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The Past Few Years Has Been Very Difficult. I’m Living on Borrowed Money. – John

“Dear Steve,

I’m self-employed and have been so since graduating college back in 1997. I operate an online business, selling ads on websites that I build. Some years ago I was making good money, but the past few years have been really quite difficult to say the least. Living on borrowed money and living beyond my means to some extent has resulted in my having a credit card balance of $93,000. Two years ago my balance was $87,000. I was chipping away at my debt for a while, but the economic crisis handed me significantly increased interest rates despite the fact that I have so far never been late a single time on paying my cards in 14 years or so. Two years ago I was paying roughly $1600 per month. This month the payment is $2100. In the past two years I have probably made $40-45k in payments and have basically gotten nowhere with this debt. For a while now I have been living basically “paycheck to paycheck” and last month (November) was the first time ever that I attributed paying my bills to luck (I made a last minute ad sale which gave me enough money to pay). If not for the willingness of my in-laws to let us live with them at minimal cost (almost nothing), this ship may have already sank 6 months ago. I know I’m in quite deep at $93,000 of credit card debt.

I’ve researched the various options and have done a lot of reading on your website. I’m thinking that debt settlement may be the best option for me and for the creditors.

For debt settlement I would borrow money from my Dad which would be used to settle my debt with the credit card companies. But this depends on the amount that would be necessary to settle the $93k.

Worst case, I go bankrupt – maybe I lose the websites that I have built over the years and the creditors likely get little to nothing at all anyhow. I would much rather find a way to settle or even some type of forbearance of the debt.

Steve, do you think that debt settlement is a viable option for my situation? What amount would I likely need to have in cash in order to settle $93k of credit card debt?

John”

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The Answer

Dear John,

Thank you for taking the tie to write me for assistance.

The first issue is we need to address the underlying problem of not earning enough to get by. Let’s say this debt did vanish, would your current income be able to carry you without putting you further behind? If not, then we’ll need to explore that situation first. It doesn’t do any good to address the debt only to have you wind right back up in the same spot in a few months.

Debt Settlement might be a valid option for you as long as you understand there are some serious consequences to settling the debt.

  1. Your father would have to give you around $40,000 to take care of the debt, and that’s just an estimate. This essentially transfers part of your responsibility onto the assets of your father.
  2. In settling your debt you will fall behind on your payments to creditors, they may sue you, and it will negatively impact your credit.

I was struck that you were looking for a best option for “you and your creditors.” While I applaud the sentiment, my concern is focused solely on what is best for you. You see, creditors are not logical beasts. They are giant process and policy driven organizations that don’t always operate logically.

If your creditors were interested in doing what was best for you they would have lowered your interest rates and given you a flexible plan to repay your debt in these tough times.

If I look at the situation as what is best for you and those you care about, frankly I think bankruptcy makes the most sense. In bankruptcy it is unlikely you would lose your websites but you would shed the debt. Most importantly you would allow your father to keep $40,000 in his pocket.

I’m going to assign you some homework and then come back and post an update in the comments section. I want you to find a local bankruptcy attorney and talk to them about your situation, first. Then let me know what you think about that option.

If you eventually want to pursue debt settlement, I can steer you in the right direction. But I don’t want you to lurch towards debt settlement unless it is the best solution for you and those around you.

You can click here to find a local bankruptcy attorney and if you’d like a second opinion about your situation or a personal consultation by another debt coach, please feel free to contact Damon Day.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

Big Hug!

The Past Few Years Has Been Very Difficult. Im Living on Borrowed Money.   John
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The Past Few Years Has Been Very Difficult. I'm Living on Borrowed Money. - John by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Steve Rhode

    John,

    I think at this point your situation may require some specific advice. I would strongly suggest you make an appointment with Damon Day, a fellow debt coach, and work out a hybrid strategy that makes sense for you in your situation. He will be able to take you through it, step-by-step. Any hybrid solution will need to be customized for your specific situation so it is worth talking to him.

  • John_00

    Steve,

    I spoke with a local bankruptcy attorney today.

    His opinion is that bankruptcy is the best option for me considering the level of debt. He believes that the trustee would want to take and sell my websites. I mentioned that the trustee would probably not be able to sell them for anywhere near what they are worth, to which he responded that the trustee would hire someone with the knowledge to handle the sale. From what I understood, there is a blanket exemption of $10-11k, so I would be able to keep some of the money from the sale.

