Accumulated a lot of Debt - What should I do?

[Bible_Belt]

A place that turns you down because of credit should be open to negotiating. Maybe you just have to pay a larger deposit, or pay a few months rent forward when you move in.

Your lawyer is going to make you fill out a questionnaire that is basically a re-worded version of the court forms. It's not really any easier than the actual forms. Then he will have his secretary copy the questionnaire into the real forms. When you court date comes, he is not allowed to speak. The trustee will question you directly. It's not like a normal trial where your lawyer does all the talking.

 

[Reyaj]

You usually get what you pay for. Attorneys are professionals in their category of practice.
As far as rent credit checks, I think a BK could actually work in your favor because you would have more spendable income for rent. It's not like they are giving you a loan. They want to be certain you can and will pay them rent.

As long as Apartment Buildings don't automatically disqualify you if your credit report shows Bankruptcy....

A place that turns you down because of credit should be open to negotiating. Maybe you just have to pay a larger deposit, or pay a few months rent forward when you move in.

Your lawyer is going to make you fill out a questionnaire that is basically a re-worded version of the court forms. It's not really any easier than the actual forms. Then he will have his secretary copy the questionnaire into the real forms. When you court date comes, he is not allowed to speak. The trustee will question you directly. It's not like a normal trial where your lawyer does all the talking.

Sounds like a waste of money then if these are just forms I could do myself. Which type of bankruptcy would you recommend and what are the key differences?

 

[Billtx49]

OP, if you are worried about apartments, ask the attorney.
Most commercial apartments have you sign ironclad leases. They Will get their money one way or another. They run checks for two purposes, to establish a debt to income ratio, and to see how well you pay.
If BK gives you a 100% wipe out, the debt said of the ratio is 0%. I.e., plenty of money to pay them. A simple explanation to them when submitting an application would be that you had some CC problems in the past, but said problems are over and past now.

 

[guru1000]

Without getting into how I acquired the debt here is my situation:

I have 90K in debt scattered among different credit cards.
I make 80K a year (obviously I take home a hell of a lot less after taxes)
I have a 401K plan worth 40K
I don't really have any savings.

I have some 0% promotions on these cards but they will expire. I have at least 30K of the debt where I am getting charged the normal CC interest.

What would my best course of action be and why?

You would be foolish to continue paying 90k in credits cards with 80k/yr in income.

1. You don't qualify for a Chapter 7 in any state as your gross income exceeds the maximum threshold.

2. You do qualify for a Chapter 13, and, with a financial report prepared correctly, would likely settle your unsecured cards for less than 50%. Chapter 13 bankruptcy reports on credit for seven years, though you can likely dispute it off your credit after 3-4 years. Following a Chapter 13 dismissal/discharge, you can secure a residential mortgage after 36 months. Should you elect to file a Chapter 13, your credit score will be higher in 24-36 months despite the bankruptcy due to your credit utilization dropping from 100% (approx where it is now) down to 0%.

The alternative to bankruptcy is to stop paying all your cards. Following 6-12 months of delinquency, you could settle these unsecured cards anywhere between 20-50% of the balance with lump sum offers. Some creditors will entertain steep settlements with a 12-24 month payment plan. Should you elect the debt settlement route, half your creditors will likely sue you (thus begin settlements after 6-12 mos. to mitigate imminent legal action), so ensure you go to the courthouse and answer all Complaints as they arrive. Do not default on Complaints or any court appearances. During the court appearances, prior to or in many cases at Plaintiff's motion summary judgment or trial, you will reach a settlement with every creditor.

 

[Bible_Belt]

you will likely have more than half the creditors sue you within 24 months, so ensure you go to the courthouse and answer all Complaints.

The judge asks if you admit or deny owing the money. The attorneys I worked for always said to deny. It's like pleading innocent, and you get to have a trial. It's not perjury. As the party attempting to enforce a contract, the credit card company will have to show up at your trial with a copy of your signed contract, at your trial which will be scheduled many months in the future, and that is a big pain in the ass for them.

