My Chapter 7 was dismissed for abuse, and now I find myself at the crossroads. Convert, or settle debt. I have about a week left to convert.
Since filing back in November (stopping paying on debts in August), I've since gotten a raise, my wife found work, and I should be getting a bonus from my company soon. While waiting for this to play out, I was able to put away a little money (from my wife's new job and a tax return). Telling my attorney this, his suggestion was to let the case dismiss, and attempt to settle my debts using the amounts I've saved up (and am about to receive). My unsecured debts were about $62k, and after this bonus, I will almost have a 1/3 of that.
I have a few concerns about this. If I convert my bankruptcy to Chapter 13, they basically take that $62k and divide it by 60 months? Is that how the payments work? Or is it everything, including my cars? That would bring the total to $110ish. That would be $1900ish.
I've read that whatever amounts you've settled turns into income in the IRS's eyes, and you have to pay the taxes on this. My unsecured amounts may be $75k now (after interest from 10 months), and if I successfully settle for 50% or less, that's $37k I'm paying, plus the taxes on the $40k that's being written off on a 1099-C. So... more like $45-50k I'm paying? Still better than the $62k I guess, but would need to be done relatively quickly.
I'm not even sure what my question is, think I'm just thinking aloud. Has anyone ever gone through this? Through trying to work with collection agencies on debt collection? Any suggestions or tips?
Apologies in advance if this reply doesn't help. However, it seems to me that all of these questions should be answered by your attorney. I have good ideas, but I wouldn't want anyone to make decisions based on my hunches.
If your attorney cannot answer questions about a possible Chapter 13 plan, perhaps you need a different/more knowledgable attorney?
If you do decide to settle, have you considered having a bankruptcy attorney negotiate the settlement? It shouldn't result in too many billable hours, and may result in your acheiving a much lower settlement percentage.
What was the abuse reason for? Examples below:
The following are some of the most common factors courts consider when deciding whether a bankruptcy was filed in bad faith:
The frequency and number of prior bankruptcy filings and dismissals
Whether the debtor misrepresented or omitted any information in the petition
Whether the bankruptcy is feasible or filed simply to delay creditors
Whether the debtor has shown the intention to complete the bankruptcy by complying with all court rules and procedures after filing the case
Whether the debtor financed any luxury items (such as an expensive car) prior to filing to increase his or her expenses, and
any other egregious conduct.
If you convert you must make adjustments because it could happen again even with a Chapt 13.
Most of this came to mind after my final meeting with my attorney. At that meeting, we decided trying to settle was the best course of action. Since I posted this, I realized it's actually $91k, not $61k, so that changes things a bit.
My attorney said he's gotten better results when people settle themselves. He said he'd be happy to, but it seems as soon as they realize the person can afford an attorney, you lose some of your advantage.
I'm not sure if my abuse fell under anything you listed above, but for me it was basically the DOJ not agreeing with mine and my attorney's figures. We had some things on there they questioned, and we weren't able to produce the evidence needed to prove the case.