Paying off collections vs filing bk..what to do?

hippychic823 · ‎07-20-2016

I'm in the process of rebuilding and want to know where to start and how to start. With the help of this forum I previously went from no credit to being in the 800 club and bought a home in 2012. Life was good. But it all went bad in 2015. My hours at work got cut and I was struggling to pay my bills. Fell into the trap of only making the minimum monthly payment, maxed out all my cards, began to fall behind on my mortgage. Then I get the bright idea to quit making card payments altogether and still payed my mortgage. That didn't help and I was still struggling so I let the house go into foreclosure. Now I'm in a more stable place in my life and career and I want to fix my credit. Everyone is advising that I file for bankruptcy but if I can improve my credit by paying off all my cards that went into collections I'd rather do that. However, I am under the impression that a collection is still a collection as far as your score goes and it doesn't matter if they're paid or not. What would be my best course of action?

Anonymous · ‎07-20-2016

@hippychic823 wrote:
I'm in the process of rebuilding and want to know where to start and how to start. With the help of this forum I previously went from no credit to being in the 800 club and bought a home in 2012. Life was good. But it all went bad in 2015. My hours at work got cut and I was struggling to pay my bills. Fell into the trap of only making the minimum monthly payment, maxed out all my cards, began to fall behind on my mortgage. Then I get the bright idea to quit making card payments altogether and still payed my mortgage. That didn't help and I was still struggling so I let the house go into foreclosure. Now I'm in a more stable place in my life and career and I want to fix my credit. Everyone is advising that I file for bankruptcy but if I can improve my credit by paying off all my cards that went into collections I'd rather do that. However, I am under the impression that a collection is still a collection as far as your score goes and it doesn't matter if they're paid or not. What would be my best course of action?

Largely depends on the amount of debt you have, and what your income level is.

hippychic823 · ‎07-20-2016

My income is now around 80K. When I fell on my financial problems it was around 35K. My debt is as follows:
Wells Fargo $49K (foreclosure)
Portfolio Recovery 4k (was from a Best Buy card)
Portfolio Recovery $150 (was from an American Eagle card)
Portfolio Recovery $708 (was from a Victorias Secret card but the balance due when OC closed acct was $575. I don't know where the $708 is coming from)
Portfolio Recovery $1500 (was from a Care Credit card. Balance when account was closed by OC was $938)
Capital One $702

That's about it but on the accounts that are now owned by PRA the OC is still reporting them on my Equifax report and PRA are reporting them as well. I contacted the OC of all accounts and they all referred me to PRA. So my question is should I go on and pay the collections accounts or should I just file bk?

Talima719 · ‎07-20-2016

I'm no expert and I've never been in a situation like yours. But by looking at your income and the debt, I would attempt to pay them. I personally would attack the credit cards first. Try and negotiate with them and see if they would settle on a fraction of the balance. If they're all with the same CA, tell them you have $5k (or any figure that's best for you) to settle all your accounts. Then eventually try and work with Wells Fargo.

Yes, the easy route is to file bankruptcy especially looking at the foreclosure debt. And if you have the yrs to wait before your credit profile looks less risky to lenders again, then that's still an option.

But remember, you were living off a $35k salary. Use the excess in that great increase in income to clean up that debt. I think you can do it :-)

hippychic823 · ‎07-21-2016

My dilemma is that I know negative stuff stays on your file for 7 years. If I paid the collections they would still be on my file for 7 yrs and if I filed for bankruptcy that would stay 7 years as well. Would paying the collections raise my score or would my score stay the same and just have a bunch of paid collections on it but my credit still be crappy for 7 more yrs? Would a bankruptcy or several paid collections look better on my report?

Anonymous · ‎07-21-2016

@hippychic823 wrote:
My dilemma is that I know negative stuff stays on your file for 7 years. If I paid the collections they would still be on my file for 7 yrs and if I filed for bankruptcy that would stay 7 years as well. Would paying the collections raise my score or would my score stay the same and just have a bunch of paid collections on it but my credit still be crappy for 7 more yrs? Would a bankruptcy or several paid collections look better on my report?

I doubt you could get away with filing CH7 with 80K of income. You would likely be forced into a CH13 repayment plan.

Is the 49K foreclosure a primary mortgage? Are you in a recourse or non-recourse state?

hippychic823 · ‎07-21-2016

The 49K mortgage is a primary residence. It is the only house I have ever bought, I'm currently renting now. Not sure if I live in a recourse state or not. Not really sure what that means but I live in IL if that helps.

Anonymous · ‎07-21-2016

@hippychic823 wrote:
The 49K mortgage is a primary residence. It is the only house I have ever bought, I'm currently renting now. Not sure if I live in a recourse state or not. Not really sure what that means but I live in IL if that helps.

Illinois is a recourse state. That means mortgage companies have recourse; they can recover the deficiency from the homeowner, even after the house is lost to foreclosure sale.

Anonymous · ‎07-21-2016

@Anonymous wrote:
@hippychic823 wrote:
The 49K mortgage is a primary residence. It is the only house I have ever bought, I'm currently renting now. Not sure if I live in a recourse state or not. Not really sure what that means but I live in IL if that helps.
Illinois is a recourse state. That means mortgage companies have recourse; they can recover the deficiency from the homeowner, even after the house is lost to foreclosure sale.

Wasn't there a federal law that expired last year that discharged the entire mortgage if the home was foreclosed on or something like that? I think it was mentioned in another BK related thread just a day or two ago...

RobertEG · ‎07-21-2016

A debt collector can "update" their collection monthly.

Updated reporting can be no more than a reporting that the collection remains open with a balance.

That reporting effectively causes FICO to treat the delinquent debt as currently delinquent, thus continuing to depress score.

Once the collectin is paid, monthly updates discontinue and the collection is closed with $0 balance.

That then permits the collection ot begin aging in the eyes of FICO.

Thus, while paying does not remove the derog, if the debt collector was making regular updates, it will begin to have a positive (but usually small) effect on scoring.

Most consumers will first offer a pay for deletion prior to simply paying.

While debt collectors will often decline to do a PFD, it is beneficial if you have time to first make that attempt. If they bite, the debt will be saitisfied AND the collection will be removed.