Sometimes the judge will be buddies with the lawyer for the credit card companies, and he will try to bully you into saying you admit you owe the money. That is hugely unethical, and every bastard judge who behaves that way should be fired, but they do it. That's one of the times that it is nice to have a lawyer present to stick up for your rights.

But all of that is the civil trial over unpaid bills, and you avoid it entirely by filing bk, the proceedings of which happen in an entirely different court. Here is BK Court: http://www.uscourts.gov/services-forms/bankruptcy

And I agree that you're not going to be eligible for Chapter 7 with that much income. Maybe if you moved a family of eight people into your house and claimed them all as dependents, but not with a household of one.

 

[guru1000]

The judge asks if you admit or deny owing the money. The attorneys I worked for always said to deny. It's like pleading innocent, and you get to have a trial. It's not perjury. As the party attempting to enforce a contract, the credit card company will have to show up at your trial with a copy of your signed contract, at your trial which will be scheduled many months in the future, and that is a big pain in the ass for them.

"I have no business relation with Plaintiff," is all one needs to say. The burden falls upon the Plaintiff to produce the contract or billing statements. 95% of these debts are sold multiple times before trial, and the debt holder at service of the Complaint likely has no supporting evidence such as the note or statements, as these items have to be ordered from the original creditor.

Further, debt buyers purchase these debts between 2-5% on the dollar, and are more than happy to settle at 20-50%, as they have operating costs.

Sometimes the judge will be buddies with the lawyer for the credit card companies, and he will try to bully you into saying you admit you owe the money. That is hugely unethical, and every bastard judge who behaves that way should be fired, but they do it. That's one of the times that it is nice to have a lawyer present to stick up for your rights.

For credit card matters at civil court, attorney costs are nonsensical. One can act on their own accord. Debt settlement is preferred over Chapter 13, simply because there is one less checkbox in all future loan/employment/licensing applications where it's asked, "Have you ever filed for a bankruptcy?" Though debt settlement is a great deal more work than a bankruptcy.

 

[Billtx49]

Laid his current options out very well guru1000. Congrats.

 

[guru1000]

LYD, in a Chapter 7, yes there's a State-specific equity threshold for the primary residence. In a Chapter 13, his mortgage expense would be delineated in a financial statement, and any monthly surplus after secured debts being paid would be distributed as settlements to unsecured creditors. His home would be in no danger in a Chapter 13, as long as his mortgage is current or his mortgage arrears (if he were late) can be paid back within 60 months.

As far as debt settlement, his owning a home irrespective of the equity will not impede the negotiations.Though the more assets his creditors can ascertain, the tougher the negotiation.

 

[Reyaj]

OP, if you are worried about apartments, ask the attorney.
Most commercial apartments have you sign ironclad leases. They Will get their money one way or another. They run checks for two purposes, to establish a debt to income ratio, and to see how well you pay.
If BK gives you a 100% wipe out, the debt said of the ratio is 0%. I.e., plenty of money to pay them. A simple explanation to them when submitting an application would be that you had some CC problems in the past, but said problems are over and past now.

Ok hopefully this is true... if going bankrupt won't prevent me from renting an apartment then it's definitely an option.

you will likely have more than half the creditors sue you within 24 months, so ensure you go to the courthouse and answer all Complaints.

The judge asks if you admit or deny owing the money. The attorneys I worked for always said to deny. It's like pleading innocent, and you get to have a trial. It's not perjury. As the party attempting to enforce a contract, the credit card company will have to show up at your trial with a copy of your signed contract, at your trial which will be scheduled many months in the future, and that is a big pain in the ass for them.

Sometimes the judge will be buddies with the lawyer for the credit card companies, and he will try to bully you into saying you admit you owe the money. That is hugely unethical, and every bastard judge who behaves that way should be fired, but they do it. That's one of the times that it is nice to have a lawyer present to stick up for your rights.

