Chapter 13 vs Settling

[Aria]

I have a strong relationship with the big credit card companies (Amex Platinum, Discover, Chase, Citi). I am still in good standing with all the major players.

My business is down and my income is dropping about 70k.

I met with an attorney about 13. Payment looks like 2500 - 3000 monthly for 5 years.

Plan B is to stop paying Navy Federal on about $45k of unsecured debt, SoFi $30k, and maybe Venmo (synchrony) @ $10k. Then at 120 days I can leverage about $40k available and max out my HELOC and try to settle with these folks about at 50% and ride out the rest of my debt (and tax debt @ $30k).

I’m worried NFCU, SoFi and Venmo may not settle. If I end up garnished well that’s game, set, match.

For what it’s worth my wife has a 750 credit score and I’d file solo.

Any advice?

Bite the bullet or be more creative and try to settle after I go late. I’m not trying to buy or sell any real estate for at least 3 years, so I can handle a rocky credit score for a bit. Also, I stop paying $1450 monthly in alimony in 3 years.

Thoughts? It sounds nice to not have to hustle 200k each year with multiple full time jobs, but I hate to file 13 if I can figure out an other option.

For what it’s worth I’m in my early 40’s. Retirement savings is moot, but I have an advanced degree and strong work ethic. The idea of being debt free at 47 is nice and then just pay off my mortgage quickly.

Alternatively, I’m a “spender” and I’m unsure about this 13 filing.

[AndrewF]

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I'd rather file Chapter 13 if I found myself in this situation. Putting unsecured debt on a HELOC where they threaten your house is just not good.

[JoeRockhead]

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@Aria wrote:

I have a strong relationship with the big credit card companies (Amex Platinum, Discover, Chase, Citi). I am still in good standing with all the major players.

My business is down and my income is dropping about 70k.

I met with an attorney about 13. Payment looks like 2500 - 3000 monthly for 5 years.

Plan B is to stop paying Navy Federal on about $45k of unsecured debt, SoFi $30k, and maybe Venmo (synchrony) @ $10k. Then at 120 days I can leverage about $40k available and max out my HELOC and try to settle with these folks about at 50% and ride out the rest of my debt (and tax debt @ $30k).

I’m worried NFCU, SoFi and Venmo may not settle. If I end up garnished well that’s game, set, match.

For what it’s worth my wife has a 750 credit score and I’d file solo.

Any advice?

Bite the bullet or be more creative and try to settle after I go late. I’m not trying to buy or sell any real estate for at least 3 years, so I can handle a rocky credit score for a bit. Also, I stop paying $1450 monthly in alimony in 3 years.

Thoughts? It sounds nice to not have to hustle 200k each year with multiple full time jobs, but I hate to file 13 if I can figure out an other option.

For what it’s worth I’m in my early 40’s. Retirement savings is moot, but I have an advanced degree and strong work ethic. The idea of being debt free at 47 is nice and then just pay off my mortgage quickly.

Alternatively, I’m a “spender” and I’m unsure about this 13 filing.

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One aspect that should be considered, which could throw a serious wrench into your plan is the possibility that your HELOC provider either claws back your limit, or closes the account when they start seeing defaults on your other accounts.  The BK13 would provide BK protections from being sued for the debt and all the other negative consequences that go along with lenders seeking judgements. 

[jetsfan2013]

I was in a similar situation as you just two summers ago.

Income was starting to take a turn in the wrong direction, and a few poor choices of my own did not help.

I was not (at the time) behind on unsecured debts, although a looming tax bill had me also considering if I could avoid filing a C13 case by taking equity out of my home.

The best decisions I made:

1. Getting two opinions of my situation with two attorneys (both came to the same conclusion - a plan similar to what was presented to you)

2. Taking action and filing as soon as I could

3. Realizing things would get worse before they would be better (mindset shift)

2 years later, the income has rebounded, all of the debt is now on payment vs. many with variable interest rates, and I have an opportunity to likely complete the repayments early.

It sounds like you have received one opinion from an attorney. I would make an appt this week to get another, lay out everything with them, and then decide once you are informed.

