Get Out of Debt Guy - Steve Rhode

I Have Loads of Debt From Being Scammed – Jessica

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Question:

Dear Steve,

I have a situation that I’d like to get your feedback on.

I recently found out that I was a victim of a 3-year long scam. During the 3 years, I maxed out 5 credit cards and took out 5 personal/unsecured loans; my total debt > $95,000. (Side note: I’ve reported the scam to the appropriate authorities, but I likely won’t be able to collect anything back.)

I also borrowed from friends/family, whom I’m currently repaying. I was told that this is a “bad” idea and that I should repay my creditors first, but I’d rather salvage my relationships for my own mental/emotional sake at this point. I’m paying family/friends about $2000 per month and will be done repaying them in about 1 year.

I haven’t made payments toward any of these accounts for 1 year now. All of the accounts are with debt collectors. My estimated amounts are as follows–

1) Capital One: $6,600. Received letter saying that my account has been deemed eligible for further legal action; was offered a one-time lump sum settlement of $2,990.
2) Chase: $8,219. Received letter offering one-time lump sum settlement of $1,995.76
3) Discover: $1,218. Offered one-time lump sum settlement of $650
4) Amex: $4,500. Received an offer for monthly payments of 500/month.
5) First Bank: $1200. Offered one-time lump sum settlement of $725
6) Loan Me: $17,000. Offered one-time lump sum settlement of $6,351.11
7) Rise Credit: $5,000
8) Net Credit: $10,000. Offered payment plan of $124/month for 89 months.
9) Lending Club (sold to Velocity): $30,000. Offered settlement of $23,000
10) Avant (sold to CACH): $12,000. Offered settlement of $8,000

As of now, (*knock on wood*), I haven’t received any notices regarding litigation. I’ve consulted with a few bankruptcy attorneys. All of them have told me I don’t qualify for chapter 7 because my income is just a bit too high, but I could do chapter 13. I’m wary about doing a chapter 13 because of the low success rates and the little amount of control I’ll have over a huge aspect of my life.

Even if I were to do DIY debt settlement, I figure I would need around $40-50,000 which I don’t have and I’m not able to borrow. I’m fortunate to be in a career with many job opportunities. I’m confident that I could save up a substantial amount within 1.5-2 years to settle my debts if need be.

I’m still debating whether a chapter 13 vs a DIY debt settlement. What are your thoughts on this? Thanks in advance for your time!

Jessica

Answer:

Dear Jessica,

The big issue on the wait and see approach is you have so many creditors. The more you have then logically the higher your chances are of one of them eventually suing you. Of course you may never be sued.

If they sue, win, and get a wage garnishment then your chances of continuing monthly payments to the others is scuppered.

The issue about the failure rate of Chapter 13 plans is a bit misleading. Many plans fail because they convert to Chapter 7 plans so it’s really not a failure. Others fail because the long period of repayment is not sustainable for some.

Clearly the advantage of the Chapter 13 is to block any legal action against you and discharge the debt.

Of the two types of consumer bankruptcy, Chapter 7 or Chapter 13, the Chapter 7 would certainly be the most advantageous and give you the faster reboot.

You mentioned the feedback you got was your income was “just a bit too high” and if it is that case then I would talk to some more attorneys about what you can do to bring your income under the threshold. Some bankruptcy attorneys are very clever and think outside of the box.

If you discharge all of your debt, including what you owe to friends and family, there is nothing that prevents you from repaying anyone you want after the bankruptcy.

As far as the DIY debt settlement approach, while you could enter into some payment arrangements now, you really need a solution that allows everyone to be satisfied currently with some payment. Otherwise, you are risking making payments to most and having one sue you and through the entire plan into the bin.

I would just hate to see you waste a year of partial payments on settlements to some only to have it all get trashed by one creditor who won’t work with you.

Some of those settlements look like you could knock them out quickly. But there is no reliable predictor of what future actions any remaining creditor may take which you don’t have an agreement with.

Personally, I would prefer to see a solution that allows you to deal with the resulting financial mess in short order and get you back to a position of saving and investing for retirement, as quickly as possible.


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