I have a different problem than a lot of your readers. I have lots of assets, but my income is very limited. I have property worth about a million dollars, but because it is more than 5 acres with a manufactured home no one will loan against it. In about 2 years will start collecting social security so at that time will be ok, but for now run a deficit of about $800 per month. The last tax bill I could not pay. Will be able to catch up this fall so not in any danger of losing the property.
I owe about $20,000 to various credit cards. I made the very difficult decision to stop paying them last month and then do a settlement offer when the debt collection companies purchase them. At that time will do a pay for delete offer, using money borrowed from my son. Then in the holiday season have a seasonal job that pays about $7500 so will be able to pay most of it back.
On a side note, got a phone call on my CELL phone (illegal), which is just a $10 a month item. The creditor leaves a message, which I saved stating that today was the 17th and I got paid that day. I have a part time (6-8 hours a week) that is paid by direct deposit. NO creditor knows about it. The only thing I can figure is they hacked into my bank account because I used to pay on the first with my retirement check. How else could they have known about this job and what day I got paid?”
Thanks for asking your question.
Your strategy might work but it really depends on the exact creditors and if they uncover your assets in their collection efforts.
Here are some settlement resources that might help.
Debt Settlement Advice
- Debt Settlement Pros and Cons. My No BS Guide to Settling Your Debt.
- The Hidden Cost of Debt Settlement – Calculator
- DIY Debt Settlement for Those Interested in Do It Yourself Debt Settlement – Podcast
- IRS Form 982 is Your Friend if You Got a 1099-C
Keep in mind what will happen when you default on your payments. Generally you will flow through the collection queue and pressure will increase as you get near 180 days past due and your account charges off. A charge off is an accounting function and has nothing to do with the collectibility of your debt.
A creditor like American Express might not sell your account to a debt buyer, most do after it charges off. American Express is also more likely to sue.
For those not familiar, there is quite a bit of myth flowing around the internet where people claim they have settled debt under the condition the debt owner removes the negative reporting from the credit report.
I understand the concept but in reality it will not remove the negative history with the original creditor. Even then, if a debt buyer does it they will be violating their agreement with the credit reporting bureaus and if you later apply for future credit using a credit report which is not a true and accurate reflection of your credit history, there are potential consequences to that.
Bottom line, it’s easier to just simply rebuild good credit than waste time with the pay to delete approach.
I’ve seen all sorts of things happen and sometimes it’s just a major accomplishment to get the creditor to agree to a settlement that makes sense, and put it in writing. I would not waste my time with the pay for delete approach.
If a collector does even a little public record checking they might easily find your real property asset. When you default on your cardholder agreement the creditor can do a number of things spelled out in the agreement. One of those things is to sue you and go for a judgment and property lien.
On the cell phone call, I think the guess about when you got paid is not bank hacking but a logical deduction since the 17th this month was the typical payday for many.
Third party debt collectors may not call you on your cell phone if you have informed them it is a cell phone. But they would not be able to tell it is a mobile phone just by the number. Cell phone calls by collectors fall under the Fair Debt Collection Practices Act (FDCPA).
But the FDCPA does not apply to the original creditor.
The typical way collectors get the cell phone number is when you call in on a toll-free number. The party receiving the call receives the number you call from, even if you block it. The best way to not let the debt collector get your cell phone number, if you change it, is to not call them back on a toll-free number, ever.
You should expect to receive an increasing number of calls and correspondence as your account gets further delinquent.
The best way to handle those calls is to answer them, be polite, and explain your situation. The longer you can keep your account flowing through the normal collection queue cycle, the easier it will be to get to charge off and then off to the next step of your planned strategy.
Lastly, don’t forget to factor in the tax it sounds like you will owe when you settle your debt. While there is a IRS Form 982 to complete if you are insolvent to eliminate your need to pay tax on the forgiven debt, by your own admission you are not insolvent and instead asset rich.
The forgiven debt will be taxed at your normal income tax rate and the creditors or debt buyer will send you a 1099-C for the forgiven debt.
There are some risks to your strategy so keep those in mind along the way.
You might want to hire a debt settlement coach like those from Consumer Recovery Network, Debt Relief a la Carte, or ZipDebt. Having a coach help you through this process can get you access to specialized knowledge and guidance for your specific mix of creditors and situation.
Please post your responses and follow-up messages to me on this in the comments section below.