How likely would it be to settle with my creditors?

[sirius]

Hi all,

I was here awhile back. I had a disability claim in and was unsure of what the outcome would be. Well, now I have my answer and I was approved. I will be getting a decent amount of backpay. I could settle my debt, but this may be the only time in my life that I have any kind of financial security.

Since the money is judgement proof I'm thinking of trying to hang onto it and maybe invest it. I have to look into this a bit more as keeping it will also prevent me from receiving some other govt. assistance to pay for Medicare premiums, etc...

In the short term I may be losing a bit of money having to pay those premiums, but in the long term having that backpay in some kind of investment may be the wiser choice.

So, if I just default on my cards. About 13k to Amex and a few thousand with Chase will they be willing to settle with me for maybe 10-20 percent?

It appears I am judgement proof. My money is mostly from SSDI and I have a car that's now paid off and only worth about 5k or less. I don't own property.

If I can settle then I can rebuild credit faster than if I had a BK on my record right?

I don't want to live with lawsuits against me and people trying to take my money. I've heard of SS money being taken and going through hassles to get it back even though they aren't supposed to.

However, if I stop paying and then communicate to them that I have nothing to take would they even bother to sue?

I really need to know the pros and cons and if I do decide to go this route I need to know how to go about it.

Please don't make any moral judgements stating that I should pay it all back because it's the right thing. It it makes financial sense to do it then I would like to hear about that though. Believe me I have done a lot of thinking about this and I don't take it lightly. I have maintained a good credit rating throughout all this hardship. However, this is really a decision that could impact me greatly for many years to come and I can't just pay it all back if that's not what's in my best interest.

Thanks

[DeadManCrawling]

No one will judge you, I hope.

The proper term would be "collection-proof". They can still get judgments, but might be unable to collect on them. This assumed that your financial picture never changes, you never increase income from a job, never inherit anything, or have any windfalls.

It also means that they will hound you until death, probably.If you can deal with that, then you'll be okay, but there are some other caveats to consider.

If you are successful in negotiating settlements, be very careful that the creditor agrees to NOT resell the deficiency. They can do this and do so often. So, if you settle a 20k debt for 2k, they sell the remaining 18k to a JDB who pursues you.

Make sure any settlement agreements rule out that possibility. Even with it in writing, they may STILL do so, and later claim it was a mistake.

Settling will often result in a 1099 for taxes against the unpaid portion. There is NO escaping the IRS that I am aware of. They WILL get their money one way or another.

As you note, the other possible outcome is that a creditor will obtain a judgment and illegally access your exempt SSDI or other funds. Then you have to hire an attorney and battle it out in court. It may be less expensive to file BK in the first place.

In some districts, you can file with the court clerk an exemption statement that prevents this. I would then present a copy to your bank and then hope for the best. We know all of the staff at our bank on a very personal level, and that could help in this circumstance for you.

It is all in how you play it, and your comfort level.

Do you have a backup plan if a creditor finds a way to seize your rent or food money? Can you last long enough, financially, to retain a lawyer and fight to gt the money back? This process could take years. If you are able to handle all this, then your plan is feasible.

If you can't handle the above, I would simply file BK and get it over with, clean and clear.

Good luck in all your decisions.

[DeadManCrawling]

One other note . .

Your credit will be trashed for far longer than if you simply filed BK. The reason for this is that any judgments and JDB activity will last far longer on your credit report than filing BK.

That is a general statement, and the time COULD be less, if every roll of the dice went your way, and every creditor played nice. It is my experience (and most on this board) that creditors never play nice.

[Kingxray]

No one will judge you, I hope.

The proper term would be "collection-proof". They can still get judgments, but might be unable to collect on them. This assumed that your financial picture never changes, you never increase income from a job, never inherit anything, or have any windfalls.

It also means that they will hound you until death, probably.If you can deal with that, then you'll be okay, but there are some other caveats to consider.

If you are successful in negotiating settlements, be very careful that the creditor agrees to NOT resell the deficiency. They can do this and do so often. So, if you settle a 20k debt for 2k, they sell the remaining 18k to a JDB who pursues you.

