Advice: Best Plan to Settle Debts and Qualify for Mortgage

[Chauncey04]

Hello all, I've read a lot of posts on this forum. This topic is way outside my wheelhouse, so I am grateful for the members who willingly share their insight. I've learned a lot, but putting it all together and forming a plan is the difficult part!

My parents just had their chapter 13 plan dismissed, as they came into some money and plan to settle on their debts. Their eventual goal is to qualify for a home mortgage. They have no desire to apply for credit cards again, nor take on other unsecured debt. 

My dad is 76 and my mom is 70. Regarding their Income: dad has 3200 combined net from pension and social security, and mom has 1600 combined net from pension and social security. They make 3200 net from a commercial property that they are part owners of.

My dad has the following credit card debts: these cards are in his name only. 

• Bank of America: 4500. Charged off. 
• AMEX: 3600. 120+ days late 
• HSBC: 5100. Charged off 
• Logix: 10200. Charged off. 
• Cap One: 500. Closed. 
• MoneyLion: 800. 90 days late. 

He also has an auto loan in his name. 

Chase Auto Loan: Repossession. Got vehicle back through Ch. 13 plan. 36000. 

My mom has the following credit card debts, in her name only. 

• Bank of America: 28000. Charged off.
• Bank of America: 31000. Charged off
• AMEX: 12600. Closed. Law firm representing AMEX was beginning court proceedings before Ch. 13.
• MoneyLion: 800. 90 days late. 

My original plan was to go in and settle my parents' debts with the creditors. Here is what I have done so far:

• Bank of America: They offered 60% settlement for both parents' cards. I tried to negotiate for less, but it wasn't happening. 
• Logix: Offered a 60% settlement. 
• AMEX: For both parents' cards, they are waiting for the debt to be transferred back from the law firm who handles bankruptcy plans. No discussions yet. 

Alternative plan: I've been reading that settling debts doesn't reflect well on a credit report. My dad's income is high enough to qualify for a mortgage without my mom on the application. Therefore I am thinking if we could clean up my dad's credit report as much as possible, it would be easier to qualify for a mortgage. My mom's debts are not urgent, as she will not be applying for credit in the foreseable future.  Here is what I was thinking:

• Pay off my dad's cards in full, and try to negotiate with the creditors to remove the charge offs and late statuses from the credit report in return (if possible...doesn't hurt to try). 
• Negotiate to settle my mom's AMEX debt right away. Put 40,000 in a high interest account. Negotiate with BoA next year to keep trying to settle 40% or less or wait until it goes into collections. This will also spread out the tax burden. 

What are your thoughts on either of these plans? Any other ideas or input would be greatly appreciated. Thank you for your time!

[Gigi-DFW]

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@Chauncey04 wrote:

Hello all, I've read a lot of posts on this forum. This topic is way outside my wheelhouse, so I am grateful for the members who willingly share their insight. I've learned a lot, but putting it all together and forming a plan is the difficult part!

My parents just had their chapter 13 plan dismissed, as they came into some money and plan to settle on their debts. Their eventual goal is to qualify for a home mortgage. They have no desire to apply for credit cards again, nor take on other unsecured debt. 

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Welcome @Chauncey04 

I'm sorry your parents have found themselves in this situation. It's admirable that you want to help them!

There are some very knowledgeable people on this forum that can help answer your questions. I do have a couple of questions to help clarify the situation.

I'm a former paralegal (many years ago) and I thought that in a Chapter 13 BK a trustee appointed by the BK court paid the debts owed on a monthly basis to the various creditors with the funds sent in by the debtor(s) (your parents) and that the settlements and percentage to be paid to each creditor was determined before the BK was approved by the court. Was your parents' BK set up this way?  I'm not sure why your parents still owe such large amounts after coming through the BK.

Wishing you and your parents the very best.

[Chauncey04]

Thanks for the nice words, and the reply! I am trying my best for them! Regarding the Chapter 13: the plan was always to settle on the debts when the inheritance came in. They were in the plan for less than a year.  The BK payment was around 2800 a month, so it wasn't going to be sustainable long term. 

[gdale6]

Settle what you can for less than full on your dads debts first as he is the higher breadwinner. If you cannot get a settlement for less then just pay it off so it can indicate 0 balance. From what you have posted he has no open credit cards, the only thing that is going to drive his Fico higher are 3 open revolving credit cards, this is where most of the Fico score comes from. If there is a spending problem then make them secured cards it really doesnt matter what kind they are as long as there are at least 3 of them. Once your dad is in order and off building back work on your moms.

[jmb9]

I settled a debt 2 years ago and regret doing it. I could have paid in full, but it would have taken a bit longer and the reason I did it was to pay down other things faster. That settlement is still an issue. On the plus side, the financial instituiton I settled with has since extended me another line of credit that has had zero issues.