Bankruptcy or Negotiation

[Anonymous]

I was on the verge of finalizing my ch13.  I was able to get covid relief and pull from my 401k.  I can cover my entire debt now.   I haven't paid my credit cards in ~6 months.  My vantage credit score is down to 478.  Should I have the lawyer settle try settle with my creditors and will that help my credit scores.  Will creditors work with my lawyer.   I understand there will be a lot of rebuilding involved.  

thanks in advance.  

[sarge12]

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@Anonymous wrote:

I was on the verge of finalizing my ch13.  I was able to get covid relief and pull from my 401k.  I can cover my entire debt now.   I haven't paid my credit cards in ~6 months.  My vantage credit score is down to 478.  Should I have the lawyer settle try settle with my creditors and will that help my credit scores.  Will creditors work with my lawyer.   I understand there will be a lot of rebuilding involved.  

thanks in advance.  

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I am having problems understanding what you are saying. You said you can cover entire debt now, and then ask should you have the lawyer try to settle with your creditors. That is confusing, because if you can cover entire debt, what is there to settle? The vantage 3.0 score is fairly useless, as almost no lenders pull that score. As for will your creditors work with your lawyer...once again if you can now cover all your debt, why would you pay a lawyer to pay them for you. Did your lawyer advise you to pull funds from the 401k? It is usually not a real good idea to take funds from a 401k to pay down debt, especially not a lot of money. While in the 401k account that asset can't be taken by creditors. It is hard to offer good advise with so little to go on, even if it was clear to me what you are asking. Are you asking how to get the delinquicies removed from your report after being paid? If so, asking for a goodwill removal might be the only way, but not having made payments in 6 months, it is not likely. It might be possible to settle some of the debts for less than the full balance, if that is what you are asking? You don't really need a lawyer to acheive that though. At this point I am just guessing what you are asking. If you would like to elaborate on your situation, I or someone else might be more likely to give better advice.

[sarge12]

OP, you might ask your creditors if they will accept PFD on the accounts as well, but as far as the delinquency on the reports, you are kind of at their mercy. I have not heard of a lawyer being any more successful at getting baddies removed than the debtor is. If paying is what you plan to do, a lawyer handling that might even make a PFD less likely if the creditor thinks you are thinking of a legal way to force removal. If the reported delinquincy is not accurate, you could dispute the inaccurate data. If it is accurate, there is no legal means to force removal. In any case do not deal with any of these shyster credit repair company scams. Some have been successful with the saturation method to get baddies removed. You can learn about that here...

https://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/The-Saturation-Technique-Best-GW-adjustment-...

[Anonymous]

Sorry about the confusion...

1. was almost ready to file 13 when I became aware of being able to withdraw from my 401k to cover the debt as I don't want to file bankruptcy.  Have a son going to college and want to have the option to assist him if needed (loan, small credit card ect...)

2. spoke with the lawyer and he will help settle/negotiate the debts with the creditors.  Some creditors have sent letters like NFCU and Amex so I should be able to hopefully negotiate with them.  AMex offering to become a member again with an Optima card.

3. will the lawyer have special negotiating skills that will help get the bad dings on my credit report removed

4. what kind of hit on my credit report am I looking at with charge offs? 

5. If i pay in full all my creditor will the utilization come down and help increase my score?

Sorry not really good at transferring what is in my head to text 

[Anonymous]

I will let other, more knowledgable people respond to the questions related to utilization rate/credit reporting. Here are my thoughts:

• I believe a paid charge-off will simply be reported as a paid charge-off, and remain on your credit report for 7 years. This is possibly the same time a bankruptcy would appear on your credit report, depending on the lenght of the plan.
• The biggest hit to your credit report has alreay occured by having 30, 60, 90, 120, etc. days late payments, and charge-offs. Paying the charge-offs will result in a score increase, but I don't believe it will be significant or immediate (others can confirm).
• If you haven't already taken the 401(k) withdrawal, you should give serious reconsideration to this plan: 
  • What will be the impact in your retirement of selling now, when many stocks are at a low point, taking money out of your 401(k)? For example, if your portfolio went down 50% recently, selling $50,000 of stock means you will be selling twice as many shares.
  • How much less will you have available in retirement by making this withdrawal?
• For those debts that you settle (i.e. pay less than the full amount owed), what will be your tax liability for the 1099 you'll receive?
• Will you owe any additional money to your attorney?
• Why is your credit needed to help your son in college?
  • Couldn't he get a student credit card on his own?
  • Wouldn't having a 401(k) balance be a possible solution for a 401(k) loan to help your son, if needed?

[Jnbmom]

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@Anonymous wrote:

Sorry about the confusion...

1. was almost ready to file 13 when I became aware of being able to withdraw from my 401k to cover the debt as I don't want to file bankruptcy.  Have a son going to college and want to have the option to assist him if needed (loan, small credit card ect...) As others have mentioned withdrawing from your 401K to pay debt is usually not advisible, not sure how much you have in there

2. spoke with the lawyer and he will help settle/negotiate the debts with the creditors.  Some creditors have sent letters like NFCU and Amex so I should be able to hopefully negotiate with them.  AMex offering to become a member again with an Optima card. This is not anything you can't do on your own and save yourself the lawyer fees, both of these creditors will have to be paid back in FULL in order to have anything is the future with them. Navy is always a good lender to have i would pay them back if you can, amex depends some think they are a must others don't need them in their portfolio.

