Defaulting and then settling debts vs bankruptcy

[ForwardLooking]

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@ProbsBroke wrote:

Yeah on this I am not sure. However I am not able to come up with the cash to settle in full or at 90%. And if I even get them to accept zero interest, I feel I will be dragging it out over years to get this down. I am basically around $200k underwater. I think I can hustle and come up with $75-80k to settle this stuff and take the credit hit and move on. Given it looks like I will keep a Cap One account open, along with two auto loans, I genuinely think my credit will recover well after a year or two. Of course risk is it doesn't, but I just feel it is the path that looks most likely to get me out of the mess

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Just my opinion, but it sounds like you are playing with fire.  If you are truly $200k underwater, creditors may rather sue than settle for those large amounts.  If BK truly is not an option, then at least get some legal help to navigate yourself through this.  Payment plans would be a lot better than judgements and possible levies and garnishments.  I wish you the best.

[ProbsBroke]

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@ForwardLooking wrote:

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@ProbsBroke wrote:

Yeah on this I am not sure. However I am not able to come up with the cash to settle in full or at 90%. And if I even get them to accept zero interest, I feel I will be dragging it out over years to get this down. I am basically around $200k underwater. I think I can hustle and come up with $75-80k to settle this stuff and take the credit hit and move on. Given it looks like I will keep a Cap One account open, along with two auto loans, I genuinely think my credit will recover well after a year or two. Of course risk is it doesn't, but I just feel it is the path that looks most likely to get me out of the mess

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Just my opinion, but it sounds like you are playing with fire.  If you are truly $200k underwater, creditors may rather sue than settle for those large amounts.  If BK truly is not an option, then at least get some legal help to navigate yourself through this.  Payment plans would be a lot better than judgements and possible levies and garnishments.  I wish you the best.

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I definitely appreciate the advice. I have had BK lawyers suggest to me this is the way to go. The amount is split mainly across 3 of the larger lenders, so the amounts for each lender while large are not as huge as might seem. Judgements, levies and garnishments won't come from thin air - they will only follow charge off or at least signficant lates. If it does not look like the lenders will settle, I may have to try and work through the issues around not being able to do BK. But those issues are definitely more complex. For absolute sure if I thought ch13 or ch7 were options I would be pursuing those

[ProbsBroke]

It's been a while since I logged on, I figured I would post an update.

So after making this post I simply stopped paying on these accounts. I did decide I was going to just default on some banks and not all, so there are three banks I have credit cards with that I continued to pay.

I knew I had to wait until the accounts became "seriously" delinquent before settling. Well the first one I settled was after a sherriff showed up at my house and served me a summons. It was for two Amex accounts. I called up the law firm representing them and immediately agreed a settlement for 55% of the balance (they initially offered 65%). Those accounts are now showing up on my credit report with zero balance and comment that they settled for less than owed. I still have several Amex accounts but they are not sending those out to legal, at least not yet. I intend to try and settle directly, hopefully for 50%.

I have also settled a couple of accounts with Chase for 35% of the balance. The remaining accounts with Chase I need to give another week or two before they become open for those settlements too.

The one outlier is apple / goldman sachs. I haven't contacted them, but all indications are they may play hardball. Luckily that is one of the smaller amounts.

My hope and expectation is within 6 months I will have finalized settling all of these accounts and they will all show the same zero balances and my credit score should then start to improve. Obviously right now it is in the gutter.

One lesson I have learned so far is I should not have defaulted on smaller balances. Like if you owe $300, then after 6 months it's $650 with late fees so you "settle" for $227 but that is close to what you owed. But on a $20k balance that has grown to maybe $24k now you settle for $8.4k and save a lot.

The other banks I have credit cards with have taken limited action. Citi and CapOne have reduced my credit lines, but not massively. Citi did have one account they randomly chose not to issue a new card to, but others have continued. Discover hasn't even blinked and kept everything in place. Oh Penfed also massively cut my credit limit. But I still have MANY accounts open. Once this all settles, this should be much easier to rebuild credit from as I will continue to have several credit cards including a few premium ones.

Every situation is very unique, and in my own very unique circumstances, I believe this approach has been very effective, where BK was - for very specific reasons - not an option

[ProbsBroke]

Further update, I settled all of my $67k of outstanding Chase debt this month for $23k

If I had gone BK route, with my income, per every attorney I consulted I would have been required to pay that amount in full

Just gotta finish off with Amex and I will be done with this

Today's observation is the banks also really don't seem to care about this going this route. Like if you go the BK route you have to tell your story, and need a sympathetic judge, trustee or creditor. But my call with Chase was very pleasant and jovial. They didn't want to know why I defaulted. They simply have a number in their system that they are allowed to settle for, and if you can come up with the money, you settle. Again in my situation this was pretty useful, as I am not gonna lie I played a big part in myself getting into this situation. I don't have a really great story that is going to garner any sympathy. But this is a business transaction, and with Chase at least, I am done

[Horseshoez]

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@ProbsBroke wrote:

Further update, I settled all of my $67k of outstanding Chase debt this month for $23k

If I had gone BK route, with my income, per every attorney I consulted I would have been required to pay that amount in full

Just gotta finish off with Amex and I will be done with this

Today's observation is the banks also really don't seem to care about this going this route. Like if you go the BK route you have to tell your story, and need a sympathetic judge, trustee or creditor. But my call with Chase was very pleasant and jovial. They didn't want to know why I defaulted. They simply have a number in their system that they are allowed to settle for, and if you can come up with the money, you settle. Again in my situation this was pretty useful, as I am not gonna lie I played a big part in myself getting into this situation. I don't have a really great story that is going to garner any sympathy. But this is a business transaction, and with Chase at least, I am done

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I bet you're looking forward to that 1099-C for $44,000.  Having been down both roads, my Chapter 13 was much easier.

[ProbsBroke]

Fortunately - or not - I have significant business losses that will offset the income reported under 1099-C

The main point I am trying to make here, beyond giving anyone who goes this route some insight into what happened to me, is that there isn't a one size fits all. Everyone has unique circumstances. BK would NOT have worked for me. I am glad it worked and helped you

[lolwowlmao]

congrats on the bankruptcy alternative!

i think this was a great move and don't listen to others in this forum. so many people replying and saying how much better bankruptcy would have been even after you have said it was not an option for you. 

so many moral and virtue signalers in this thread needing to validate their own bankruptcy choices. 

congrats to you. as for the rest of you, this individual said he was unable to file for bankruptcy so why continuously bring it up.

[Traveler101]

You know, you can hire an attorney to do debt settlement. That way, you have the legal backing should a problem arise. You should ask before you let many of your accounts default. That may be a better avenue.

[ProbsBroke]

I don't see how an attorney would have helped or made any difference.

However the initial idea was a suggestion from a BK attorney who thought it would be a good approach in my situation

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@Traveler101 wrote:

You know, you can hire an attorney to do debt settlement. That way, you have the legal backing should a problem arise. You should ask before you let many of your accounts default. That may be a better avenue.

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[ProbsBroke]

Ha this is funny. I am getting pre approval messages from Cap One for $55k auto loan. How long after BK would I have needed to wait for that!?