if you can find the vice-president of the company who oversees the cc and/or internal collections. Send him/her a letter explaining your situation. You would be surprised what might happen.

In all cases, if you are trying to negotiate with original creditors, you need to make it easy for them to contact you. Be cordial, etc.

In terms of outside collection agencies, they are all wild cards. Always request verification and validation of debt from a collection agency. Send them a cease and desist letter in terms of calling you, but leave the door open for written correspondence.

My best estimate is that I may see $20K in judgments backed up by November 1. I assume I will see garnishment by Dec at the latest. If I can survive on 75% o fmy take-home pay and still meet my agreements with others, then I'll be debt-free in four years. If I can't survive and also meet the other agreements, then the BK door is still wide open. Should I declare BK, every attorney I've spoken with has said the judgment amounts will be treated like unsecured debt (at least in my state). They all stated the judgments could be vacated. There are many misconceptions about judgments in BK. I've heard a few folks say that judgments are treated as secured debt. Well, if you have no assets for anything to "lien" against, then there is no security. I'm guessing states and BK districts all have their own rules.

I really wonder if your "accountant" can truly help you out. In terms of "settlement (reduced total debt)," I'm not sure this will happen. You might try negotiating reduced payments.

In the end, your credit is going in the garbage. It is probably easier to clean up a credit report after a BK, then to clean up after your own negotiations. I already see that BOFA, citi, and the credit union are reporting 30 days late every month but also show a payment agreement. I have one collection showing (almost paid off), and I have one judgment (satisfied next month). So, I'm staying ahead. Will I win? I still think the odds are against me, but then again, BK 13 is the final weapon at my disposal. I think my creditors do know this.

I am really rambling on here, but some more thoughts:

Work with local creditors! Especially if the debt is under the small claims cap. They can have a judgment signed, sealed and delivered in less than 20 days.

Large amounts such as $5000 and more require a court action in most states. If you are summoned to appear for such a debt, at least show up for court. If you know you owe the debt, don't fight "too hard," as you will probably lose and incur more of the plaintiff's attorney fees. If you show up, you might at least have the opportunity to ask for some mediation and maybe get the other party to agree to a 3 - 5 year payback plan.

And, finally, if you are looking for a way to NOT pay your debt and you have solid wages (BK 13 person), forget about it. You WILL pay something eventually. The question is, "how to pay, BK 13 or negotiation."

I apologize to the moderators for recasting what I have said in other posts, but maybe my postings on occasion will allow others to take charge and make the financial decision that seems right to them (at the time).

Cheers. TH

[treehugger1]

Can't help myself, I need to add one more piece. I would be careful if you have new debt (less than two years old.) The reason for this is that you might have some witty attorney attempt to sue you for "fraud." You are protected from this in BK, however, who knows what a nasty attorney for a creditor might try. You are probably okay if you can show up in court and show you have made every reasonable effort to negotiate with the creditor/collector or pay something. If you have documentation that other creditors are working with you, take that to court with you. I know "the law is the law," however, district court judges are humans and citizen-neighbors just like us, most of them elected officials. If you go the non-BK route be prepared to show that you are making every reasonable effort to work with creditors and/or collectors. Or, of course, you can try the do nothing approach, but with this method I would guess you will definitely eventually seek relief in BK.

Once a collection agency has verified/validated a debt, send them an offer in writing. You might even try to explain that a BK 13 is one of your options, and start by offering 60 monthly payments of your debt divided by 60. (They eventually get 100%). Make sure they communicate with you in writing. Chances are they will just file a small claim, or lawsuit, but what the heck, try anyway. Get a record of your "trying." If you go to court, open the judges eyes to the BK reform act. "Your honor, I am trying to stay out of BK. Congress passed the BK act because creditors said they were willing to work with debtors. If I have to declare BK 13, your honor, these folks will see far less than 100% of their principle, and they will still have to wait five years to get it all. Here I am willing to pay 100% over five years. I ask you to take this under consideration." Who knows what might happen. Maybe one can use the "intent" of the BK reform act to help them out.

[treehugger1]

In two posts up, I mentioned another $1000 in unsecured and cc debt. This should be $10000. Cheers.