3. will the lawyer have special negotiating skills that will help get the bad dings on my credit report removed Not really and he really can't get anything off that is legit, save your money you can do this on your own

4. what kind of hit on my credit report am I looking at with charge offs? Your score will suffer for the lates in the past 6 months and the chargeoffs.

5. If i pay in full all my creditor will the utilization come down and help increase my score? It will help, but remember the negatives will hurt for you quite some time

Sorry not really good at transferring what is in my head to text 

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[sarge12]

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@Anonymous wrote:

Sorry about the confusion...

1. was almost ready to file 13 when I became aware of being able to withdraw from my 401k to cover the debt as I don't want to file bankruptcy.  Have a son going to college and want to have the option to assist him if needed (loan, small credit card ect...)

2. spoke with the lawyer and he will help settle/negotiate the debts with the creditors.  Some creditors have sent letters like NFCU and Amex so I should be able to hopefully negotiate with them.  AMex offering to become a member again with an Optima card.

3. will the lawyer have special negotiating skills that will help get the bad dings on my credit report removed

4. what kind of hit on my credit report am I looking at with charge offs? 

5. If i pay in full all my creditor will the utilization come down and help increase my score?

Sorry not really good at transferring what is in my head to text 

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OK, as far as will the lawyer have special negotiation skills, that depends. If it is a bankruptcy lawyer, the lender might be more likely to settle to prevent filing. This could also have a downside though, as that lawyer, or any bankruptcy lawyer is not exactly admired by creditors. So in my opinion, if your attempt is to get a PFD or goodwill removal, it might harm that chance. Goodwill removals are more likely with being friendly, and most creditors do not have friendly encounters with bankruptcy lawyers. I do not think a paid in full charged off account will have any affect on utilization, but at this point utilization should not be a primary concern. The payment should help the utilization though. You need to be looking at fico 08 scores and the experian fico 08 is free to all at creditscorecard.com. Your score is bad, no doubt, but in time you can get it to go up, but it will take time. I have actually filed both ch.13 and ch.7 in my young and idiotic years. My current scores are in my siggy below, and they have all been in the 800 range for at least 10 years. So, as you see, there is hope that good decisions and time can fix even the worst of scores. I also learned in time to leave the 401k alone, and since I became disabled due to spinal cord damage from stenosis, it was a good thing I did. It left me with about 450k to supplement my SSDI. I was disabled at 55 years old, and the disability gave me access to the 401k without penalty. I always planned to work until age 65, but life happened, and the 401k made finances not to be an issue, and I am so glad I left the 401k alone. I am 62 in July, and the 401k still has 385k so will likely outlive me. My health is just real bad.

[Anonymous]

So it looks like NFCU has moved my three account to collections and are willing to settle.  I don't know if I should pay in full, setttle or continue down the Ch 13 path.  I still need to call Citi, Chase, Discover.  Amex moved me to Nationwide Collections and said they can't recall the debt.  

[sarge12]

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@Anonymous wrote:

So it looks like NFCU has moved my three account to collections and are willing to settle.  I don't know if I should pay in full, setttle or continue down the Ch 13 path.  I still need to call Citi, Chase, Discover.  Amex moved me to Nationwide Collections and said they can't recall the debt.  

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I could not advise anyone which way to go on a bankruptcy without very detailed information. I will say this, it is not a decision to be taken lightly. The 2 biggest mistakes people make with bankruptcy is filing when there are better options, and waiting too long to file. I helped my Neice file 2 years ago, and She had definitely waited too long. She filed chapter 7 though, and all the creditors showing late on her credit resulted in the filing actually improving her score. She was approved for a capital one card with no AF about a month after discharge. Many think a bankruptcy always lowers a score, and it usually does. That is not always the case, as there are cases that have 20+ debts, mostly finance companies, and all with late payments. In those cases, the discharge of those debts helped more than the bankruptcy hurt her scores. They were literally at over 100% DTI ratio, and would not have ever been able to dig themselves out of that hole. I paid their lawyer, caught up their house payments, and all other non-secured debt was discharged. Usually being over 60% DTI is unsustainable. A rule of thumb is this, if you can through other means, have your credit managable within 7 years, don't file. If not, then filing is the best action. The bankruptcy will be on the report 7-10 years, but if your situation is too bad, any other means will just delay the filing. They should have filed at least 5 years earlier, and were renewing every debt every 3 months because their debts were more than their income. In effect they, by not filing earlier will have had bad scores for 15 years that would have been 10 if they had filed earlier. At some point it just becomes a math problem of what you make minus what the debts payments are, and is what is left enough for lights and groceries etc. If it is impossible to live on the remaining income, and there is no way to increase the income, bankruptcy is inevitable...the sooner the better.

[tricie17]

Negotiate and pay.  You do not want that BK on your record.