topic Student and 2 Maxed out credit cards in Bankruptcy

Student and 2 Maxed out credit cards

Anonymous — Mon, 28 Sep 2009 02:16:02 GMT

Hello,

My wife's son has 2 maxed out credit cards with $9,000 debt total. He doesn't have any job and has no assets. I don't know his credit score but I don't think it's any high.

One of his credit card has an APR of 25 % (with 5000 on it) while the other has an APR of 5 %.

I know credit card debt is blowing up right now and it is much easier for one to stop paying them than in the past.

What are his options?

- Can he simply on his own stop paying his credit card debt for 6 month (I know credit card companies have to write off the debt after that period) and be able to renegociate his debt to say half?

- Should he do the above but with a credit counseling company instead of on his own. If so could you guys advise where he could go because I know there are a lot of scams in that business. We are based in Orange County CA.

- Should he file bankruptcy? My understanding that it is not worth it.

Also, would doing that impact his chances to get a student loan with Sally Mae? My understanding is that they don't look at credit scores.

Thanks guys

Xavier

Message Edited by xav on 09-27-2009 07:16 PM

Re: Student and 2 Maxed out credit cards

IOBA — Mon, 28 Sep 2009 16:29:28 GMT

Your wife's son can call the cc companies and work out a hardship payment plan. BUT they may ask him for income and how he is going to pay it. Does he have any income at all? For me, when the income dropped, BA refused to do payments since my income was not high enough. Someone who works for BA sent a private message and explained that the internal guidelines for the payment plan are

- at least 2% of the total balance must be paid every month

AND

- the debt must be paid off in 5 years or less.

If the young man is unable to meet those qualifications, they may deny him the payment plan. After 8 months of DOFD, they will charge it off.

A credit counseling agency is going to require income to pay on the bills.

Bankruptcy may not be the answer. The debt goes away this time, but you still have to pay the lawyer/court up front, and the behavior has to change.

The biggest question is -- what does HE want to do about it? Does he want to pay? Is he willing to call up and negotiate a payment plan? Is he willing to do misc jobs for you and for others to earn money to make the payments?

Would you give him odd jobs or opportunities to earn money?

Re: Student and 2 Maxed out credit cards

Anonymous — Tue, 29 Sep 2009 02:17:56 GMT

Thanks for helping.

I don't think he really knows what he wants to do. One of the other problem is that he regularly comes and ask us for money for other things. I want him to do what is in his and our interest. I think he has much more power than he thinks on this.

2 percent of the debt paid everymonth seems rather high to me. I don't possibly see how he can pay for this.

What is in his best interest? Reading your answer it seems to me that his best interest is to stop paying. I'd just like to understand the possible outcomes if he does so, especially in respect of getting a Sally Mae loan when he goes to college next year.

Thanks

Re: Student and 2 Maxed out credit cards

IOBA — Tue, 29 Sep 2009 13:22:54 GMT

Bankruptcy - I believe there is a legal fee that must be paid up front. I see advertisements for bk lawyers offering to file for $600 (cash, upfront). The judge can approve or deny the bk. Or he can make it conditional. I have known people that have filed bk and were denied. (They were shocked.)

If the bk is approved, then he has to have 2 years of clean credit history before lenders start relaxing about extending him credit. It will probably cost him (secured cc, fee cc's) to rebuild his credit. The bk can remain on his credit report for 7-10 yrs.

If he calls up and goes on the hardship plan, he has more options. The lender will probably close the account out. (They usually do.) He makes payments. Two percent of 9k is about $180 a month. Paying it off in 5 yrs is doable at $180 a month. Going this route shows lenders that he is willing to take financial responsibility to pay his debts. It also helps him rebuild his credit from missed payments.

Having the cards charged off hurts credit too. You have eight months of late payments. You have a charge off. You have a collection. All three things kill the FICO score. Plus, it will remain on his credit report for 7-7.5 years.

Of the three options, I would personally choose the second option -- call up, go on the payment plan. He needs to be aware that they may ask questions about income, living situation, assets, and employment. He should be prepared to answer the questions. If he claims he has no income, they may deny him the payment plan.

Again, what does he want to do? Is he willing to work odd jobs to earn $200 a month to make the cc payments?

*****

In my household, one of the kids pays for the internet. (They pay cuz they insisted they had to have it.) Things got a little tough financially and I borrowed money from my kid. I paid it back as agreed. Meanwhile, since I had borrowed money, the kid could not pay the internet bill. I offered to pay it and count the funds towards the debt owed. The kid said no way! I want the full amount back! I said ok...I paid it all back as agreed. Then I waited and waited and waited for the back payments on the internet. They didn't come.

Relatives gave this kid money for birthday. Same relatives told kid you don't have to pay your mom back, spend all the money on yourself. (Boy, I was upset about this!! I am trying to teach my kids to be financially responsible and NOT go into debt! And they are telling my kid it's ok to screw relatives financially???) The kid actually had the nerve to ask me for paypal information to access my paypal account (that is how I am sometimes paid) and to ask me for access to his "vacation" account. (The vacation account is an account I put $5-10 in every month that can be used for school trips or spending money for vacations.) He needed more money than he was given to make his desired purchase.

I reminded him that he still owed a debt. He needed to pay the debt before he spent on anything else. Fast forward a few months. He's going on a trip and needs as much cash as possible. I remind him he still owes me. Kid reminds me that the vacation account has money in it and it belongs to the kid for trip expenses. With a tight smile, I told the kid he would NOT have access to those funds until he paid the debt.

The kid was furious, but he paid his debt. He had fully intended to use the money sitting in his account, plus the vacation money, and screw mom. The relatives had said it was ok to do this. (argh!!! Yeah, see if I loan them money again!) And the kid went on his trip, with nearly a hundred dollars less than he had planned.

The kid has learned, I hope, to pay debt first. The kid knows NOT to ask for spending money if the bills are not paid first.

****

I dunno how you want to work with your wife's son. It sounds like you would like to help him, without taking on his debt. I hope my experience with my kid helps you. If the young man does not learn now how to deal with his debt and his creditors, what will happen if he can't make his student loan payments? Will he walk away from those too? What if you have to co-sign or get a parent loan to help him get enough money to pay for college? Will he walk away from the loans you co-signed?

This may be a little strong, but I think his actions now are a good indicator of how he will behave financially in the future. And that affects you and your wife.

It may be that he truly lost and unsure of what to do. This is a great opportunity for you and your wife to sit down with him, show him the post, and talk about options. Education and knowledge are great tools.

Again, in my opinion, he needs to call up his creditors and work a payment plan. He needs to find a way to earn $200 a month to pay the debt. Fast food places are usually hiring....he may not like that work, but heck, if it will pay the bills, he should do it.

Message Edited by IOBA on 09-29-2009 06:22 AM