Creditors and Bankruptcy/Possible to pay off cards after in collections?
Hello Mr. Bayer-
I live in New Hampshire. During my divorce, I had to use my credit cards to survive. Ranging from paying for food for myself and my son, to paying for hotel rooms while I searched for an apartment. As much as it pains me to say this, I ended up maxing out 5 credit cards, totaling about $50k. I went from excellent credit to a credit rating of about 619, but that's besides the point. All of my cards have been sent to collections at this point. What I was wondering was, is there any way to settle with them now that they are in collections? At one point I called a couple (one company has a couple cards) agencies and attempted to work out a payment plan of $100 a month on each card, not much but all I could do at that time. Unfortunately, I was never able to start that plan due to unforeseen circumstances, my vehicle needed repair and I had to find a new apartment. Note: I have never missed a rent payment and never been evicted, it is only credit card debt I have. I was considering bankruptcy, but have been unable to come up with enough to pay for filing. My question is, is there a way to try and settle my debt now that it is in collections? I have received settlement letters from each agency offering me settlement "deals". Come to find out, they send the full amount to the IRS, so even though the "deal" sounds fantastic, I end up being taxed on the full amount. In this case, it would put me right back to where I am, in severe debt. In the beginning, I did try to work with my credit cards, I told them I had hit hard times and was unable to pay anymore. I had kept up for about 6 months after I had begun my divorce, but was unable to keep going. They told me there was nothing they could do for me. Needless to say, I am lost on what I can do now. Is it possible to work with a collections agency? Do they ever reduce the amount owed, and not tax on the full amount? What should I do at this point? Or would it make more sense to save up and file for bankruptcy? I'm just at a bit of a stand still on what to do next, any help or advice would be greatly appreciated. Thank you for your time.
I am very sorry that you have been living through so much hardship.
Collection agencies are generally very agreeable to making settlements. A typical settle can often be made for anywhere from 25% to 50% of what you owe. The catch is that it usually has to be paid immediately.
I am not a fan of debt settlement, except in very rare cases. Your case sounds just like a situation where I would probably recommend bankruptcy. I recvently wrote about the perils of debt settlement. You can read about it here: http://www.bankruptcyblogger.org/los-angeles-bankruptcy-lawyers-debt-settlements
The cost of doing a bankruptcy case for you should be just a tiny fraction of what you would have to pay to settle just one one of your debts. To put this in black and white, the cost of a 25% settlement of your debts would take about $12,500. Compare that to the cost of a bankruptcy, and you should see that it makes no sense to do settlements.
Now, let's deal with lawyer fees for bankruptcy. Another article I just wrote deals with how to get very discounted bankruptcy lawyer fees. You can get a great lawyer, at a muched reduced fee. Please read http://blog.nolo.com/bankruptcy/