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Need some help deciding what to do, CH13 or Debt settlement?

turkey310
Established Contributor

Need some help deciding what to do, CH13 or Debt settlement?

Hi all, long time member, in trouble now...

 

My credit journey started about 5 years ago when my scores were in the 500's. I was really careful with my credit and always made sure to keep my utilization down. Fast forward a few years, my scores were in the high to mid 7xx range. I had over 100k in available credit! Fast forward to today, I've gotten into a lot of trouble with credit card debt and I'm ashamed of it. Most of it was overspending and being irresponsible, with a plan to repay it all and the debt just got bigger and bigger. My mom became sick and my brother lost his job so I got into some more debt trying to help them while trying to keep my head above water.

 

Throughout the years, I've come to accumulate roughly $75k in credit card debt and $25k in a personal loan through my credit union. I have no missed payments, no collections, no negative marks. My scores however, have sunk to 610EQ/660TU/605EX. Mostly due to high utilization...My scores began to tank harder when other creditors began to decrease my limits as they seen I was probably becoming high risk. For the last year and a half to two years, I have been getting by just by making the minimum payments on my cards. Some of the minimums are 700/459/375/etc..etc..., below ill do a breakdown of my income + balances and minimums:

 

Total Income: $2k/weekly ($8k month)

Total minimum payments (credit cards): $2,029/month

Total minimum payment (personal loan): $685/month

Rent: $3k/month

Car: $1200/month

Car Insurance: $300/month

Total payments: $7,214 (not including utilities, food, union dues, misc). 

 

As you can see, I've dug myself a pretty nasty hole that feels like I'll never get any relief from. I am making a lot of money a year but it's all going to waste in interest and minimum payments. The avg interest rate is around 20% on those debts. 

 

I could use any advice or help here! My goal is to substantially lower my monthly payments, whether it be bk13 or debt settlement. I've never been down this road but I've come to the point where I can't breathe and am drowning in minimum payments every month. What are your recommendations for me? I am desperate at this point and am willing to do whatever. My big thing is I would like to keep my vehicle. Do I even qualify for chapter 7? 

 

Please help Smiley Sad

Today: 5/2016 -myFico: EQ: 747 / TU: 750 / EX: 750
Marvel Mastercard ($25k), Blispay ($6k), Amex HHonors ($3k), Chase Marriot Rewards ($5k), Citi Simplicity ($4.6k), Amex BCE ($1k), Discover IT ($1.5k), CapOne Venture ($13k), CapOne Venture ($15k), Barclays Rewards MC ($2.4k), Amazon Store Card ($10k), Chase Slate ($1k), Lexus lease ($5k), Overstock.com ($2.8k)
Message 1 of 9
8 REPLIES 8
DebtStinks
Established Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?

Just to preface...I'm not an attorney, but I deal with stuff like this every day.

 

You likely, IMO, depending on where you live, do NOT qualify for CH7. If you do, it would likely be via passing the means test. If so, and you are truly overwhelmed (which it appears), that would probably be my recommendation. In this scenario, your creditor and BK trustee would probably let you reaffirm your car loan. Doing this would ensure it begins to report on your credit AFTER the BK7 is discharged in 3-4 months. You can likely also just continue paying without reaffirming the debt...doing this will result in it NOT showing on your credit any longer with payment history going forward, BUT you wouldn't have to worry about negative credit reporting should the vehicle be reposessed in the future since it was included in BK and NOT reaffirmed.

 

As far as CH13 goes, it would be repaid (based on what the trustee deems you can afford) over the course of the next 36-60 months and your car loan would be part of the repayment.

 

Debt Settlement/Debt Management are a bit more tricky as there aren't LAWS in place (i.e. BK) defining exactly what can and cannot happen.

 

In debt settlement, you would likely have tax implications for the amount of debt forgiven and would need funds upfront (or over the course of roughly 3-12 months) to settle the debt. The account would be closed and it would be a negative hit to your credit that would take roughly 2 years to recover from as far as score impact goes.

