Defaulting and then settling debts vs bankruptcy

[ProbsBroke]

So a few weeks ago I posted that I was looking at filing for BK. Having spoken to a few BK attorneys it looks like there are some significant reasons this won't work in my situation. So as a Plan B I am considering defaulting on my credit card debt and trying to reach settlements instead. I have around $190k in unsecured credit card debt, and don't think I can pull the money together to pay them off. They all have 20-29% interest rates so just paying min balances isn't going to help. But I do think I could muster up $60k to maybe $90k to settle these things. I have a call with a guy who specializes in advising people on this (not a firm that takes your money and does it for you, more they just advise how to handle settlements yourself)

I am trying to think from a credit perspective the differences between the two. Debt is split over maybe two dozen cards primarily between Amex, Chase, and Citi. So assume I end up with 24 30 days lates, 60 days lates, 90 day lates and then potentially some charge offs depending on strategy chosen. Let's say worst case 24 charge offs in 6-9 months from now. But then I assume at seven years beyond that they will all drop off reporting?

How will other lenders act when I rack up this many deliinquencies? I have some other cards with guys like CapOne, Penfed, Synchrony etc. I know if a BK hit my credit those accounts would get closed. But if 24 charge offs show up, do they do same, or do they like just cut my limit to like $100 or $500? Anyone with any experience? My one hope is a few of these cards could survice which would help average age of account once I get through this mess. It is not a deciding factor by any means, but something that would be helpful

I assume I will be burned from these three big lenders forever after. Not ideal, but then neither is paying them crippling interest 

Any other credit repurussions to be aware of?

[Rogue46]

I cannot give you advise on whether you should default or not but I'm pretty certain once your other creditors start seeing defaults on a number of cards they would almost surely close those accounts. Possibly a very slim chance they cut your limits but I don't want to get your hopes up on that. Either way your credit is going to take a significant hit for many years.

[GZG]

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@ProbsBroke wrote:

So a few weeks ago I posted that I was looking at filing for BK. Having spoken to a few BK attorneys it looks like there are some significant reasons this won't work in my situation. So as a Plan B I am considering defaulting on my credit card debt and trying to reach settlements instead. I have around $190k in unsecured credit card debt

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did they not offer their services to help you navigate these settlements and when you probably? get sued on these debts?

I would defintely ask them for their help in navigating this

[JoeRockhead]

You'll likely experience adverse action in some form or another from your other issuers. If a chapter 7 or 13 is out of the question and you have 90k to work with, why not snowball the cards you can, and reduce as much of the debt as you can... If you can't make the minimum payments or slightly more every month until they're gone or transferred to new 0% cards, negotiate settlements from there.

Once you have multiple lates and COs, your credit is trashed. I've personally walked this very path, had all the lates, repos,  collections, judgements, you name it. The effects are much longer than 7 years. If I couldn't qualify for a BK, I'd do everything I could to not just maintain my credit, but also improve it to get away from the high interest cards. 

[ProbsBroke]

Yes - in fact one of them, the one that seemed the most knowlegeable out of those I spoke with, suggested this as the best path for me. But they didn't suggest them assisting with that. After all that path does not involve actual bankruptcy.

You only get sued if you are unable to settle with them. Yes it is possible that one or all of these creditors will hold out for 100%, and could sue me for that. But I think in practice, there is a reasonable chance I can get them to settle for around half the total, based on research performed so far.

As a specific example, I did have one business credit card that I already let default. It's a long story but it wasn't showing on my personal credit and I just let them chase for me serveral months. The debt was around $6k. Knowing that it was getting close to the point they would charge off the account, I finally answered their calls and asked how much they would be willing to settle for. They immediately offered 30%. I paid them that amount and that was the end of it. I was concerned that they would eventually report the settled amount, and/or that they would issue me a 1099-c for the "forgiven" portion. Neither of those occured. Now the question is, how much will that scale with the other three banks?

[ProbsBroke]

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@JoeRockhead wrote:

You'll likely experience adverse action in some form or another from your other issuers. If a chapter 7 or 13 is out of the question and you have 90k to work with, why not snowball the cards you can, and reduce as much of the debt as you can... If you can't make the minimum payments or slightly more every month until they're gone or transferred to new 0% cards, negotiate settlements from there.

Once you have multiple lates and COs, your credit is trashed. I've personally walked this very path, had all the lates, repos,  collections, judgements, you name it. The effects are much longer than 7 years. If I couldn't qualify for a BK, I'd do everything I could to not just maintain my credit, but also improve it to get away from the high interest cards. 

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I am curious can you be specific about what makes the effect much longer than 7 years? At 7 years past the point of settlement they have to remove those accounts from my credit reports. I understand that with those specific banks I may never be able to do anything ever again, but that would be the case if I burned them in ch7 or ch13 anyway. What ELSE am I missing?

The problem with snowballing is the weighted average rate on all this is 25%, and I just feel hustling to come up with $90k would just be wasted in that it might buy me a couple of years but then the remaining amounts will just keep me chained down. Whereas this approach gives me a shot at "trading" my credit for 7 years for a clean sheet now, and then go from there

[ProbsBroke]

I am speaking with Michael Bovee at Consumer Recovery Network tomorrow, who seems to specialize in this area. I spoke to him previously about that prior default, and it opened my eyes to this possibility

[ProbsBroke]

Just one other addition - I have also already had success with this with Amex in another country. not wanting to get TOO specific as I don't want to doxx myself lol, but I used an Amex card I had in another country and racked up around $10k of debt on that and just let it go default. Amex has closed the account and sent to a collection agency that are offering to settle in full for 50%. I am going to take that. This was a personal card (the other one was a business card which is why I thinkt they settled for less)

[Brian_Earl_Spilner]

The biggest difference is when you file bk you're able to start rebuilding after discharge or during the payment plan. Charge offs will severely limit you for years. 

[ProbsBroke]

Gotcha, that makes sense.  Very quick googling suggests possibility of getting new cards maybe 1-2 years after the charge offs settle down.

Also some of these could settle pre charge off. But given the number and three lenders I expect at least one to go CO. But in theory some possibility they all just end up showing 90 day late then settled for partial balance. No idea how that would impact getting credit.

Do you know if existing lenders would 100% shut me down? Just keeping one thing open with $500 limit would of course be huge

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@Brian_Earl_Spilner wrote:

The biggest difference is when you file bk you're able to start rebuilding after discharge or during the payment plan. Charge offs will severely limit you for years. 

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