But all of that is the civil trial over unpaid bills, and you avoid it entirely by filing bk, the proceedings of which happen in an entirely different court. Here is BK Court: http://www.uscourts.gov/services-forms/bankruptcy

And I agree that you're not going to be eligible for Chapter 7 with that much income. Maybe if you moved a family of eight people into your house and claimed them all as dependents, but not with a household of one.

What happens though as i'm sure 99% of cases prove you owe the money... Like do I put myself in deeper doo doo trying to go to court and say I don't owe it? Sounds scary

You would be foolish to continue paying 90k in credits cards with 80k/yr in income.

1. You don't qualify for a Chapter 7 in any state as your gross income exceeds the maximum threshold.

2. You do qualify for a Chapter 13, and, with a financial report prepared correctly, would likely settle your unsecured cards for less than 50%. Chapter 13 bankruptcy reports on credit for seven years, though you can likely dispute it off your credit after 3-4 years. Following a Chapter 13 dismissal/discharge, you can secure a residential mortgage after 36 months. Should you elect to file a Chapter 13, your credit score will be higher in 24-36 months despite the bankruptcy due to your credit utilization dropping from 100% (approx where it is now) down to 0%.

The alternative to bankruptcy is to stop paying all your cards. Following 6-12 months of delinquency, you could settle these unsecured cards anywhere between 20-50% of the balance with lump sum offers. Some creditors will entertain steep settlements with a 12-24 month payment plan. Should you elect the debt settlement route, half your creditors will likely sue you (thus begin settlements after 6-12 mos. to mitigate imminent legal action), so ensure you go to the courthouse and answer all Complaints as they arrive. Do not default on Complaints or any court appearances. During the court appearances, prior to or in many cases at Plaintiff's motion summary judgment or trial, you will reach a settlement with every creditor.

Thanks for the info and sorry for the delay here.... So I'm a little confused.... Is Chapter 13 and Settlements for credit cards the same thing? Cause I was thinking that's my other option... to settle the debt... there's a lot of companies that seem to do this. Is the same as bankruptcy or different? I know debt settlement hurts your credit too, but not as bad as bankruptcy? Wouldn't stop paying my cards be a bad idea as the interest will accumulate even more? Sorry I'm a little slow at all this but I appreciate all the help and patience.

 

[Bible_Belt]

What happens though as i'm sure 99% of cases prove you owe the money... Like do I put myself in deeper doo doo trying to go to court and say I don't owe it? Sounds scary

The worst that can happen is that you delay everything for several months, until they can schedule you a trial. But depending on how much you owe, how busy they are, and the attorney's costs involved, they might not even show up. They also might not be able to produce your original signed contract, which is required for them to prove their case. The credit card company is the plaintiff, and bears the burden of coming forward with the evidence to prove their case. If they can't do so, you win.

Debt settlement hurts your credit worse than bankruptcy. It stays on your credit report until you finish paying off the settled upon amount, and then the seven year period for it to drop off your report begins. But with BK, that seven years begins immediately. So if you settle on a 3-year reduced payment plan, it will take ten years to get that mess off of your credit report.

 

[guru1000]

Is Chapter 13 and Settlements for credit cards the same thing?

Chapter 13 is a type of bankruptcy. Settlement is not a bankruptcy; it is a settlement. The former is governed by law; the latter is a negotiated. Though, in some bankruptcies, settlement negotiations can ensue policed by a judiciary.

Cause I was thinking that's my other option... to settle the debt... there's a lot of companies that seem to do this.

I would encourage you to stay away from companies that settle debt. Most operate outside of the law. Most cannot represent you if you are served with a Complaint, as these companies have no in-house counsel, and if they do, often counsel is out-of-state unable to represent you in your state.

