Expert: Regan Shinski - 1/24/2010

Question
I got in real financial trouble a couple of years ago (last payment made in 2007) and now I am beginning to get my financial life back together.  I have 4 judgements against me and 5 other unsecured credit card that have "charged off" my accounts.  Should I try to settle my judgements first?  I tried to negotiate and they tell me I can only settle for 80% of balance.  Do you believe I can do better?  Its about $40,000 in judgements and $20,000 in charge offs.  Any recommendations would be greatly appreciated.

Answer
Hello Nilton:

Can you easily afford to pay these down?  How long would it take you to pay them off?  Are they actively collecting on the judgements through garnishment or other means?  There are several factors that play into this and it really kind of depends on your situation.

First off, for unsecured debt, bankruptcy can discharge all debt in some cases.  Chapter 13 can give you an interest free repayment option.  I really don't recommend you do this if you can pay, just saying it is possibly an option, especially if paying them back spreads you too thin.

The judgements are a concern because in many states it gives them the collect through wage garnishment, placing liens on property, attacking bank accounts, and even confiscating personal property for sale through the sheriff's office.  I mention this because even if they are not doing this now, contacting them or making payments may start this activity.  You should be cautious and find out what collection means the judgement holder's have in your state.

For example, if they are allowed to attack bank accounts, you should only pay with a money order.

That being said, if you are going to address and pay these, you have to start somewhere.  You should definitely start with the judgments because of what I mentioned above.  80% if not much of a decrease but not unexpected because they have that hammer of a collection tool in the judgement.  Each creditor is different, so I really can't say if you can do better.  I have seen many creditors see the debtor take a bankruptcy and receive nothing rather than take a 90% settlement and I've see some settle for ten cents on the dollar.  There is no standard amount.  You can try and threaten bankruptcy to get a better deal, but they've heard that many times as well.  It's just a negotiation and I really can't offer any magical tricks.  It's going to largely depend on them.

Good luck!  I hope you can get a better settlement and congratulations on turning this this around!

Regan