Bankruptcy? Settlement? Go to Court??? Do not know what to do!

[MarieT]

This is the deal...retained BK attorney about 8 months ago and have paid 75% of total fee now. They do BK and also debt settlement although they push CH 13 BK.

We owe about $120K un-secured although about $30K of that is IRS so that won't go away. (on pmt plan with IRS)

One cc collection company has agreed to $2,200 on a $22K debt (3rd collection agency), another we have barely started talking to and already they are agreeing to $19K on $38K debt. (4th or 5th collection agency)

Another cc is only $6K but has been turned over to attorney and attorney has filed court case. I do not think they still have my app on the cc and I filed answer and think If they can't find it, I will see if I can get it dismissed somehow. The collection attorney called me and wanted me to sign a paper saying that it was my debt and said if I did that they would not do anything. Iasked them what they would take to settle and they wanted me to give all my financial info over phone.. Yeah, right...they must think I am an idiot!

We also have two line of credit accounts that total $25K that we have not paid for five months.

So as far as the cc's reporting the forgiven debt to IRS as income, does our job income come into play with that or is it just our assets to determine if we are insolvent? We are about $50K underwater on our home (did modification so now affordable and want to keep, have $45K homestead exemption in our state). Would that be like $90K altogether that would contribute to our insolvency? What does the IRS accept on the insolvency to show you owe more on house than it's worth? Do we need to hire an independent appraiser or does the IRS send someone out? I tried to ask our attorney but did not get a staright answer on this - more like we'll look at that when it comes up! Before we decide what to do, we would like to know if there's a chance we could end up owing IRS even more money!

I know that it is what you owe v.s. assets but if we settle this first one for $2K and try to keep working with the others, each time we settle one, we will owe less. The line of credit accounts probably won't even consider a settlement for months so I am concerned that by the time they are ready to settle we will have have settled the others. We have about $7K to work with right now to pay cc settlements although we will be getting another $10K in another month through a court settlement. (it was a huge surprise...someone actually has to pay us!) Another concern of course is that if we can't get the big $38K one to settle, then we do not want to throw our money away settling with the others.

Our attorney has (of course) suggested ch 13, debt settlement or just dealing with each one as they file against us. I just want to try to pre-plan and do what is best for us for the long term. We have made a lot of mistakes and I do not want to continue on that path!

[oregonpilot]

Hi Marie....
was just wondering if you knew that any amout forgiven ..like the 2200. on a 22k amt. AND the 19k on the 38k
You would get a 1099 for the difference. and you get to pay taxes on the difference.

[keepmine]

First thing I'd do is interview more lawyers and see if you qualify for a Chapter 7.
As to the 1099C issue. IRS form 982 gives detailed instructions on how to determine insolvency.
One thing I can't stress enough if you do settle. Be certain any settlement agreement is in writing and the creditor specifically states they won't sell, transfer or, assign the unsettled portion to another collection agency and that they won't sue you for the balance.

[oregonpilot]

ahhhh...
i did not know that it was not just black & white on the 1099c's
thanks keepmine.

[MarieT]

Yes, I do know that you have to pay taxes if you are not insolvent, but right now we are...i.e. we owe a whole lot more than we could liquidate and get money. I am just trying to figure out how it will work with all the money we owe and if we settle each cc one by one and that debt goes away as we are working thru these settlements we might get to the last one and not be insolvent. But then I think we would be because we would still owe that last debt (like the $25K on the line of credit) and we would still be $50K underwater on the house. Plus I do not know where the $45K homestead exemption on house comes in. I think the timing of all this is critical.

I do not think we can do a CH 7 and the idea of being in a CH 13 payment plan for 5 years makes me a bit crazy!

[MarieT]

First thing I'd do is interview more lawyers and see if you qualify for a Chapter 7.
As to the 1099C issue. IRS form 982 gives detailed instructions on how to determine insolvency.
One thing I can't stress enough if you do settle. Be certain any settlement agreement is in writing and the creditor specifically states they won't sell, transfer or, assign the unsettled portion to another collection agency and that they won't sue you for the balance.

We will see if we can do CH 7 but does not look promising. Thanks for the pointers...the cc company that faxed over $2,200 (10%) offer did not sign it with person's name and it was very vague. Also trying to make us give him a personal check for $100 as good faith and had to have it TODAY! SO just ignored it...they will be back. Not sure how Christmas affects the bill collectors...today had been really quiet!

[chicagoannie]

We will see if we can do CH 7 but does not look promising. Thanks for the pointers...the cc company that faxed over $2,200 (10%) offer did not sign it with person's name and it was very vague. Also trying to make us give him a personal check for $100 as good faith and had to have it TODAY! SO just ignored it...they will be back. Not sure how Christmas affects the bill collectors...today had been really quiet!

The personal check request is to get all your current bank account info. Be careful...this whole deal sounds very iffy!

