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How Do or Can I Settle My Debts on My Own? – Shawna

Shawna

“Dear Steve,

I have 20,000 on 2 credit cards and a an interest free loan of 15,000 from my mom. I would like to be able to pay off both cards with the 15,000. Is there a way to request to see if the 2 companies would reduce the amount I owe them if I paid it off immediately or is there a legitimate program to help me do this? I appreciate any information you can give me to help pay this off.

Shawna”

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The Answer

 

Dear Shawna,

It is a rather straight forward process to see if your creditors will settle the debt for less. You don’t need a company to help you. Here is what you need to do.

  1. Stop making payments on the credit cards.
  2. Field collection calls and letters.
  3. Watch your credit getting worse.
  4. Be threatened or actually be sued for not paying.
  5. Potentially have a court date. Be sure to go, you are going to lose if you don’t go but probably will lose when you do. What is your defense? I’m not paying them so I can get a better deal and pay them off for less?
  6. After 100 days or so behind on your credit card payments then call your creditors and see what offers they will take.
  7. Get offers in writing so you’ll have proof latter what they agreed to. Years latter they will claim they never agreed to anything.
  8. If a creditor refuses to settle, then they refuse to settle and you’ll have to make other arrangements.
  9. If a creditor says they will report the settled debt as ‘Paid as Agreed’ just know that they will negatively report the debt forgiven on the same credit report.
  10. You will owe income tax on the amount of debt forgiven by the creditors. Be sure to save part of the $15K to pay the IRS bill when it comes at the end of the year.
  11. Your credit will be trashed by all of this. You’ll then have to try to rebuild your credit.

See, I told you it was a pretty straightforward process. Certainly not worth paying some debt settlement company $4,500 to do for you.

Big Hug!

How Do or Can I Settle My Debts on My Own?   Shawna
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P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

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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.
  • http://www.creditopia.com Katrina

    Shawna … I agree with everything Steve has written here. It’s pretty brutal to look at and realize what your path is, but it is the truth. And Steve really hits it home by making a point you can do this yourself or pay someone $4,500 to do it for you. You are better off swallow this hard pill yourself and being your own shoulder to lean on. Ruined credit IS fixable. All in all, you don’t really need or it to be perfect right now because I doubt you’ll be considering a new car or mortgage in the next few years. You’ll be focusing on getting out of debt.

    • http://GetOutOfDebt.org Steve Rhode

      Katrina,

      I love your statement “ruined credit is fixable.” Oh how true that is. People often make worse mistakes wasting time trying to preserve their credit than just to bit the bullet and deal with the problem head-on and then rebuild their credit afterwards.

      Steve

  • http://www.pittsburgh-bankruptcy-law.com Shawn N. Wright

    Two quick points. First, when you compare debt settlement versus bankruptcy, one big difference is that there’s no automatic stay while doing debt settlement. Simply, the automatic stay is the protection from the Court against all of the creditors. When you file bankruptcy, you have no more nagging phone calls from creditors, and no worries about being sued. Conversely, when you’re going through debt settlement, the phone continues to ring incessantly until all the debts are settled, and you might be sued.

    Second, when you’re in debt settlement mode, and your debts have “charged off”, i.e., been assigned to third-party debt collection companies, then you probably will not be issued a 1099-C either. Since they aren’t the original creditor, they’re not entitled to issue a 1099-C.

    Good point though, Carl, about the Form 982. Debt settlement though sure does create a lot more worry though than filing a Chapter 7 bankruptcy case.
    .-= Shawn N. Wright´s last blog ..How Long Will My Chapter 7 Bankruptcy Case Take? =-.

  • http://www.chs-law.com/atom.xml Carl H. Starrett II

    Well, I actually did know that but I’m not a tax attorney and didn’t want to express an opinion on whether Shawna was legally insolvent.

    Insolvency is basically when you total debts exceed your total assets. If someone has $10,000 in assets and $20,000, a a creditor forgiving $10,000 is not a taxable event. That same person receiving $15,000 would have $5000 in taxable income.

    Debt forgiveness achieved in bankruptcy is never taxable, yet another advantage of bankruptcy over debt settlement.
    .-= Carl H. Starrett II´s last blog ..Getting What You Need From Bankruptcy =-.

    • http://GetOutOfDebt.org Steve Rhode

      Carl,

      Damn, thought I had you.

      Steve

  • http://www.chs-law.com/atom.xml Carl H. Starrett II

    I agree with almost everything Steven says on this with one minor exception. Debtor forgiveness received at a time when is debtor is legally insolvent is not taxable. You will receive a 1099 from each creditor and will need to file form 982 with your taxes to show that the the debt forgiveness income is not taxable. You would need to have a CPA review your situation to see if qualify to claim insolvency on your taxes.

    Your situation is fairly typical and makes me really wonder why people try so hard to avoid bankruptcy. By the time you settle, your credit will already be hosed AND you will ow mom a nice chunk of change. Sure, you might get them to settle for 50% or less of what you oh, but so what? You are still indebted to your mom for a sum that isn’t exactly very small.

    Instead, why don’t you just borrow $2000-$2500 and go hire a good bankruptcy attorney? Your credit probably can’t get much worse than it already will get and most of my clients see an improvement in their credit score within a year after receiving their discharge.
    .-= Carl H. Starrett II´s last blog ..Getting What You Need From Bankruptcy =-.

    • http://GetOutOfDebt.org Steve Rhode

      Carl,

      I think I might have finally got one over on you. You are right about the insolvent thing BUT the IRS says that if the forgiven debt makes you solvent then you owe tax on the amount over your break even point. So if someone is primarily in debt because of credit cards and that is what is making them insolvent, guess what, forgiven debt leaves you solvent and a new friend of the IRS. :-)

      (Bet you didn’t know that one.)

      Steve

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