File Ch 7 or Settle?

[purplepenguin7]

Hi, I'm new to the forum. I'm working on fixing my credit. My credit score is 540. I bought a car in 2011, and it was 570. I don't own a house or pay rent. I have 4 credit cards, all in collections ranging from $500-$4000. They were all out of the statue of limitations in NC (3 years). I made bad decisions when I was in college and treated credit cards like free money. I was in payment arrangements for a year, but the payments skyrocked and interest started to accrue again after the payment arrangements were done. I stopped paying on cards, but I continued paying rent, car, cell phone, and utilities on time.

I moved to MA a year ago to live with my mom and get my finances back on track. Unfortunately, MA has a 6 year statute of limitations, and I am being sued by one credit card in small claims court. I offered then $2200 in a lump sum, and they're considering it (original debt of $4000). A family member has offered to loan me $2200 to pay them off so I don't have to go to court. If I do go to court, I think I would essentially be judgement proof. I work as a contractor, so they wouldn't attach my wages. I have no property other than my car, and I still owe $6K on it. I really don't want a judgement against me because I know I owe the money, but its not like I would be in a crisis with wages being attached. 

I also have student loans. I'm paying on 1, 2 are in deferrment, and 2 are in collections because I haven't been able to pay. Neither are government loans. I'm trying to work with the collections, but they want more than I can afford to pay each month. I'm making payments when I can, but I can't get on a monthly schedule with the loans in collections.

My final debt is a medical bill of $5K. I had insurance but it didn't cover it all. I paid some of this debt, but then I fell behind and couldn't catch up. 

I'm seriously considering Ch 7. I'm frustrated because I've lived within my means, using no credit cards, for about 3 years. I only pay in cash, and I pay my ongoing bills (car, insurance, cell, utilities) on time. I feel trapped by my past mistakes. Its challenging to settle with credit cards because they want lump sums, and I only make $45K. All my money is carefully budgeted, and I'm not running away from bills, but I don't make enough money to pay off the credit cards and student loans in collections.

I should also add that Capital One recently sent me several pre-approved notices. After reading on here, I decided to apply and got approved for a $300 limit. My plan is to make 1 purchase a month, making sure I stay below 19% of the total, and immediately pay it off. From what I've read, they may up my CL after 3 payments and it will be a plus to make these payments on time. 

Any advice is appreciated. Thanks! FWIW, I'm in my late 20s and work at a nonprofit. I've been consistently looking for higher paying work. I have a BA and MA, both of which looking back are really bad investments because they don't earn me more money.

[ezdriver]

Ch 7 bankruptcy exists as an option for people who have little to no chance of paying off debt because of limited income. It provides a fresh start but at a price. Sounds like you are a candidate for Ch 7 or Ch 13. Please consult a bankruptcy attorney.

[purplepenguin7]

Thanks. Are free consultations available or is it typical to pay a consult fee? 

[grassfeeder]

don't ever pay an attorney for a consult....any legit one should be free of charge

[purplepenguin7]

I scheduled 3 free consultations for next week. 

I'm kind of freaked out to gather all the info they need. I feel mad at myself and embarrassed, but I know I can't ignore bills any longer. 

[Anonymous]

A consultation with a reputable attorney that focuses on BK 7 or 13 should be free of charge. Both parties will get what is the best approach at the consult. Also, the attorney will provide you the information needed to move ahead in the event you decide to file a BK. It has taken me twelve years to live past the effects of the BK7. I know they tell you it is only ten years and things get better way earlier. Maybe for some people. I found that the banks I filed against remembered me internally forever and the fact the BK fell of the credit bureau did NOT stop them from excluding me as a new customer. Chase, US Bank, FNB Omaha, Citi and Bank of America do and internal search before issuing credit. You say how do I know, everyone of them told me and asked historic questions on the BK that only they could have known. Today only AX and BofA have limited me credit with the others slowly and carefully easing me back into their good graces. Understand there is a point where you cannot continue tp pay your bills. Your income is only so much and you have to take the best action for you. Best of luck. It is a decision that over time you will be able to put in the past and will find life after a BK.

[ezdriver]

I would not use the services of an attorney unless that attorney does primarily bankruptcy litigation. There are too many competent specialists out ther to mess around with generalists.

[Anonymous]

Since BK affects the next ten years, utilize the services of an attorney. As just stated, an attorney who specializes in BK. Do not try to do it yourself. As one who has walked the path and knows others too it is too big to not use a BK attorney. In my case it involved a business which only further complicates it. Ignore anyone who tells you otherwise. Often people who haven't walked the walk only know what they have heard or read, they mean well but ...?

[mcordry]

Hi Wanderer, i saw that you said you had a business,, i know this is off topic but i too have a business and am contemplating personal bankruptcy.  I was wondering if you could tell me if you were able to keep your business through the process?  I am so concerned about losing it that it is stressing me out.  Thanks for any info you could give me.

[chasmith]

BK might be the right option since you would get rid of the credit card debt and then hopefully be able to pay your student loans.  You won't be able to discharge most student loans in BK.

There are a couple of tactics you could use to try to settle.  Try to use the 2,200 you've been offered to settle all the unsecured debt.  Divide the 2200 by the total debt and that tells you the highest % you'de be willing to pay - if you owe $10,000 you could pay 22%.

I would retain a BK attorney to write all the creditors stating that you have retained them to advise on possible BKand  prior to filing your best and final offer in settlement is X, provided all creditors accept.

An alternative would be to have the relative write each creditor saying they are willing to pay X on your behalf to settle the debt.

Be careful of taking on new credit while considering BK.