You are a W2 employee with garnishable wages. Essentially, you are "fresh meat," ripe for the picking.

Accordingly, if you elect to proceed with settlements, exercise due diligence and do it yourself, or hire a local attorney not to exceed $5,000 in fees for full service of your debt including negotiating, settling, answering complaints, discovery, serving and opposing motions, and trial. If you have less than five creditors, quite a few debt-settlement attorneys would be willing to engage under such terms.

I know debt settlement hurts your credit too, but not as bad as bankruptcy?

Both hurt your credit. Bankruptcy lowers your credit score more in most instances:

If you have creditors that you don't settle and continue to pay on time such as auto, real-estate, student loans, and you are behind only in credit cards, debt settlement will not impact your credit anywhere near a bankruptcy.

Alternatively, if your credit comprises only credit cards and you fall delinquent on all cards, then debt settlement will likely impact your credit score similarly to a bankruptcy.

Wouldn't stop paying my cards be a bad idea as the interest will accumulate even more?

Interest rates will increase to the top percentage allowed by law as well as other fees. Nonetheless, you will settle anywhere between 20-50% on the original principal balance.

What happens though as i'm sure 99% of cases prove you owe the money... Like do I put myself in deeper doo doo trying to go to court and say I don't owe it?

In 95% of cases if you are trying to settle, you will settle before trial. Debt buyers who sue will likely order the contract or billing statements from the original creditor before trial. Notwithstanding whether they have evidence or not, debt buyers will still settle with you, as (1) They buy debt for 2-5% on the dollar; (2) They don't know if you have other judgments that will be or have been entered before theirs (they have to stand in line until other judgments have been paid in full before garnishing your wages); (3) They don't know if you are employed (some do); (4) They have no guarantee on continued employment for wage garnishment; (5) They don't know if you will file a bankruptcy post-judgment.

 

[Reyaj]

Thanks for all the info Guru. Its starting to make more sense to me but just have a few more questions.

"I would encourage you to stay away from companies that settle debt. Most operate outside of the law. Most cannot represent you if you are served with a Complaint, as these companies have no in-house counsel, and if they do, often counsel is out-of-state unable to represent you in your state."

Why would I be served with a complaint? Wouldn't they just negotiate some sort of settlement deal for me and be done with it?

"Accordingly, if you elect to proceed with settlements, exercise due diligence and do it yourself, or hire a local attorney not to exceed $5,000 in fees for full service of your debt including negotiating, settling, answering complaints, discovery, serving and opposing motions, and trial. If you have less than five creditors, quite a few debt-settlement attorneys would be willing to engage under such terms."

How would I do it myself? Just called the credit card companies directly I guess? What advantage would an attorney give me? How would I pay the attorney.. sounds like I'd be putting myself in more debt....?

"In 95% of cases if you are trying to settle, you will settle before trial. Debt buyers who sue will likely order the contract or billing statements from the original creditor before trial. Notwithstanding whether they have evidence or not, debt buyers will still settle with you, as (1) They buy debt for 2-5% on the dollar; (2) They don't know if you have other judgments that will be or have been entered before theirs (they have to stand in line until other judgments have been paid in full before garnishing your wages); (3) They don't know if you are employed (some do); (4) They have no guarantee on continued employment for wage garnishment; (5) They don't know if you will file a bankruptcy post-judgment."

So if I stop paying my cards and go delinquent, then settle... this won't hurt my credit score as much as bankruptcy provided I am actively paying something else like a car lease... is that correct? I want to make sure I understand that.

So if I do settle on a lesser amount... how is that paid? Do we work out some sort of installment plan? What happens if I miss or don't pay then on those just out of curiosity....

 

[Billtx49]

Thanks for all the info Guru. Its starting to make more sense to me but just have a few more questions.

"I would encourage you to stay away from companies that settle debt. Most operate outside of the law. Most cannot represent you if you are served with a Complaint, as these companies have no in-house counsel, and if they do, often counsel is out-of-state unable to represent you in your state."