 

Debt Management is something that can be done directly with each creditor or even with a third party. In this case, you repay your whole debt typically only removing late/over limit, etc fees and drastically reducing the interest rate. For example, Discover is one of the best in-house debt management programs around and they offer 0.99% with fixed payments over the course of 60 months. In this scenario, your creditor will likely close your account and it MIGHT be eligible to "reopen" once you successfully complete the program.

 

I hope this is enough to at least give you a rough idea. Feel free to ask any additional questions you may have or clarification on anything I've stated. It also doesn't hurt to speak to an actual attorney since most charge nothing for an initial consultation via phone or in person.

PenFed Visa Signature $35000 (Opened 6/20) - NFCU More Rewards AMEX (Opened 1/19) $17000 - NFCU Platinum $15000 (Opened 1/21) - Capital One World Elite MC $11200 (Opened 11/17) - TTCU Platinum Visa $10000 (Opened 10/18) - Uber Visa $5000 (Opened 1/19) - Target Store Card $2000 (Opened 10/18) - Floor & Decor Store Card $36500 (Opened 10/18)
Total CL - $131700

CH7 BK Filed 8/1/17 Discharged 11/7/17

Scores as of 2/18/21:




Inquiries Last 12 Months:
Message 2 of 9
turkey310
Established Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?


@DebtStinks wrote:

Just to preface...I'm not an attorney, but I deal with stuff like this every day.

 

You likely, IMO, depending on where you live, do NOT qualify for CH7. If you do, it would likely be via passing the means test. If so, and you are truly overwhelmed (which it appears), that would probably be my recommendation. In this scenario, your creditor and BK trustee would probably let you reaffirm your car loan. Doing this would ensure it begins to report on your credit AFTER the BK7 is discharged in 3-4 months. You can likely also just continue paying without reaffirming the debt...doing this will result in it NOT showing on your credit any longer with payment history going forward, BUT you wouldn't have to worry about negative credit reporting should the vehicle be reposessed in the future since it was included in BK and NOT reaffirmed.

 

As far as CH13 goes, it would be repaid (based on what the trustee deems you can afford) over the course of the next 36-60 months and your car loan would be part of the repayment.

 

Debt Settlement/Debt Management are a bit more tricky as there aren't LAWS in place (i.e. BK) defining exactly what can and cannot happen.

 

In debt settlement, you would likely have tax implications for the amount of debt forgiven and would need funds upfront (or over the course of roughly 3-12 months) to settle the debt. The account would be closed and it would be a negative hit to your credit that would take roughly 2 years to recover from as far as score impact goes.

 

Debt Management is something that can be done directly with each creditor or even with a third party. In this case, you repay your whole debt typically only removing late/over limit, etc fees and drastically reducing the interest rate. For example, Discover is one of the best in-house debt management programs around and they offer 0.99% with fixed payments over the course of 60 months. In this scenario, your creditor will likely close your account and it MIGHT be eligible to "reopen" once you successfully complete the program.

 

I hope this is enough to at least give you a rough idea. Feel free to ask any additional questions you may have or clarification on anything I've stated. It also doesn't hurt to speak to an actual attorney since most charge nothing for an initial consultation via phone or in person.



Thank you for the advice! One BK Attorney I spoke to said I wouldn't qualify for ch7 based on my income. I currently reside in California. Lets say I don't qualify for bk7, I've read somewhere some people are not paying their credit cards and waiting months, negotiating a settlement with the creditor then filing for BK13. Would this work in lowering the total amount to payback during the bk process or is this frowned upon and illegal? Sorry for my ignorance, I just don't know if I want to go down that road. 

 

At this point I don't really care what happens to my credit, I know it'll eventually bounce back and I'm not in need of credit any time soon. I've heard some stories in bk13 where people are almost left with little to nothing at the end of the month because most their disposable income goes towards the debt repayment. That's obviously what I am trying to avoid, I'd like to retain as much as my check as possible monthly, pay my obligations back without getting sued or wages garnished. 

 

Thanks!

