Bankruptcy vs Credit Card Debt Settlement?

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Bankruptcy vs Credit Card Debt Settlement?

Postby rebbe1954 » Tue Apr 09, 2013 7:23 am

In the last couple of years my profession (photography), which I have practiced since 1984 and done quiet well at, has vanished in the new economy, the advance of digital photography, and a flood of cheap labor.

Last March my wife suffered a nervous breakdown, lost her job, and is not able to return to work at this time.

I have, after hundreds of applications, found a job that just pays our mortgage; just barely. We have been trying to pay our credit card debt (around $25,000) but are drowning while we go through our retirement funds. And this week I was laid off because of the sequester.

So, I find myself looking at something I never thought I'd ever have to do - decide between filing bankruptcy or allowing the credit card companies to "charge off" my accounts. At this point I cannot get a lawyer to even return my calls (except for one who told me it would cost $250 just to meet with him to even see if I could file bankruptcy) and I hear stories of people who have gone to court and come out fairly well from being "charged out."

They tell me that a judge will look at our income, not our assets, and set up a payment schedule; and in our situation they think this would wipe out almost all our debt because of our situation.

And everyday I get mail from a plethora of companies offering me a settlement, and those settlement figures vary by thousands of dollars.

Naturally I have no idea what to do and am desperate, hence my posting. Anyone with any real advice who has been through this would be appreciated. I understand that my credit will suffer - it's already trashed and I'm 58 so it's not like I can do much about that- so please don't spend a lot of time on that.


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Postby MemberSince99 » Wed Apr 10, 2013 7:05 am

I'm not sure I would trust those settlement companies. All they will do if they are honest is exactly what you could do yourself - negotiate away part of all of the interest on payments, or settle the amount for less than is owed. Either way you are going to lose the cards. And the crooked ones will take your money and pay nothing to your creditors and good luck with getting your money back then.

I think your only way out is bankruptcy. You don't know when or even if you will get another job (that's not so absurd to say because some have been out of work for years now. I get very tired of listening to the hate mongers scream how it's just because they are lazy and worthless but that's another subject). So you have no idea when or if you can pay. Just bite the bullet and do the BK. I know it's humliiating, but your credit is already destroyed and you have no other way out of this that I am seeing. If say you had good leads on a job and a better situation I'd say maybe you could hold on a little longer but it just doesn't sound that way.

Just bear in mind that unlike a corporation, once you file, you can't do it again for many years, so get everything possible onto that BK, including if you need to go to the doctor for anything, do it now, and include it. You won't be able to do that for a while after you file so you'd better hope you don't get sick. I'm not meaning to advocate being a bad person, just that this system is so wretchedly horrid that you better look out for you and your wife, because this system won't do that. (They are too busy giving our money to Egpyt and Pakistan).

Best of luck to you I truly do feel for you.

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Postby djrez4 » Wed Apr 10, 2013 8:32 am

Member is right for once. Don't trust the settlement companies. File the BK.

Also, if lawyers aren't returning your calls, you need to approach them differently and make a good first impression. Lawyers are allowed to pick and choose their clients. Make sure you come across as someone who will be a good client. All you need to tell them is that you are interested in exploring bankruptcy options. I reject clients all the time if I feel like they'll be more trouble than they're worth.

Expect it to cost around $1500 to hire an attorney to file for you. Do NOT try to do it on your own. Federal court is no place for a pro-se petitioner.

(PS - I'm messing with you, Member)
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Postby F1098 » Wed Apr 10, 2013 9:57 am

A finance guru named Jordan Goodman comes onto our local Denver radio station weekly & gets this question every week from people in the exact same situation as you.

He says you have to find a NON-PROFIT credit card counseling program. Some have pre-negotiated rates with the banks to get your card rates down to 5-6ish percent, so you can actually make progress on your principal. You would never be able to get these rates by calling your credit card company.

STAY AWAY FROM FOR-PROFIT CREDIT CARD COUNSELING!!! These maggots will take your payments and hold the cash for six months, causing your cards to go delinquent & slaughtering your credit.

Once you're delinquent, they pay a settlement amount to the credit card company. The dirty secret is that you will have to pay Income Tax on the amount the debt was reduced, it's called Phantom Income.

For example, if you owe $25k on cards, but the bank accepts a $10k settlement, you have to pay the IRS income tax on $15k.

The non-profit company he recommends is Cambridge Credit Counseling.

I'm not affiliated with the company in any way, but I really think this is what you need to avoid bankruptcy. Many people have called back the show with success stories using them.
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Postby Daniel » Wed Apr 10, 2013 11:19 am

I just want to make sure that everyone here understands that BK is not to be taken lightly, before any of us make any hard recommendations, we would need to know more of the intricacy's of your situation.

I don't have personal experience with this question, however a friend of mine who went out of business in 2008 and he tried the settlement group route. In his words he thinks he got screwed, but I am not sure if that is good enough reason to try the BK option. Do we know if retirement funds are a protected asset class while filing bankruptcy? If not, is there a penalty for withdrawing funds to pay debt? I know people can pull money out of a 401k for a down payment on a house, but I haven't heard of a rule regarding debt payments.

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Postby MemberSince99 » Wed Apr 10, 2013 4:55 pm

djrez4 - no offense taken it was funny!

Guys, what other way out does he have? He has lost so much income that he can BARELY make his mortgage and nothing else. There is no light at the end of the tunnel that he mentioned. I certainly agree it's not to be taken lightly and it's not the first option it's the last option. Based on what he said, I'd do it if I were in his shoes.

Again, if I saw this job that would lift me out of that coming up, then I would hang on. But we all know what this economy is REALLY like, no matter what the government claims. (Hint: to anyone who thinks things are so great, please, go applying for work at places where you don't have a buddy who can get you in. Then tell me how great you find it. I know because I looked for it recently, and it's just dreadful the worst I've seen since 82).

So the advice was carefully considered and I still think based on what he said, it's his way out of this. His credit is already in the toilet and it still will be if he "settles" and he can't even afford to do that.

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Postby GCMac8 » Thu Apr 11, 2013 10:14 pm

To the OP, I want to first caution you against getting legal advice online, particularly when the people you're interacting with aren't attorneys. That said, I can understand your frustrated and unsure of where to turn.

While my firm doesn't handle consumer bankruptcy (I work mostly with creditors), several of my friends do and I've had several individual clients go that route, usually as a result of medical issues. As such, I would highly recommend you seek out a competent bankruptcy attorney in your area. Most of the bankruptcy attorneys I know don't charge for consultations, and they can explain the ins and outs of the process and help you weigh your options; depending on your situation, they may even recommend other alternatives you haven't thought of. Now, I'm not saying that you should file for bankruptcy, but you really should have all the information about your various options before proceeding.

Certainly bankruptcy is a big decision, but there are also numerous misconceptions out there about the process, especially in light of the 2005 reforms to the code. In any event, it's not my area of expertise and I would hedge my bet that it's not for the other members of this forum either (no offense to them), this is why you need to seek at a specialist.

If you need help finding an attorney, I would suggest you contact your state's bar association or local (city or county) bar association.

I wish you the best of luck in whatever you decide to do.

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