Why would I be served with a complaint? Wouldn't they just negotiate some sort of settlement deal for me and be done with it?

"Accordingly, if you elect to proceed with settlements, exercise due diligence and do it yourself, or hire a local attorney not to exceed $5,000 in fees for full service of your debt including negotiating, settling, answering complaints, discovery, serving and opposing motions, and trial. If you have less than five creditors, quite a few debt-settlement attorneys would be willing to engage under such terms."

How would I do it myself? Just called the credit card companies directly I guess? What advantage would an attorney give me? How would I pay the attorney.. sounds like I'd be putting myself in more debt....?

"In 95% of cases if you are trying to settle, you will settle before trial. Debt buyers who sue will likely order the contract or billing statements from the original creditor before trial. Notwithstanding whether they have evidence or not, debt buyers will still settle with you, as (1) They buy debt for 2-5% on the dollar; (2) They don't know if you have other judgments that will be or have been entered before theirs (they have to stand in line until other judgments have been paid in full before garnishing your wages); (3) They don't know if you are employed (some do); (4) They have no guarantee on continued employment for wage garnishment; (5) They don't know if you will file a bankruptcy post-judgment."

So if I stop paying my cards and go delinquent, then settle... this won't hurt my credit score as much as bankruptcy provided I am actively paying something else like a car lease... is that correct? I want to make sure I understand that.

So if I do settle on a lesser amount... how is that paid? Do we work out some sort of installment plan? What happens if I miss or don't pay then on those just out of curiosity....

" So if I stop paying my cards and go delinquent, then settle"
Do you really think that is a position of strength for a any kind of settlement ?
Hire a professional if you do not understand your options at this time or you will be playing on an equal field. The companies you want to personally go up against collect money for a living…
All battles are lost by under estimating or not knowing the abilities of the opponent.

 

[guru1000]

Reyaj:

I will answer your questions, if you could give me the delineation of your credit cards in respective balance order: creditor name followed by balance. Also what state do you live in? Are you paid by W2? What type of assets do you own?

I would prefer we keep this public so other members can benefit from the knowledge given as well.

My experience in this matter: I'm a VC. I bought and sold 35% of a multi-million dollar debt settlement company based out of Colorado, which serviced tens of thousands of settlements. I also have extensive bankruptcy experience, and use the imminent threat of the protection often in negotiations to preemptively settle liabilities for companies I'm interested in.

 

[Reyaj]

Reyaj:

I will answer your questions, if you could give me the delineation of your credit cards in respective balance order: creditor name followed by balance. Also what state do you live in? Are you paid by W2? What type of assets do you own?

I would prefer we keep this public so other members can benefit from the knowledge given as well.

My experience in this matter: I'm a VC. I bought and sold 35% of a multi-million dollar debt settlement company based out of Colorado, which serviced tens of thousands of settlements. I also have extensive bankruptcy experience, and use the imminent threat of the protection often in negotiations to preemptively settle liabilities for companies I'm interested in.

I am in California and yes paid by W-2.

Here are the cards:

Chase Visa: $17,000
Chase Visa 2: $8,000
Bank of America MC: $24,000
Barclays MC: $24,000
Citibank Visa: $6,000
Discover: $8,000
AMEX: $3000

 

[Reyaj]

Hey guru didn't hear back from you on this.. any advice you could provide is appreciated.

I just got a letter from a credit card I actually don't have a large balance on today saying that decreased my credit to $1000 based on my credit report.

They said the following reasons:

• The ratio of revolving account balances to their credit limits is too high.
• The ratio of loan balances to the loan amounts is too high
• The amount owed on my revolving accounts is too high
• There are too many credit inquiries on my report in the last 12 months.