 

Today: 5/2016 -myFico: EQ: 747 / TU: 750 / EX: 750
Marvel Mastercard ($25k), Blispay ($6k), Amex HHonors ($3k), Chase Marriot Rewards ($5k), Citi Simplicity ($4.6k), Amex BCE ($1k), Discover IT ($1.5k), CapOne Venture ($13k), CapOne Venture ($15k), Barclays Rewards MC ($2.4k), Amazon Store Card ($10k), Chase Slate ($1k), Lexus lease ($5k), Overstock.com ($2.8k)
Message 3 of 9
DebtStinks
Established Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?

You're right on what you've heard regarding BK13 consumers. It's what's commonly referred to as a wage earner plan and is intended to have less negative impact on your credit vs a CH7 (7 years vs 10 years) and intended to give your secured (priority) creditors and then unsecured creditors (non priority claims) as much as possible in a term up to 60 months.

 

Based on what you've stated (again, I'm NOT an attorney) I would personally try to a CH7 or do debt settlement. With regards to not paying your unsecured creditors, that is what most do since credit in the short term is not something of concern. In doing so, your creditors will charge off your account(s) by the 180 day delinquency mark...some as soon as 120 days delinquent. Once they do this, some will file a lawsuit against you. It's somewhat rare they do this soon after delinquency, but it's their legal right. There are some creditors that are more "sue happy" than others...AMEX and Discover being a couple of them.

 

No matter what, I'd recommed you weigh all your options before making a decision. Look at all your bills (rent, utilities, groceries, etc) and see how much you could "save" each month by ONLY paying for the roof over your head, utilities, groceries, car insurance, car payment if keeping the car, etc. Do the math on what creditors you could potentially settle with and when based on your "savings" rate. Most creditors get very agressive with their offers just before charge off date (150-179 days past due) and then some are much better post charge off. The risk run when it charges off is that credit impact is slightly more damaging than a settled account prior to charge off in addition to the possibility of them selling the account to a third party which almost always adds headache to the scenario. All that to say most creditors at the 120+ day delinquent mark will accept a settlement amount of anywhere from 10-40% of the current balance, with most I see being in the 25-35% range. I'd recommend using this percentage when calculating what you can settle.

 

Sorry for the rambling, but I hope this helps. Again, feel free to ask any additional questions you may have or clarification.

PenFed Visa Signature $35000 (Opened 6/20) - NFCU More Rewards AMEX (Opened 1/19) $17000 - NFCU Platinum $15000 (Opened 1/21) - Capital One World Elite MC $11200 (Opened 11/17) - TTCU Platinum Visa $10000 (Opened 10/18) - Uber Visa $5000 (Opened 1/19) - Target Store Card $2000 (Opened 10/18) - Floor & Decor Store Card $36500 (Opened 10/18)
Total CL - $131700

CH7 BK Filed 8/1/17 Discharged 11/7/17

Scores as of 2/18/21:




Inquiries Last 12 Months:
Message 4 of 9
DebtStinks
Established Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?

Sorry, I missed a question in there.

 

If you were to negotiate a settlement with a creditor, and then turn around to file a CH13, your creditor would then NOT be legally obligated to the agreed upon settlement amount since the agreement would have not been satisfied on your end. This verbiage is very commonly placed into settlement agreements with most, if not all, creditors. After all, if it were that easy, everyone would do it! To answer your question, no that is not illegal...just highly unlikely that it would be successful.

PenFed Visa Signature $35000 (Opened 6/20) - NFCU More Rewards AMEX (Opened 1/19) $17000 - NFCU Platinum $15000 (Opened 1/21) - Capital One World Elite MC $11200 (Opened 11/17) - TTCU Platinum Visa $10000 (Opened 10/18) - Uber Visa $5000 (Opened 1/19) - Target Store Card $2000 (Opened 10/18) - Floor & Decor Store Card $36500 (Opened 10/18)
Total CL - $131700

CH7 BK Filed 8/1/17 Discharged 11/7/17

Scores as of 2/18/21:




Inquiries Last 12 Months:
Message 5 of 9
CH-7-Rebuilding
Valued Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?


@turkey310 wrote:

Hi all, long time member, in trouble now...

