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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.

Leon Bayer
Leon Bayer  
Dear Tina,

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:

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

Creditors and Bankruptcy

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Los Angeles Bankruptcy Attorney Leon Bayer


I can answer all questions relating to debt collection, credit reporting problems, credit scores, bankruptcy, debt settlements, debt settlement scams, and dealing with debt collectors. For many years I have been one of your volunteer experts for the topic "Bankruptcy Law". I would like to receive more questions. I'm thinking that many relevant questions get asked under this catagory as well as my own. See my stats, below: Los Angeles Bankruptcy Lawyer Leon D. Bayer U.S. Available View Profile Ask A Question View Past Answers Knowledgeability9.96 Clarity of Response9.93 Politeness9.97 Response Time(hr)14.6 --Last 90 Days(hr)7.6 Total Questions1119


34 years as a practicing bankruptcy attorney, published book author on topics of bankruptcy and foreclosure. See,


BA degree, J.D., admitted to California Bar in 1979.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

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Over 15,000 bankruptcy cases.

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