I lost my job and have over 154,000 in unsecured credit debt. I was without a job for 3 years and was going to file bankruptcy. Now I just got a good new job, and I’m no longer eligible to file.
The credit card companies have charged off the debt, but they and collection companies are filing civil claims and getting judgments against me.
I’m trying to do the right thing and pay my debts, but they are burying me in extra debt.
What is the best way to negotiate with the creditors to avoid judgments and settle my debt? Should I negotiate with the collection company or the original creditor?
How do I get them to remove the judgments or bad credit history as a condition of the settlement?
I always find it tragic when people avoid filing bankruptcy. Did you actually meet with a bankruptcy attorney, and they told you you could not file?
Even if you were not eligible to file for Chapter 7 bankruptcy, you could still file for Chapter 13 bankruptcy. I need you to get facts and not make decisions based on assumptions if that has been happening.
When people say they are “trying to do the right thing and pay my debts,” it always makes me cringe. Again, it’s another assumption, and I get it; I was there once.
I get the point about wanting to honor your agreements with the creditors. You signed absolute agreements that required contractual repayment in a world that is not absolute, and life and income are uneven and unpredictable.
When things run off the financial rails, you have to ask yourself if you have a greater responsibility to fix the past or the future. If you want to fix the future, then every dollar you use to repay or settle your debt is money you will not have available to build an emergency fund, savings account, or save towards retirement.
It will delay your ability to prepare for that time in your life when you can no longer work or earn an income. If you are now motivated to get the facts, you should use this online calculator to understand what “doing the right thing” will cost you in retirement.
Here is where the “right thing” position runs into trouble. If you truly want to honor your promise to repay the creditor, then you should do that. But that means being all in and honoring the full promise of repaying every penny, not settling, and accepting the credit reporting of the actual status of your account. The existence of the judgments will never go away. They are now a permanent court record.
When you repay a portion of what you owe by coming to an agreement with the creditor to settle your debt that results in part of the debt obligation not to be repaid, is it possible to do half of the “right thing” and if that’s acceptable, then you are already okay with not repaying your full debts.
So the “right thing” position gets really strained when people understand that bankruptcy is a legal right that exists to give people a fresh start after they’ve had a bad situation. When I ask people if they want to repay their creditors after their debt is discharged, they wonder why they would do that.
When I filed for bankruptcy in 1990, I felt the same way you do now. I wanted to repay my creditors, but the strangest thing happened, they sent back my checks and asked me not to. The accounts were no longer on their books. That’s when I realized I felt a personal responsibility to repay my debt, but I was just an account to the creditor. They made no moral decision about me and assigned me no social penalty for being down and out.
So, if you abandon the “right thing” argument and you want to settle your debt rather than repay every penny, late fee, court charge, attorney fee, and other contractual penalties, then read Pros and Cons. My No BS Guide to Settling Your Debt.
But understand this, you are the least qualified person to settle your debt and get the best possible terms. You have no experience doing it, and you don’t know what the best terms are the creditors are offering at the moment, and you don’t know what is realistic or probable.
So can you do it, yes. Should you do it, probably not if you can get an experienced professional to help you.
In closing, consider this, if you are truly no longer eligible for a Chapter 7 bankruptcy, you should still consider a Chapter 13 bankruptcy that will allow you to pay back what the court determines that you can afford, will stop all collection activity, and forgive and remaining debt tax-free.
So, before you do anything, I would suggest, if you have not already done so, that you find a good local bankruptcy attorney and have a free discussion about what bankruptcy would mean for you. Bankruptcy is the fastest way to get a fresh start for the least amount of money.
Otherwise, find a debt settlement professional to assist you in your efforts and understand that settling your debt for less than you owe does not honor your “right thing” position.
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