 

My credit journey started about 5 years ago when my scores were in the 500's. I was really careful with my credit and always made sure to keep my utilization down. Fast forward a few years, my scores were in the high to mid 7xx range. I had over 100k in available credit! Fast forward to today, I've gotten into a lot of trouble with credit card debt and I'm ashamed of it. Most of it was overspending and being irresponsible, with a plan to repay it all and the debt just got bigger and bigger. My mom became sick and my brother lost his job so I got into some more debt trying to help them while trying to keep my head above water.

 

Throughout the years, I've come to accumulate roughly $75k in credit card debt and $25k in a personal loan through my credit union. I have no missed payments, no collections, no negative marks. My scores however, have sunk to 610EQ/660TU/605EX. Mostly due to high utilization...My scores began to tank harder when other creditors began to decrease my limits as they seen I was probably becoming high risk. For the last year and a half to two years, I have been getting by just by making the minimum payments on my cards. Some of the minimums are 700/459/375/etc..etc..., below ill do a breakdown of my income + balances and minimums:

 

Total Income: $2k/weekly ($8k month)

Total minimum payments (credit cards): $2,029/month

Total minimum payment (personal loan): $685/month

Rent: $3k/month

Car: $1200/month

Car Insurance: $300/month

Total payments: $7,214 (not including utilities, food, union dues, misc). 

 

As you can see, I've dug myself a pretty nasty hole that feels like I'll never get any relief from. I am making a lot of money a year but it's all going to waste in interest and minimum payments. The avg interest rate is around 20% on those debts. 

 

I could use any advice or help here! My goal is to substantially lower my monthly payments, whether it be bk13 or debt settlement. I've never been down this road but I've come to the point where I can't breathe and am drowning in minimum payments every month. What are your recommendations for me? I am desperate at this point and am willing to do whatever. My big thing is I would like to keep my vehicle. Do I even qualify for chapter 7? 

 

Please help Smiley Sad


I feel your pain.   Will try to be brief.   Ch 13 is HELL.   Unless you have a house with lots of equity, I would default and see who sues.   I promise you, only some will, and you can settle with them.   Stop paying all of them!

I can't help but note that you have a ..... really? ..... $1200/month car payment?   LOL.   I lived in LA for 3 years and cars are very important in CA, but you need to get rid of that -- I don't care if it is a Bentley.   That is ABSURD.    I'm serious and not judgmental.

Are you employed in a field that is relatively easy to find new work in?   Like software, etc.?    If you are the very best thing you can do is to quit your job, right now, stop paying your bills, and wait until you file to look for work.   I believe for a Chapter 7 they ask for your income over the last six months and require bank statements (it is something like this.).  It's not like they average your last 3 years of income.   It's like the last 6 months.   Heck, that $1200/month car payment alone would help you find a roof over your head.   Do you have family or friends with whom you can couch surf?

I am SERIOUS.   

And if anyone tells you that a chapter 13 is better than a 7, they are very much mistaken.   The only people who should file a 13 are folks with substantial equity in things like homes that would otherwise be lost when the chapter 7 trustee sells off your assets to pay your creditors.

Feel free to PM me if you like.    I know this stuff inside and out.   I've spent 1000s of hours studying it.

Message 6 of 9
ImTheDevil
Community Leader
Super Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?

Actually @CH-7-Rebuilding it would be better to keep the discussion out here for others to benefit from, although I can certainly understand somebody not wanting to pour it all out in public.

 

I would also suggest dumping the car. It can be replaced later but with this much debt you're trying to discharge, at the very least keeping a car with that kind of payment is a bad look and may raise eyebrows or cast some doubt. That's a lot of money for a car to insist on keeping when so many other lenders will get peanuts or nothing at all (and this is coming from a hardcore car guy). If you really want to get out of debt, you could probably do a lot of it simply by being able to use that $1200/month (plus whatever insurance costs you save with a more reasonable car) toward the debts. Please know I'm not judging, but I'm observing based on what's presented here.



Platinum NPSL | Rose Gold NPSL | BCP | Delta Gold | Hilton Surpass | Hilton Honors | FNBO Prime Visa | PenFed PCR | Navy cashRewards | Navy Platinum | Apple | IT Cash | IT Chrome | GHSFCU Visa Plat | Quicksilver | Target | VS | Home Depot | Lowes | Sams MC | Firestone | Overstock | Kohl’s | Key Bank auto loan (2017 Audi A6 Premium Plus S-Line)





Message 7 of 9
coreyb80
Valued Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?