Make sure any settlement agreements rule out that possibility. Even with it in writing, they may STILL do so, and later claim it was a mistake.

Settling will often result in a 1099 for taxes against the unpaid portion. There is NO escaping the IRS that I am aware of. They WILL get their money one way or another.

As you note, the other possible outcome is that a creditor will obtain a judgment and illegally access your exempt SSDI or other funds. Then you have to hire an attorney and battle it out in court. It may be less expensive to file BK in the first place.

In some districts, you can file with the court clerk an exemption statement that prevents this. I would then present a copy to your bank and then hope for the best. We know all of the staff at our bank on a very personal level, and that could help in this circumstance for you.

It is all in how you play it, and your comfort level.

Do you have a backup plan if a creditor finds a way to seize your rent or food money? Can you last long enough, financially, to retain a lawyer and fight to gt the money back? This process could take years. If you are able to handle all this, then your plan is feasible.

If you can't handle the above, I would simply file BK and get it over with, clean and clear.

Good luck in all your decisions.

I agree with everything you said. It may be in the OP best interest to file BK and begin their "fresh start". Although, how will that backpay affect the BK?

Not to steal the thread but I have a question regarding the IRS 1099. If the debtor cannot write off the debt on their tax return why do they have to claim the unpaid portion as misc. income (1099)? If one is to be discharged from their debt in a Chapter 7 is the discharged debt also subject to the IRS as misc. income (1099)? Just curious.

[DeadManCrawling]

Lump sum SSDI backpay payments are 100% exempt in every district that I am aware of. It is yours, and cannot be touched. If it is a substantial amount, consider setting up an account that is solely for this purpose. Doing so prevents comingling of monies, and would make that lump sum exempt with no exceptions. Do not add any other funds to this account.

[sirius]

Lump sum SSDI backpay payments are 100% exempt in every district that I am aware of. It is yours, and cannot be touched. If it is a substantial amount, consider setting up an account that is solely for this purpose. Doing so prevents comingling of monies, and would make that lump sum exempt with no exceptions. Do not add any other funds to this account.

Interesting. I was going to open another account for this, but I was going to do a MMA or CD. I wonder if they can go after interest that the lump sum accrued?

Thanks for your thoughts above. It sounds like there is no easy answer.

Maybe I will see if I can get a personal loan to pay off the debt.

[DeadManCrawling]

There are questions about SSDI one it is converted into another asset class. In some districts the rules vary.

For instance, I believe in our District, Florida Middle, you are free to convert exempt assets to another class that is ALSO exempt. Such as converting a SSDI settlement sum into an annuity, which is exempt under Florida law. If it were used to simply buy stocks on the NYSE, it would probably lose its exempt status.

Converting to anything other than a simpe savings account or checking could be problematic, and I suggest you research this heavily and ask an attorney or five. You'd hate to lose it after thinking you did the right thing to protect yourself.

[frogger]

No one will judge you, I hope.

The proper term would be "collection-proof". They can still get judgments, but might be unable to collect on them. This assumed that your financial picture never changes, you never increase income from a job, never inherit anything, or have any windfalls.

It also means that they will hound you until death, probably.If you can deal with that, then you'll be okay, but there are some other caveats to consider.

If you are successful in negotiating settlements, be very careful that the creditor agrees to NOT resell the deficiency. They can do this and do so often. So, if you settle a 20k debt for 2k, they sell the remaining 18k to a JDB who pursues you.

Make sure any settlement agreements rule out that possibility. Even with it in writing, they may STILL do so, and later claim it was a mistake.

Settling will often result in a 1099 for taxes against the unpaid portion. There is NO escaping the IRS that I am aware of. They WILL get their money one way or another.

As you note, the other possible outcome is that a creditor will obtain a judgment and illegally access your exempt SSDI or other funds. Then you have to hire an attorney and battle it out in court. It may be less expensive to file BK in the first place.

In some districts, you can file with the court clerk an exemption statement that prevents this. I would then present a copy to your bank and then hope for the best. We know all of the staff at our bank on a very personal level, and that could help in this circumstance for you.

