Negotiating / Settlement Timeframe??

I will be 5 months delinquent later this month (Feb '11) on 6 credit cards totaling roughly $44,000. My master plan of saving for negotiating for settlements has not gone well. I am nowhere close to where I need to be. My question (for those with a crystal ball), how long can I drag this out allowing me more time to save? What should I expect? When I do have enough, should I pick one of the smaller ones and begin talks?Currently two of the six are in the hands of collections agencies. I can provide more details if that helps.

13 Answers

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It depends on the creditor. Target National Bank served me a summons after 7 months. I was able to settle by borrowing the money for 40% of the debt owed


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Hi My Fate:I am in a similar boat, but not yet at 5 months, only 3. Also at about 40k. I plan on doing a 401(k) withdrawl, only because I've already taken a loan and I do not have the cash to pay it back so I can take another (usually only limited to one loan at a time). If you do take a loan and end of leave the company, some will let you arrange for repayment of your loan outside of direct debit of your paycheck (mine does). Otherwise you you will be given the option to pay it back, quickly. If you cannot meet this, they will consider the unpaid difference as a withdrawal. You will then have to pay the taxes and penalty on this amount at tax time, which is next year.As far as which to pay off first, I honestly can't tell you because I am only working with one creditor. What I have learned from Bank of America is that they will discuss settlement starting at 90 days, but the % of the outstanding balance they will accept will start out at it's highest. Each month they will update the account with a revised "offer" based on deliquency. So with that said, I would recommend you start working with the firm that offers the lowest % of outstanding balance. Try not to look at absolute dollars otherwise you will not get the best return on your savings.


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You need to know how to prioritize the creditors. If it is in the hand of an attorney in your neighborhood there is a possibility that you will be sued so get rid of that one first. If it is with a collection agency you can stall a few months but keep the lines of communications open at all times to pick there brain. If you need help call 866-833-6398 and they will settle less than 25 cents on the dollar.


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If you are 4 months behind on your accounts your creditors may be willing to settle at this time. Usually it takes at least 3 months of being delinquent for them to even talk about settlements.


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Hi My Fate,

I appreciate your position.

If you want to avoid BK and are concerned with the timing of your settlements in order to avoid being sued and given the information you posted above, please consider the following:

Your risk of being sued generally begins after charge off, so six months of non payment. How likely is it for an account to be placed with a firm who is authorized to file suit just after charge off? It depends. Account activity prior to default can flag for litigation, your state of residency can increase the likelihood, so can your zip code. Your creditor list may include issuers who are more likely to sue than some others.

As far as how long you can draw this out; not very. At least not realistically. You could get lucky and get through the settlement process unscathed in say 24 or more months, but luck should not be part of any planning.

If at all possible, consider the 401k loan for 40-50% of your current balances. With this amount ready to fund offers you will want to try to get all of your settlements done prior to charge off, which given your stating you are in month 5 means you could be settling right now and into March.

The 5% interest you refer to in repayment of the 401k loan is typical. The good thing about it is that you are paying yourself that interest, so it not really an added cost for having taken the loan.

In my experience, 95% are better off doing debt settlement than chapter 13 if they can fund all settlements inside of 12 to 18 months.

You did mention walk away from your mortgage. Do you live in a recourse or non recourse state.
Non recourse means that purchase money loans that are defaulted on cannot follow you for any deficiency balance. Recourse means they can.

You mentioned you are researching bankruptcy and that you do not think you qualify for chapter 7. The way I read what you wrote seemed to state not qualifying as more of a question than a fact. If you have not consulted with an attorney about your options in a chapter 7, do so. most offer the initial consult for free, so locate one who does.
You may find that you have allowable exemptions that qualify you for chapter 7.

Best of Success in your efforts!


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If you withdraw funds from your 401k, 20% will be deducted off the top for taxes. You will also have to pay a 10% penalty when you file your taxes in 2011. Check to see if your 401k allows loans. You can take a maximum loan (some plans cap it at 50%)and pay it over 5 years. This way you won't be penalized.

IRS allows hardship withdrawals needed for immediate and heavy financial need (foreclosure of house, medical bills), but you must not have any other funds to meet the need. Also, you must provide documentation to your plan administrator in order to get a hardship withdrawal.

If you are going to start settlement, then next year you will be hit with 1099c for the forgiven amount that you have to claim, unless you can prove insolvency. So you might not want to get hit with a penalty withdrawal too.

I would try to settle the oldest debt first because that is the one most likely to go to litigation or garnishment. Tell them your circumstances, that you are losing your house, and can settle at $______. Don't jump at the first offer, but try to negotiate them down. They will most likely check your credit report and can see that you are being truthful.

I've gone through my 401k rollover ten years ago trying to stay afloat. Last year I took a 401k loan from my part time job, and a pension loan from my day job to fund my settlements. I can only say that the peace of mind I now enjoy (no harassing phone calls, no letters, threats) was worth it. Now I am starting to save for retirement.

You need to decide what would be best for you. There is light at the end; you just have to have a strategy in place. Good luck and keep us posted.


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Why would you recommend a debt settlement company when a poster can settle their own debts for a far lesser amount? There have been horrific stories of these companies keeping the money and going out of business, plus not negotiating with the creditors in a timely fashion.

Just wondering.....


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You are coming close to chargeoff. You can probably negotiate installment payments with the collection agencies as well as the others. Have they contacted you with any offers? I settled with Citibank with 4 installments; same with Bank of America. All had charged off, except Chase and Discover. I negotiated settlement payment of 10 months with Discover.

How much DO you have saved? Do you have a 401k you can borrow from (I did). Will you be getting a tax refund? Any possibility of borrowing from family?

I would start calling your credit card companies, telling them your circumstances and ask for any offers to start the ball working.

You can do this yourself without going to a debt settlement company and paying extra fees. Plus you can get a better settlement %age.


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Bankruptcy is in the back of my mind. I need to research more. From the little I have done so far, it looks like I would not qualify for Chapter 7. I started making more money and thought I could save and settle. I over estimated and five months later only have a couple grand saved. That's why I was wondering how long this can drag out. Or if you can't settle in one lump sum, can you still negotiate (if so how low on the average) and make payments?

Maybe I am putting of the inevitable. Is Chapter 13 a difficult process to go through? I heard it cost quite a bit more than Chapter 7. What are the consequences?


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