@CH-7-Rebuilding wrote:

@turkey310 wrote:

Hi all, long time member, in trouble now...

 

My credit journey started about 5 years ago when my scores were in the 500's. I was really careful with my credit and always made sure to keep my utilization down. Fast forward a few years, my scores were in the high to mid 7xx range. I had over 100k in available credit! Fast forward to today, I've gotten into a lot of trouble with credit card debt and I'm ashamed of it. Most of it was overspending and being irresponsible, with a plan to repay it all and the debt just got bigger and bigger. My mom became sick and my brother lost his job so I got into some more debt trying to help them while trying to keep my head above water.

 

Throughout the years, I've come to accumulate roughly $75k in credit card debt and $25k in a personal loan through my credit union. I have no missed payments, no collections, no negative marks. My scores however, have sunk to 610EQ/660TU/605EX. Mostly due to high utilization...My scores began to tank harder when other creditors began to decrease my limits as they seen I was probably becoming high risk. For the last year and a half to two years, I have been getting by just by making the minimum payments on my cards. Some of the minimums are 700/459/375/etc..etc..., below ill do a breakdown of my income + balances and minimums:

 

Total Income: $2k/weekly ($8k month)

Total minimum payments (credit cards): $2,029/month

Total minimum payment (personal loan): $685/month

Rent: $3k/month

Car: $1200/month

Car Insurance: $300/month

Total payments: $7,214 (not including utilities, food, union dues, misc). 

 

As you can see, I've dug myself a pretty nasty hole that feels like I'll never get any relief from. I am making a lot of money a year but it's all going to waste in interest and minimum payments. The avg interest rate is around 20% on those debts. 

 

I could use any advice or help here! My goal is to substantially lower my monthly payments, whether it be bk13 or debt settlement. I've never been down this road but I've come to the point where I can't breathe and am drowning in minimum payments every month. What are your recommendations for me? I am desperate at this point and am willing to do whatever. My big thing is I would like to keep my vehicle. Do I even qualify for chapter 7? 

 

Please help Smiley Sad


I feel your pain.   Will try to be brief.   Ch 13 is HELL.   Unless you have a house with lots of equity, I would default and see who sues.   I promise you, only some will, and you can settle with them.   Stop paying all of them!

I can't help but note that you have a ..... really? ..... $1200/month car payment?   LOL.   I lived in LA for 3 years and cars are very important in CA, but you need to get rid of that -- I don't care if it is a Bentley.   That is ABSURD.    I'm serious and not judgmental.

Are you employed in a field that is relatively easy to find new work in?   Like software, etc.?    If you are the very best thing you can do is to quit your job, right now, stop paying your bills, and wait until you file to look for work.   I believe for a Chapter 7 they ask for your income over the last six months and require bank statements (it is something like this.).  It's not like they average your last 3 years of income.   It's like the last 6 months.   Heck, that $1200/month car payment alone would help you find a roof over your head.   Do you have family or friends with whom you can couch surf?

I am SERIOUS.   

And if anyone tells you that a chapter 13 is better than a 7, they are very much mistaken.   The only people who should file a 13 are folks with substantial equity in things like homes that would otherwise be lost when the chapter 7 trustee sells off your assets to pay your creditors.

Feel free to PM me if you like.    I know this stuff inside and out.   I've spent 1000s of hours studying it.


Not just those, but also if you have back taxes as well 13 is the only option unless you're eligible to discharge those taxes in 7.  That is why I'm in 13 and have about 14/15 payments left on my plan.  Just remember those lates would stay on your credit report, 7 years, close to the same amount of time as a 7 would and 7 would give you a fresh start.  Lates stay on for 7 years while a BK7 remains on for 10 years.  Definitely consult with different attorneys and weigh your options.

Message 8 of 9
loyalsudz
Contributor

Re: Need some help deciding what to do, CH13 or Debt settlement?

What is the end goal?  Not to pay creditors?  Not to have that much debt?

To still look okay but live on less?  

 

You do not have a lot of debt.  You have a lot of expenses?