It is all in how you play it, and your comfort level.

Do you have a backup plan if a creditor finds a way to seize your rent or food money? Can you last long enough, financially, to retain a lawyer and fight to gt the money back? This process could take years. If you are able to handle all this, then your plan is feasible.

If you can't handle the above, I would simply file BK and get it over with, clean and clear.

Good luck in all your decisions.

All of this is good information. Just to add a little to it however....

When you talk of settling your debts with a company, everything is subject to discussion.

How is it going to be reported on your credit? Settled or paid in full?

What happens to the balance that you are not going to pay. Is it forgiven, and are you going to send a 1099? Note - they do not have to send a 1099. It can be part of your discussions.

Everything is open to discussion when talking about a settlement. It all depends on how bad they want what money they can get.

Get it all in writing!

[sirius]

Thanks all for the help, even though it's a bit over my head.

Would a BK attorney assist in settlements or just BK's?

Also, understanding that there are pitfalls involved, if I did try to go this route do you think I have a good chance of settling and what percent could I expect to pay?

Unfortunately it sounds like even if I dot my I's and cross my T's things can still go wrong and come back to haunt me years later.

[NoMoreCards]

My Dad is going through this same thing, getting approved for SSDI and waiting for his Workers Comp lump sum settlement.

I was reading the handbook from SSDI last night, and wanted to make sure you were aware of one of the rules in SSDI. If you get a lump sum settlement from Workermans Comp, you will need to notify SSDI and it seems that the SSDI will be reduced based on the dollar amount.

I am just learning about all this, but wanted to give you a heads up to look into the possibility. Because while a lump sum would be great, if your SSDI gets reduced based on this amount, it isn't much of a blessing at all.

Good Luck to you.

[OHBOY]

My Dad is going through this same thing, getting approved for SSDI and waiting for his Workers Comp lump sum settlement.

I was reading the handbook from SSDI last night, and wanted to make sure you were aware of one of the rules in SSDI. If you get a lump sum settlement from Workermans Comp, you will need to notify SSDI and it seems that the SSDI will be reduced based on the dollar amount.

I am just learning about all this, but wanted to give you a heads up to look into the possibility. Because while a lump sum would be great, if your SSDI gets reduced based on this amount, it isn't much of a blessing at all.

Good Luck to you.

Actually SSDI does not always get reduced, it's my understanding that there are different factors that come into play, i.e: what the former employment was, and whether or not the earnings were subject to SS offset to begin with... there are some jobs that are exempt.

Also, offset is subject to the amount of the former wages.. (don't know the exact formula without looking it up), however it would not be able to exceed the total of previous earnings, i.e.: no more than 80% would be payable as monthly benefit

.....just my humble, layman, non attorney opinion....

[anykey]

but future investments can be taken if you have a judgement on you.

[sirius]

My Dad is going through this same thing, getting approved for SSDI and waiting for his Workers Comp lump sum settlement.

I was reading the handbook from SSDI last night, and wanted to make sure you were aware of one of the rules in SSDI. If you get a lump sum settlement from Workermans Comp, you will need to notify SSDI and it seems that the SSDI will be reduced based on the dollar amount.

I am just learning about all this, but wanted to give you a heads up to look into the possibility. Because while a lump sum would be great, if your SSDI gets reduced based on this amount, it isn't much of a blessing at all.

Good Luck to you.

Thanks for your thoughts. No workers comp. involved in my case though.

but future investments can be taken if you have a judgement on you.

Yeah, I'm looking into this. There are some investments that would be exempt as well.

If those aren't suitable there's always the bankruptcy.

Unfortunately, from what I'm reading it looks as though even if you settle with the creditors and get the proper things in writing that things can come back to haunt you. Having the remaining debt sold, how it's reported the credit bureau's etc...

I'm just trying to make an informed decision.

What does the average mutual fund make in interest?

I'll probably end up filing bankruptcy and investing the money.

I can't see it being a wise decision to pay off my creditors when this may very well be the only time in my life that I have any kind of financial windfall.