    The attorney also mentioned that borrowing money from my father to attempt negotiation would be a bad idea because it puts my father’s money at risk. The attorney told me that what might happen is that I borrow money from my father to use for debt negotiation, negotiate some debts but others might not settle. Then I would still be in a bad position, still facing possible bankruptcy but this time with my father’s money at risk.

    If the court would force a sale of my websites anyhow, then I want bankruptcy to be my absolute last option. I will exhaust all possible options before losing everything anyway to bankruptcy.

    If I would end up with basically nothing after going through bankruptcy, then I figure I should do everything and anything possible to avoid or delay that from happening (the benefit of delaying would be that maybe I restore my income & cash-flow by then, either via the web business or by taking on other employment). If I still go bankrupt despite all my efforts, all options would have been taken and there would literally be nothing left for the trustee to even consider selling – I would have sold it all by then already myself.

    The attorney I spoke with did say that bankruptcy would still be an option if I first attempt settlement. If that’s the case, I think I ought to do whatever I can prior to ending up in bankruptcy.

    So, at this point, what might my best options be? Settling sounds good, but even if I could only minimize interest and keep payments low enough to where I have more time to restore my cash-flow might be good as well.

    I’m very skeptical of credit counseling. One thing the attorney did say was that most of what is on the internet about counseling & debt resolution are scams. However, what I’ve learned about debt settlement doesn’t seem that way.

    I’ve read a bit more today and last night about debt settlement options. It seems possible that I might not need to come up with all that cash right away but maybe will be able to build up that cash over time, avoiding the necessity of borrowing from my father.

    Well, I think I’ve done the homework that you assigned to me. ;-) What are your possible suggestions regarding debt settlement? Also, are there any ways where I might be able to freeze my principal/interest and chip away at it over time?

    Thanks,

    John

  • Steve Rhode

    John,

    Just keep in mind that although you go bankrupt there is nothing that prevents you latter from repaying your creditors to achieve that emotional goal you want.

    Bankruptcy would give you protection and allow you to repay your debt or part of your debt if you so elected without involving your father.

    Talk to the bankruptcy attorney but the trustee does not want your websites and would not be in a good position to sell them or get much for them since they are not generating much income so it is unlikely they will move against those.

    Steve

  • John_00

    Steve, thank you very much for the quick reply and thorough answer. I really appreciate your advice posted here as well as throughout your website.

    My next step was to contact a local bankruptcy attorney but wanted to see what your thoughts were first. I will contact an attorney today for consultation.

    I’m glad to learn that I would be unlikely to lose my websites. Web publishing has essentially been my employment for years (even if currently I am not earning quite enough to get by) and I would hope that bankruptcy would not force me to give up my job as I doubt I am elibile for unemployment due to being self-employed.

    Yes, I have been considering what would be best for me and my creditors. It feels wrong that they would probably receive nothing at all in the event of bankruptcy. I got myself into this mess and I suppose I feel as though maybe I should not be getting off quite so easily. Although, I have also kept in the back of my mind that the credit card companies could probably care less what is best for me and that they just want what is best for them. A debt settlement would give them more than zero, which I think should be in their best interest as well, and would also enable me to avoid bankruptcy.

    For debt negotiation I was thinking that I could probably borrow $20-30k to use for settlement. Taking on debt to pay off other debt probably doesn’t sound so good, but $20-30k would be a level of debt that I could handle and eventually pay off in a reasonable amount of time. Being that the lender would be my father I am sure that we would be able to work out any issues that may arise (if, for example, my cash-flow tanks for a month, etc). If $40k is necessary I become a bit less certain.

    I guess I have a lot to think about at the moment. I will contact the attorney and will reply back with what I learn, etc.

    Thanks for your help & advice.

    John

  • Anonymous

    Steve, thank you very much for the quick reply and thorough answer. I really appreciate your advice posted here as well as throughout your website.

    My next step was to contact a local bankruptcy attorney but wanted to see what your thoughts were first. I will contact an attorney today for consultation.