How much could you get for the car?

Would you consider selling it and just pick up  something less rosy for less than $1000? Done, no car debt.

Could you qualify for rental relief instead from your landlord or breach the contract and then just pay the remainder back over a period of time for the time you have left on the lease of the apartment?

 If that is a mortgage and you did not mean rent amount?  Would it be better to just share the space or leave it and rent the entire space out, once you find a tenant, usually that works like arbitrage and the mortgage company will not even know because it is your property, something to consider is to ask around and see if any of your buddies wants to live near you as well, mostly out of towners who have always wanted to live in the area.  

 

Give up the place all together and live with family if they are local.  But only for a year or two until after the crisis and the majority of the credit card debt is gone.  

 

How would the math sound if the car insurance went down to $50 for liability only?  How's your driving on a $1000 car?  

Or just cut that in half and get an inexpensive SUV for less than $400 a month saving you $800 a month? 

 

 

Discuss with an attorney your credit card debt but the free thing is just to contact the credit card companies directly.  They actually do everything that an attorney does or debt repair or credit counselor company does.  What they want to know is how much a month you want to pay and they can reduce the interest rate themselves even allow you to settle with them even if it is a charge off.  But you have to had done the math ahead of time to know the timeline or duration of the payoff and the amount you can afford a month.  They basically close the account, just make sure that you negotiate a paid in full for deletion ahead of time.  If they sound less than excited, please do not let them or their attorneys discourage you.  The ploy to promise to pay is fundamentally something creditors see as untrustworthy.  But if this is what you want to do, they can do all those things upfront with you, just please do not default after the fact.  They still have the right to call you and bug you about other debts like the car but that is why cease and desist letters are so important.  If you go this route, please change banks immediately as they will reserve the right to wipe out your bank account to get as much money that is owed to them upfront.  If they already have access to your bank account then just wait to talk to them until your get another bank account and then only after your first check is deposited in the new account and the other one emptied of everything should you negotiate.  Just my $.02 cents. 

Alternatives:  

The credit card debt is a 4 year only hit to your credit report but you should look that up if you stop paying it, you can send cease and desist letters after you stop paying for them to stop calling you or just change your phone number in the state of California.  And request a phone number change at work as well or just make sure you did not sign an agreement for them to call you or contact you except by mail or email at work.  Look at the contract and uncheck that as well as any alerts.  Then just do not pay.  And offer a settlement if it goes to collections but do not actually talk to those creditors because you can reset the time on the 4 years just by talking to them even if they just get you to say hi or yes...So just change your number and feel no guilt is another possibility or you could declare bankruptcy as per the advice aforementioned.  Either way if you get rid of the car and the rent then you do open up another $4200 in take home pay to place on your existing debt which gives you an approximate payoff date of whatever that total balance is divided by $4200 since the rest is just interest.  And over time that $2026 will go down as you pay the principal down.  It is completely up to you but definitely speak to a bankruptcy attorney as to length and prospects. Usually, the affects on FICO can be shortened and non affecting on liquid cash reserves large enough to not make the banks fee too insecure as underwriters trying to protect themselves, ie home equity of 40% or more can put you right back where you started.  

 

Job Shielding and Shelter in Place with a side hustle

I would definitely consider seeing if you can elevate your job skills and earn more money so that you can pay off the things you have already.  Why change lifestyles when you can make more money.  The question then becomes what amount is needed to pay off the existing debt while you live your life to the fullest.   I often find that when cutting back and growing a garden, people find food supplements in container gardens. And you guys have pretty good weather for citrus.  Also, why not stay with a friend over the weekends and rent out your place just over the weekend for say $500 to $1000 dollars.  That more than makes up for some of the bargaining. Would you sleep in your car or suv for that much money every weekend to make an extra buck or two or a friends house or a motel 8?  

 

Or do the bankrupcty and end the year out with a fully funded emergency fund of 3 to 6 months and then start investing so that your retirement is not derailed.  Statistically those who file once for bankruptcy, file at least 1 to 2 more times. Not a judgement but life does not get easier as you age, it gets tougher even sometimes.  

 

Message 9 of 9
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