The last bullet point pisses me off because I was always told that when companies check my credit its a "soft pull" and wouldn't affect me score

 

[Billtx49]

Your first indication of one or more credit suppliers are starting to get worried over your credit status and your ability to pay them. More may come before this is over.

 

[Bible_Belt]

I was always told that when companies check my credit its a "soft pull" and wouldn't affect me score

There used to be an automatic score reduction with a lot of pulls in a short time, but the reporting agencies stopped doing that. One lender's decision to reduce your available credit is not an action of the reporting agencies. It is possible your score went down, but not because of something they did directly, which is the difference, and why they call them soft pulls.

 

[guru1000]

Will respond this weekend. I didn't want to give you a cursory response if this is the direction you might be headed.

 

[guru1000]

I am in California and yes paid by W-2.

Here are the cards:

Chase Visa: $17,000
Chase Visa 2: $8,000
Bank of America MC: $24,000
Barclays MC: $24,000
Citibank Visa: $6,000
Discover: $8,000
AMEX: $3000

I'll break my response into six parts:

1) Creditor expectations;
2) Personal time constraints vs. hiring counsel;
3) How to navigate the settlements/lawsuits;
4) Statute of limitations;
5) Tax liability or loophole; and
6) Bankruptcy vs. settling.

CREDITOR EXPECTATIONS
What would motivate an unsecured creditor to settle their balance with you? No payments to a creditor renders you a non-performing asset that needs to be mitigated. We will address the question of collectability in the third part.

Each original creditor has by-laws by which they operate. Some creditors like Discover will hold on to their debt with you for five or more years. Other creditors like Chase will discharge the debt or sell the debt to debt buyers within 24 months of delinquency. With limited funds to settle (I assume), having the correct expectations will make your settling debt a much simpler process.

Before we delve into appropriating reasonable expectations, I will state that settling seven credit cards is an arduous process, depriving you of time. Whether you decide to hire an attorney or do it yourself is a business decision we will discuss further in the second part.

Let's begin:

You have limited funds. However, I assume that to service $90k in unsecured, you are spending $1,500-2000+ monthly as minimum payments. Accordingly, when you stop paying, you will be savings $18k-$24k per year that you could use to settle with these creditors at average settlements between 25% - 50% of the principal balance today (not inclusive of arrears, future interest, or penalties.) So in the worse debt-settlement negotiations, if you were to settle at 50% with all creditors, it would take you 2 - 2.5 years of non-payments (and savings) to fully settle your portfolio.

I will use the terminology "escrow" as monies you are putting aside for settlement by not paying your credit cards. The term escrow is not to be confused with a bona fide escrow account. Further, if you are funding your escrow, your personal assets are at risk to be frozen upon judgment following a lawsuit which weakens your negotiation so I would recommend keeping your funds in a corporate/LLC account or other vehicle not titled individually. When your debt settlement is complete, then feel free to use your personal account.

Some creditors like CITI and AMEX will settle at reasonable percentages the first year. Other creditors may take 2-3+ years, before a settlement of 50% or below can be reached. Accordingly, expect the process to last 2-3 years on average. Although longer than a Chapter 13 bankruptcy, there are advantages to settling debt, which we will discuss in the last part.

Let's begin:

CITI
1) Will likely be one of the first two of your creditors to sue.
2) Usually serves you with a Summons & Complaint within 12 months by outside counsel.
3) Settles relatively quickly.
4) Tends to settle at low percentages (25-35%), but requires lump-sum payments.

One of the first two settlements you negotiate and pay should be CITI.

AMEX
1) Will likely be one of the first two of your creditors to sue.
2) Usually serves you with a Summons & Complaint within 12 months by inside counsel.
3) Settles relatively quickly, but if you are a garnishable W2 employee, will require a 3-4 offer/counter-offer exchange.
4) Settles at 35-45% range, also as lump sums. Likely to be in the higher-end of the settlement range as a W2 employee.

Settle AMEX and CITI first. They litigate and settle quickly.

More to come later ...