    I’m glad to learn that I would be unlikely to lose my websites. Web publishing has essentially been my employment for years (even if currently I am not earning quite enough to get by) and I would hope that bankruptcy would not force me to give up my job as I doubt I am elibile for unemployment due to being self-employed.

    Yes, I have been considering what would be best for me and my creditors. It feels wrong that they would probably receive nothing at all in the event of bankruptcy. I got myself into this mess and I suppose I feel as though maybe I should not be getting off quite so easily. Although, I have also kept in the back of my mind that the credit card companies could probably care less what is best for me and that they just want what is best for them. A debt settlement would give them more than zero, which I think should be in their best interest as well, and would also enable me to avoid bankruptcy.

    For debt negotiation I was thinking that I could probably borrow $20-30k to use for settlement. Taking on debt to pay off other debt probably doesn’t sound so good, but $20-30k would be a level of debt that I could handle and eventually pay off in a reasonable amount of time. Being that the lender would be my father I am sure that we would be able to work out any issues that may arise (if, for example, my cash-flow tanks for a month, etc). If $40k is necessary I become a bit less certain.

    I guess I have a lot to think about at the moment. I will contact the attorney and will reply back with what I learn, etc.

    Thanks for your help & advice.

    John

    • http://GetOutOfDebt.org Steve Rhode

      John,

      Just keep in mind that although you go bankrupt there is nothing that prevents you latter from repaying your creditors to achieve that emotional goal you want.

      Bankruptcy would give you protection and allow you to repay your debt or part of your debt if you so elected without involving your father.

      Talk to the bankruptcy attorney but the trustee does not want your websites and would not be in a good position to sell them or get much for them since they are not generating much income so it is unlikely they will move against those.

      Steve

      • Anonymous

        Steve,

        I spoke with a local bankruptcy attorney today.

        His opinion is that bankruptcy is the best option for me considering the level of debt. He believes that the trustee would want to take and sell my websites. I mentioned that the trustee would probably not be able to sell them for anywhere near what they are worth, to which he responded that the trustee would hire someone with the knowledge to handle the sale. From what I understood, there is a blanket exemption of $10-11k, so I would be able to keep some of the money from the sale.

        The attorney also mentioned that borrowing money from my father to attempt negotiation would be a bad idea because it puts my father’s money at risk. The attorney told me that what might happen is that I borrow money from my father to use for debt negotiation, negotiate some debts but others might not settle. Then I would still be in a bad position, still facing possible bankruptcy but this time with my father’s money at risk.

        If the court would force a sale of my websites anyhow, then I want bankruptcy to be my absolute last option. I will exhaust all possible options before losing everything anyway to bankruptcy.

        If I would end up with basically nothing after going through bankruptcy, then I figure I should do everything and anything possible to avoid or delay that from happening (the benefit of delaying would be that maybe I restore my income & cash-flow by then, either via the web business or by taking on other employment). If I still go bankrupt despite all my efforts, all options would have been taken and there would literally be nothing left for the trustee to even consider selling – I would have sold it all by then already myself.

        The attorney I spoke with did say that bankruptcy would still be an option if I first attempt settlement. If that’s the case, I think I ought to do whatever I can prior to ending up in bankruptcy.

        So, at this point, what might my best options be? Settling sounds good, but even if I could only minimize interest and keep payments low enough to where I have more time to restore my cash-flow might be good as well.

        I’m very skeptical of credit counseling. One thing the attorney did say was that most of what is on the internet about counseling & debt resolution are scams. However, what I’ve learned about debt settlement doesn’t seem that way.

        I’ve read a bit more today and last night about debt settlement options. It seems possible that I might not need to come up with all that cash right away but maybe will be able to build up that cash over time, avoiding the necessity of borrowing from my father.

        Well, I think I’ve done the homework that you assigned to me. ;-) What are your possible suggestions regarding debt settlement? Also, are there any ways where I might be able to freeze my principal/interest and chip away at it over time?

        Thanks,

        John

      • http://GetOutOfDebt.org Steve Rhode

        John,

        I think at this point your situation may require some specific advice. I would strongly suggest you make an appointment with Damon Day, a fellow debt coach, and work out a hybrid strategy that makes sense for you in your situation. He will be able to take you through it, step-by-step. Any hybrid solution will need to be customized for your specific situation so it is worth talking to him.

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