Question BofA willing to settle for 30%

[dealingsdone]

Hello. I have stopped paying my credit cards for several months now.

I recently got a call from BofA and they were willing to settle in full if I paid 30% of my outstanding balance. If all my other credit cards were willing to do the same thing, I would consider pulling the money out of my 401k and just be done with all of them.
When my other cards call me, I am thinking about broaching this subject. Is there anything that I should or should not say, while trying to negoitiate with them? If I can curtail this BK that would be preferred for me. I realize that I will still have destroyed credit and no credit cards, but I am still considering this option.

Thanks,
Dealingsdone.

[ready2puke]

I got the same deal...pass....you'll have to pay the difference in income taxes.

[walkthaplank]

Like ready says, you will pay the difference as additional income on next years taxes. Also, if you withdraw the money from your 401k you may be paying additional taxes plus penalties AND you'll have even less money when retirement comes.

You said it yourself, you've already screwed your credit, BK at the worst allow you to repay your debt at 0 percent interest over the next 5 years, or if you can BK7 you won't pay anything.

I understand the reluctance to go BK, I am horrified that we let our situation get to the point where it has become necessary, but ultimately it is a business decision. I will pay pennies on the dollar, have a decent budget where I can pay my bills AND be shed of over $100K in debt. Nobody is going to give me a bailout package, I've got to do what is best for my family. At this time BK is best for us.

[dealingsdone]

you guys bring up an EXCELLENT point that I did not consider, about the taxes situation. In the situation I am currently in, that might be about the only income I have throughout the year so it won't destroy me on taxes. I have children which each are worth 1k tax credit and I guess it would add about 35k to my income give or take.

I was hoping to avoid the BK because I had one 8 years ago and I have been a gambler and I just did not want to risk the judge turning down my bk, because I have proven to be such a self-destructive loser.

Another positive about not going bk would be I would avoid paying the BK attorney another 2k or whatever the price is.

Keep the thoughts coming. I was thinking maybe I could pay 20 cents on the dollar, if they were offering 30 cents out of the gate. Did anybody have luck with that idea?

Dealingsdone

[ready2puke]

Can you afford the taxes? If you can get them to give you 70%...you'll pay 30% sounds great until tax time. They will send you a 1099C and depending on your bracket you'll pay up the wazoo on that 70%....do the math and see if it pays for you...but be forewarned..you'll pay in the end lol...

[fltoo]

Friend of mine went this route and settled for 25% on her debt including junior liens on her rental properties, but she had a high income and plenty of cash from it to settle, so yes, it can be done.

Also, you are probably insolvent, so paying taxes on the forgiven debt is a moot point.

But, it sounds like BK is the best bet for you. If you are only worried about filing again because you are a gambler, remember that the trustee is only looking for assets. It might be embarrassing, but chances are the previous BK and gambling debt will have no bearing on your discharge.

Bite the bullet and file for the BK.

[BKstory]

So even if you could somehow afford to pay the taxes on the debt forgiveness BofA is giving you (and you somehow find the money to pay those extra taxes next year), you still have the other creditors to negotiate with. If even one or more will not negotiate, what then? You are still stuck with a BK to keep them from filing suit against you, and now you spent all you IRA and 401K, and you still need to pay a lawyer!!

I agree with walkthaplank - this is a business situation demanding a business-like decision. Cut your losses and do the BK. Time it right, so you qualify for a Chapter 7 if at all possible. If you don't, you just might be throwing money away.

Morally, if you feel bad about BK, promise that someday when you have money, donate something substantial to people who really are down on their luck.

[pcn]

Also, you are probably insolvent, so paying taxes on the forgiven debt is a moot point.

I hear this point often, but don't understand the details. What is involved in proving to the IRS that one is insolvent. I thought that I had read earlier that it is quite difficult, and nothing like dealing with a bk. Thanks for any insight you can offer.

[keepmine]

IRS form 982 will explain it all.

[dealingsdone]

I hear you all. Ftoo is right, I'm embarrassed to go into the courtroom, because in my situation I have done this to myself.

Here is the analysis I have done and my reasoning.

OWE: 50k
25% percent of this 12.5K

Taxed on 37.5k that is written off....will cost me about 5k, but I can deduct 1k per child on that number, so it will be substantially less.

Another motive for me to avoid BK, is that I have a new wife that is healthy right now, but she has a condition that is going to require a lot of medical assistance, in the future. If I blow my second BK right now, I won't have much powder in the future when I may need the BK for enormous medical bills. Isn't there a lifetime limit on how many BK's a person can do?

I do have the ability to pull about 20k from my 401k, which is most of what I have. IF the Credit cards accepted 25%, I could pull this off without the BK and it might cost me 17-18k total including taxes. Yes my credit would be ruined again, but it would be for a shorter period of time I think and I would still have the BK for the future, when I (and my wife) may really need it. I'll let you guys tell me if my logic is faulty here.

If I go BK it is still going to cost me attorneys fees of 2-3k, and I my credit would be ruined for a decade, and I lose my ability for another BK down the road for the aforementioned Medical conditions.

[njguy1972]

I hear you with the settlement. I was considering it too.

A few of the card companies would negotiate as low as 30%. You probably can get them for 10-20% in a few months.

For example:
If you owe 50k in CC debt and settle for 30% (15k) you will have an additional 35k in income to pay taxes on. If you are at a 28% tax bracket for singles (78k-164k) then you will owe around $9800 in taxes. Maybe you have a tax refund that can cover this but in most cases you will not have the money.

Also, if you add the $9800 to the $15,000 you would be paying around $25,000 or 50%.

Based on your income and expenses you may be able to pay back less than 50% in a chapter 13.

For me settling is becoming a non-option since I work for a company that received TARP funds and by settling I can be put over the threshold so that I will not be able to get a potential bonus.

[SBayBruce]

I know it's a tough decision, but if you are already to the point where they are offering a settlement, your credit report is already damaged, and as someone else said, what if all the creditors won't negotiate. Also, is it B of A themselves offering the deal, or the collection agency?

In my view there isn't really anything to be ashamed of about being a gambler, you can present that as a speculative business, just like if you were investing in stocks as a big part of your income (which is, after all, another form of gambling). As you know gambling can be wildly unpredictable, you can lose everything, or make the final table at WSOP and win hundreds of thousands, there is no way of predicting, just like if you buy Coca Cola at 45 and it drops to 13. Aren't you gambling then?

No, there isn't a liftime number of BK you can file, but I think, now, thanks to the congress being in the big banks pockets, that you can only file every 8 years. Interesting how their "reform" made things worse, isn't it? Anyway if you are at this stage, you should probably file.