“Dear Steve,
I’ve always paid my bills on time and eventually obtained a credit score as high as 720. I became pregnant in 2009 and 4 months into my pregnancy I started getting complications and was ordered to bed rest by my doctor. I was out on medical/family leave for my remaining 5 months so I only received half of my pay. Since my pay was cut I made the decision to pay for my essential living expenses such as rent, utilities, car, insurance, etc. and decided not to pay for the 4 credit cards I owned.
I realize now that I could of handled things differently and contacted my creditors about my temporary hardship but I guess the embarressment of the inability to pay my debts got the best of me and I turned my head the other way.
I am working part time and rely on my employment and child support to support a family of 6. Currently I owe 4 different credit cards with a total debt balance of $13000.00. A couple of days ago I was served with a complaint from an attorney for Capital One, I owe them $8000.00, my manager is willing to try to help me with getting a loan to pay off everything, she said if all possible it’s best to avoid bankruptcy. If she isn’t able to help me I believe there is no other choice.
-What should I expect them to hit me with as far as repayment? will they ask for total amount at one time? or will they offer me another payment plan?
-Being that the complaint was already filed, is it too late to settle out of court? I did at one point agree to pay $25 a month and for 4 months straight deductions were made with success out of my checking account until they suddenly stopped taking out payments, I received a debt collection letter a month later from another company that bought out my debt and was hesitant to contact them when I had already set up a payment plan and gave my bank info. to the company before.
-I work for a bank (how ironic) and my manager is willing to try to get a loan to consolidate all my credit card debt at once. Is it even worth doing the loan and paying all debt off when my credit report is already in ruins for the next 7 years? or is it just worth filing for bankruptcy and starting fresh despite the 10 year black mark on my report?
Sunny”
Dear Sunny,
Thank you so much for contacting me. There is a lot floating around here and I’d like to help get you back on track.
I recognize your manager is trying to help you out and I applaud them for their attention and dedication to your situation. But before we leap into an emotional decision about what is best or worst let’s look at the situation as you described it.
First off, I don’t think you should beat yourself up over deciding to prioritize your debt payments. It sounds like you did the right thing. It also doesn’t sound like you had enough cash at the time to make even partial payments. And while creditors do have some internal programs to help they are generally temporary and only rolled out for those that are already past due. I don’t think going back in time and wondering if you had done something differently if it would have changed things. i doubt it would have.
For me the bigger issue here is if you got a loan to pay off your debt, would you be able to afford the loan payment and still be able to make ends meet? I really question if that approach would leave you with enough money on a part time income to satisfy your obligations and still have money left over to save.
The fact you are already behind on your debts will be reported on your credit report for seven years so that ship has sailed.
If we put bankruptcy into context it would immediately stop the current and future lawsuits and eliminate your debt within three months or so. You’d then not have any additional payments to make and could focus on making ends meet and savings on your current income.
You should also use my public benefits finder to see what, if any, additional benefits you may be entitled to receive. Every dollar in benefits you get is a dollar you didn’t have to begin with.
I guess what I’m saying here is that bankruptcy should not be ruled out without a careful examination of what it would mean for you in your situation. You can click here to find a local bankruptcy attorney and have a free consultation to discuss your options.
I wanted to address each of your questions as well.
- If Capital One or any creditor sues you it might still be possible to workout a repayment plan with them but it’s going to be a large payment. I would not be surprised if they win, go for a judgment, and then garnish your wages if they can.
- I doubt $25 a month is going to cut it on an $8,000 debt plus additional fees.
- It’s actually very easy to rebuild credit after bankruptcy, read this.
Seeing how this is a debt that Capital One sold it might be possible to fight the suit by standing your ground and making the current debt owner validate the debt. They would need to prove the debt is one you truly owe. Courts are not consistent with this and sometimes let creditors get by with just minimal verification. As an example of what to make them produce in court see this article.
Please don’t hesitate to share my answer with your manager that obviously cares about you as well.
Please post your responses and follow-up messages to me on this in the comments section below.
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Your input was very much appreciated, the loan I was working on getting would be $20000 for 60 mons at 6.678%, payments come out about $393/mon. I’m already paying my auto loan at $346 plus a $53/mon payment plan for one of the defaulted credit cards (my manager is including my $6500 auto loan into the mix) so ultimatly I would be paying the exact same amount every month and ALL of my debt would be rolled into one loan. By the end of the loan term, my negative marks would be dropping off my credit report, well that’s my plan. I should know whether I can get the loan before my court date, if that doesn’t come through I will definatly look into bankruptcy. I called the attorney’s office representing Capitol One and like you said they wouldn’t do the $25 a month because it’s already a legal issue, so the payment plan they offered was $2000 for 4 months or payment in full plus $500 in legal fees and the attorney’s mileage, if I can’t pay that then they will garnish 20% of my net income plus 10% interest, which would be about $100 a paycheck which I definatly could not afford. Please wish me luck with whatever route in which I have to go…I will keep you posted on what lies ahead of me in the next couple of days
Thank You
Sunny
Yes, please keep me posted.
One more question. If you did get the loan and made the payment how much would you be able to also save each month?
How many years from now does your child support begin to end?
I probably wouldn’t be able to save at all because my income is so fixed and I’ve got about 7 to 10 years left of child support payments. I’m hoping to work more hours or go back to full time once my youngest goes to preschool in August so the extra money should help.
The lenders are in the process of reviewing my loan I’m crossing my fingers that they’ll give me the amount that I need.
So that gets back around to one of my original concerns. How does the loan benefit you if it leaves you in a situation where you are unable to save. in that case you’d be one unforeseen event away from a financial crisis during the time it would take to repay the loan.