[Horseshoez]

@Aria, another thing to consider if you don't file and manage to get a significant poriton of the debt forgiven, is the tax implications of the 1099-Cs you're going to get from the financial institutions who forgave some debt.  Choosing this route will make your debt to the IRS even worse as they see forgiven debt as "income".  On the other hand, any debt discharged in a Chapter 13 will be tax free. 

[AndrewF]

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@Horseshoez wrote:

@Aria, another thing to consider if you don't file and manage to get a significant poriton of the debt forgiven, is the tax implications of the 1099-Cs you're going to get from the financial institutions who forgave some debt.  Choosing this route will make your debt to the IRS even worse as they see forgiven debt as "income".  On the other hand, any debt discharged in a Chapter 13 will be tax free. 

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I've never been behind on the IRS. I've literally not paid almost everything else before to pay the IRS because as my mother put it, they make other creditors "look like punks on the playground".

It's better to make everyone else take a bath if you have to but always always stay good with the tax agencies, child support, student loans, alimony, criminal fines, and other debt that doesn't go away in bankruptcy.

If you pay the credit card people instead of all this stuff then file, the money is just gone and the rest of this crap is going nowhere, so basically you lose all the money you gave the credit card people all over again.

[Horseshoez]

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@AndrewF wrote:

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@Horseshoez wrote:

@Aria, another thing to consider if you don't file and manage to get a significant poriton of the debt forgiven, is the tax implications of the 1099-Cs you're going to get from the financial institutions who forgave some debt.  Choosing this route will make your debt to the IRS even worse as they see forgiven debt as "income".  On the other hand, any debt discharged in a Chapter 13 will be tax free. 

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I've never been behind on the IRS. I've literally not paid almost everything else before to pay the IRS because as my mother put it, they make other creditors "look like punks on the playground".

It's better to make everyone else take a bath if you have to but always always stay good with the tax agencies, child support, student loans, alimony, criminal fines, and other debt that doesn't go away in bankruptcy.

If you pay the credit card people instead of all this stuff then file, the money is just gone and the rest of this crap is going nowhere, so basically you lose all the money you gave the credit card people all over again.

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^This!  QFT!

[westdebt]

You could settle your NFCU for $15750 over 24 months after charge off.  The SOfi will usually send you an offer for 25% payable over 90 days right before charge off.  If you couldnt afford to pay, then the account will be sold and sent to a collector shortly after who will accept 25-45% over up to 24-36 months.  Depending on the Synch product they will settle Venmo for 25% over 24 months or 90 days.  Creditors will only give you 90 days pre-charge off and up to 36 afer charge off.  Usually 24 months tho is what you will find.  I would never exchange an unsecured debt for a secured debt especially your home.  God forbid you couldnt make your payment, you could lose your home.  Keep unsecured unsecured.  I do this for a living.  All of your creditors will settle so dont worry about that.  CH 13 would be my last resort as it is not saving you anything at all.  Unless you are at risk of losing your home and you could include the mortgage in your 13 plan, dont do it.  You will save way more negotiating on your own.

[westdebt]

Something I never see anyone add to this statement is the fact that you are not subject to the tax implications if your liabilities outweigh your assets.  Insolvent vs solvent.  If you are insolvent you do not pay the tax on forgiven debt.  This may or may not apply to the OP however; warning others of tax implications, its only fair to provide all information for the most informed decision.  On form 982, there is one simple question.  Were you insolvent at the time the debt was forgiven?  If yes, the amount forgiven is not included in your AGI.  Period.  No other info needed.  Yes or no question is all.

[Aria]

Woah. Game changer. I'm supposed to sign my 13 on Friday. So you're saying they will likely settle at 25% - 30% of balance due? My understanding is NFCU doesn't usually sue. My thoughts are this, the major financial outfits will likely settle, so I wait until they make offers, then the smaller banks like a credit card I have with a local CU, I just pay and ride out. What major banks do you see settle? I'd rather settle this all than take the 13 wound. As an aside, I have a business loan I personally secured through QuickBooks I think it's WebBank. I also have some debt with WF through my business credit card debt I'm bailing on. The challenge is I make about 200k, but this $2500 alimony payment for 3 years is killing me. I'll also take accountability that during my divorce I got slightly reckless.