BOA settlement - how low will they go?

[pushed]

The only debt I have is $58 k unsecured with BOA. I do qualify to file Ch 7. Initially they offered to reduce my debt to 65%. After a month they offered to reduce it to 50%. Ten days ago they offered to go to 30% and today they offered 20%, saying that was as low as they can go.

I did read that another member here settled for a little over 10% before he filed Ch 7. I could afford to pay $3k to $4k now by using funds from an IRA. Is this a smart move or should I simply file Ch 7 and have the debt discharged for around $1k to $1.5 k in fees?

I borrowed against two CC's to pay some medical bills due to surgery and then to pay living expenses due to lack of work. The last time I obtained a cash advance was May 2008. I made all payments on time up till the time they canceled the two accounts in December.

Thanks.

[HHM]

A BK is almost always more cost effective than Debt Settlement (and more beneficial to your credit...anyone that says otherwise does not know what they are talking about). If the only way you can pay a settlement is to liquidate a IRA or other type or retirement, this is a no brainer, file BK. Why liquidate a retirement account to pay $11K to a creditor when you can pay $1,500, file BK, and keep the money in the retirement account.

[fltoo]

I have not read where BOA settled for less than 20%, but doesn't mean they haven't.

Whether BK or settlement is better, it really is a toss up based on point of view. I liken settlement to a chapter 13 BK, stays on the credit report less time than a chapter 7. You will be able to build up your credit in time no matter what you choose.

In your situation, the BK is probably better, cheaper for you and you don't get hit with paying taxes on the forgiven debt. (Sounds like you might not be insolvent). Also, I would not touch retirement money to pay off your debt due to the penalties and your retirement funds could be exempt in your state.

Read the info here in the forum as it will do much to assuage your fears of BK, if you have any.

[chrisdfw]

I settled for 15%, but would not do it again. I had other creditors and still ended up in ch 7.

40,000 settled for 6,000, money wasted.

Was still in denial all the way to bk.

[pcn]

I settled for 15%, but would not do it again. I had other creditors and still ended up in ch 7.

40,000 settled for 6,000, money wasted.

Was still in denial all the way to bk.

Wasted money because you went ch7 and had to pay none of your unsecured debit, as compared to a ch13 where you would have had to pay a percentage? Please explain more. I'm looking that way; after looking at the #'s, even with the tax negative for settling, I could come out around the same as a ch13, and by settling I could be done years earlier. Those years could be used to rebuild instead of make payments. If they both kill your credit score, what's the difference???

[HHM]

Wasted money because you went ch7 and had to pay none of your unsecured debit, as compared to a ch13 where you would have had to pay a percentage? Please explain more. I'm looking that way; after looking at the #'s, even with the tax negative for settling, I could come out around the same as a ch13, and by settling I could be done years earlier. Those years could be used to rebuild instead of make payments. If they both kill your credit score, what's the difference???

It sort of depends...a chapter 13 will make more sense if the debtor cannot come up with the money to settle in 2 years or less. And frankly, many people are unrealistic about what they can actually settle for, (the AVERAGE settlement is still around 40-60%). Also, if it really will take you two+ years to get the money together, many people don't want to hassle with the constant collection activity and lawsuits (yes, you can expect to be sued if it will take you that long to get the money).

[chrisdfw]

I wasted the money i used to settle since I ended up in chapter 7 anyway. I don't know if it would have been wasted in ch 13, but there was not way I could fund a 13, I had a serious injury and am still not back at a full time job.

If you end up bankrupt anyway the money used to settle is wasted if your plan pays little to unsecured, because you will just end up paying more to the other unsecured creditors, the plan payment will generally not be lower because you paid off some debt unless your plan pays all your debt, but that is determined by your budget.

[Trixie007]

BofA offered us 15%.

[Bizbad]

Almost all my debt is with BoA. About 45K. How long did it take before you guys got these offers? I would also have to "reaffirm"? some equipment that I bought through a seperate company. Would that be a charge off on credit?

[pushed]

Bizbad,

I called BOA to ask them to reduce the interest rate on my one card after the promotional rate ended. The other card was still at 1.99% and I had never missed a payment. They refused to reduce the rate and they closed both accounts in early December. I was told not to make any payments and that I would hear from their department that negotiates settlements. I waited over four weeks before they returned my call. I called three times in that period and was told that they were overwhelmed and they would get to me in order.

The timing of their offers is provided in my first post.

Thanks to all who have responded.

[Trixie007]

I was 4-5 months delinquent before they offered 20%, then a week or two later they offered 15%. I don't think you'll get a significant offer until you are at least 4 mos behind, unfortunately. You can check out the creditors/collectors category in my blog for more info.

[njguy1972]

Doing this will depend on your situation.

I am considering it with a ch 13 to guarantee a lower monthly payment to the trustee without having to negotiate thing on my schedule I, J, and 22c.

The issue I found is this:
If you settle 1 card but have others, you need to wait 90 days before you can file. If you do not, the trustee will pull the settlement money back and you are back to square 1.

Also, you will have a tax obligation for the amount forgiven.

For example: You have 50k in CC debts with 3 cards (25k, 15k, 5k)

If you settle the 15 k for $3500 your tax obligation will be $11500 * your tax rate. If your rate is 25% then you will need to pay an additional $2875 in your taxes next year.

Then if you settle the 5k for 1 k you will have another 1k of taxes.

If you do not have money to settle the 25k than it needs to wait 90+ days (assuming you did the settlement in February then you cannot file until June since the Trustee will say the 90 days are the months of March, April, and may). By then the 25k with penalties and interest can be $27k.

[StartingOver08]

It seems to be a little more efficient, if you have multiple accounts that total to a significant percentage of your income, to file a Ch 13 just for the reason you present - the preference payment issue.

I suppose you could prove that you are insolvent and not have to pay the taxes if you settle first and then file a Ch 13. But if you are filing anyway, does the settlement prior to the filing actually help you? Could you achieve the same thing just by filing and paying a smaller percentage to each of the unsecured creditors? I know the percentage is dictated by the net disposable income, so I come back to if you have to make the same monthly payment - does it really matter TO YOU if the unsecured creditors get 2%, 20% or 90%? (Because the monthly payment is set by your NDI and the payment length of time is 60 mths - the variable in there is the amount of the debt.) Just thinking out loud.

[Lajazz947]

The only debt I have is $58 k unsecured with BOA. I do qualify to file Ch 7. Initially they offered to reduce my debt to 65%. After a month they offered to reduce it to 50%. Ten days ago they offered to go to 30% and today they offered 20%, saying that was as low as they can go.

I did read that another member here settled for a little over 10% before he filed Ch 7. I could afford to pay $3k to $4k now by using funds from an IRA. Is this a smart move or should I simply file Ch 7 and have the debt discharged for around $1k to $1.5 k in fees?

I borrowed against two CC's to pay some medical bills due to surgery and then to pay living expenses due to lack of work. The last time I obtained a cash advance was May 2008. I made all payments on time up till the time they canceled the two accounts in December.

Thanks.

at the tail end when they knew I was going to file they were BEGGING me to settle for 11%.

Made no sense to take the 1099 on 60K if I was going to file BK.