Bankruptcy vs. Try and Settle

[Anonymous]

Long time lurker, vs time poster here. 

Like a lot of us I have suffered pretty signifcant difficulty since the Coronavirus.

Long story short I used to make $90k plus a year and my fiance made a decent amount too and we used to split things down the middle. Fast forward to today, I had to take a job that only pays $60k, and my fiance has had to start working at a minimum wage job so all of the household expenses fall on my shoulders.

I have $62.5k in unsecured credit card debt, and I am looking for a way out. I do not foresee my income increasing to a reasonable amount any time in the next year. I have called my two creditors NFCU and USAA to try and see if they would amenable to a settlement. From what I can tell they would but it remains to be seen what amount they would accept. I would think that BK chapter 7 would normally be the way to go, but complicating matters further was that I balance transferred $20k worth of educational loans on a 0% interest card back when I was making good money and planned to pay it off in a year. From my understanding this amount would not be eligble to be discharged anyway since it would surely raise eyebrows and they would investigate and see that it was education related making it inelible. 

I would think that if I get a settlement down to around 50 cents on a dollar that would be a better option for me? Thoughts? Is my understanding of the education aspect wrong?

If I do settle does that adversly affect my credit rating? As of now I have 0 lates, but I can no longer keep up with the minimum payments. 

[DebtStinks]

First - Can you get on a tightened budget with your 60k/year income and have your debt completely/mostly paid off within 5 years?

Second - If you do settlement on any of your debts, they can send you a 1099-C (cancelation of debt) to file on your taxes. This means you pay tax on the "forgiven" portion of the debt owed at your current tax bracket rate.

Third - Once your student loan debt was transfered to a credit card...it's considered credit card debt, not student loan debt. Yes, if you immediatley filed BK, it could be contested by the credit card company whom you now owe.

Fourth & Final - Not to judge (look at my profile as I filed CH7 a little over 3 years ago) but if you accumulated 42.5-62.5k of credit card debt making 90k, was it bad spending habits? It doesn't seem that even with 60k/year income you could accumulate 42.5-62.5k of credit card debt in less than a year simply by a reduced income of 30k/year. Regardless, your income will be scrutinized if you file BK. If you make under the median income for your legal household (tax return wise) then you can file CH7...if not, you'd need to pass the means test or be forced to only have the option of CH13...or pay it all back/debt settlement.

Best of luck!

[Anonymous]

18% interest rates makes any sort of budget unreasonable to accommodate. The creditors refuse to lower the rate, I checked on that months ago.

I don't disagree that it was my own fault to a degree that I am here but it was manageable with my income level before, vs impossible to manage given my current circumstances. 

$60k is under the household income limit in my state which is Washington.

[DebtStinks]

Well, if it doesn't seem manageable and you're currently under the median income to file CH7 without having to worry about the means test...I believe they look at your last 6 months of income to determine whether or not you have to pass the means test...might strongly consider filing now or very soon, especially if you think your income will increase in the future but not enough to repay your debts.

Best of luck!