[LynnD]

I think Chapter 7 will be out of the question with 10k coming in next month. Unless you wait at least 6 months to file. I would not even come close to settling with ANYONE unless/until you have every single creditor on board with it. It is like tossing money away. What is it going to get you if you can't settle all debt? What I would do is send each creditor a letter. I would be straight up and list the attorney's name and say you have paid him 75% of his retainer and are planning on filing bankruptcy soon. State you are making one last ditch effort to settle and while they make think the settlement amount is very low, it is all you can do at the time and the alternative is bankruptcy. DO NOT tell them you are getting 10k next month. Tell each one you are requesting all creditors to respond within 30 days and list the date. Ask that an agreement be sent back on letterhead stating the account will be paid in full with xyz payment. I would offer no more than 10% on all loans. 10% is better than zero to a creditor. Tell them you will pay in a lump sum within 30 days of their return letter. Do NOT send or pay with a check or credit card.. certified funds only. You will be amazed at what creditors will settle for. The key is for the creditor to know they are between a rock and a hard place. By giving them your attorney's name and number, you are giving proof that you are dead serious and your ammo just went WAY up. I also wouldn't specify Chapter 13.. just say 'filing bankruptcy'.

[MarieT]

That makes a lot of sense Lynn! I actually checked and we have paid the BK attorney more like 85% of his fee now. I do not think we can wait 6 months to file and now all of a sudden this money is coming in which will really screw us up for doing a BK. The two big cc's ($22K and $38K) were written off December 2009 so doubtful we can hold off the collectors for another 6 months.

The "little" $6,000 debt cc that turned it over to an attorney and they already filed in court wasn't written off until May 2010 and they have already taken action! Not sure what they think they will get as this card on was only in my name and I am unemployed. Can they go after our bank account if we have a joint account?

[keepsmiling]

I think Chapter 7 will be out of the question with 10k coming in next month. Unless you wait at least 6 months to file. I would not even come close to settling with ANYONE unless/until you have every single creditor on board with it. It is like tossing money away. What is it going to get you if you can't settle all debt? What I would do is send each creditor a letter. I would be straight up and list the attorney's name and say you have paid him 75% of his retainer and are planning on filing bankruptcy soon. State you are making one last ditch effort to settle and while they make think the settlement amount is very low, it is all you can do at the time and the alternative is bankruptcy. DO NOT tell them you are getting 10k next month. Tell each one you are requesting all creditors to respond within 30 days and list the date. Ask that an agreement be sent back on letterhead stating the account will be paid in full with xyz payment. I would offer no more than 10% on all loans. 10% is better than zero to a creditor. Tell them you will pay in a lump sum within 30 days of their return letter. Do NOT send or pay with a check or credit card.. certified funds only. You will be amazed at what creditors will settle for. The key is for the creditor to know they are between a rock and a hard place. By giving them your attorney's name and number, you are giving proof that you are dead serious and your ammo just went WAY up. I also wouldn't specify Chapter 13.. just say 'filing bankruptcy'.

I would be delighted to settle with the cc's for 10%. Perhaps it should be a separate thread, but Lynn, do you know of anyone who has been able to pull this off with 6 different companies???

[HHM]

10% settlement across the board, with multiple creditors, is wildly unrealistic. You need to be prepared for "averages" closer to 30-40% when you are all said and done. Sure, there are exceptions, but statistically, you need to budget for hold outs, being sued (settlement % goes way up once sued), etc.

[MarieT]

we only have 4 creditors to deal with not counting the IRS which we can't make a deal with anyway. The two line of credit accounts are the same bank. I think if we owed to more than 4 creditors it would be extremely difficult to get theem all on board.

I really think what Lynn suggested is a great idea and worth trying.

[MarieT]

One more question...can a cc account that is in my name only go after our joint bank account?

[Charlie777]

Going back to the original post, you say the attorney you've retained does "debt settlement". your settlemet offer would carry more weight if it came from your attorney.

"I represent X, who has retained me in the matter of their pending bankruptcy. In a good faith effort to avoid bankruptcy, my client is willing to pay you $x in full satisfaction of your claim. This offer is contingent on acceptance of settlement offers by all creditors."

[MarieT]

Going back to the original post, you say the attorney you've retained does "debt settlement". your settlemet offer would carry more weight if it came from your attorney.

"I represent X, who has retained me in the matter of their pending bankruptcy. In a good faith effort to avoid bankruptcy, my client is willing to pay you $x in full satisfaction of your claim. This offer is contingent on acceptance of settlement offers by all creditors."

Thanks Charlie - that definitely makes sense and I agree it would carry a lot more weight coming from our attorney!

I like Lynn's idea but adding on that it would be "contingent on acceptance of settlement offers from the other three creditors" makes sense. Wondering about saying there are only three other ones so they don"t think we have twenty to get in agreement?

I am going to get the attorney involved with this too although I think he said they charge more for doing debt settlements - we have already paid him about $3,500. Maybe they charge more for settlements because they can't earn the extra money thru the trustee like they do in CH 13's.