Questions about Debt Consolodation / Bankruptcy

[Soul_Patch]

Any of you legal types out there, please give me a hand. I have a friend who is getting into deep financial trouble. She makes, on her own, about 90k a year, and has a live in boyfriend who makes about 45k a year.

Due to a lot of cir stances, divorce, bad decissions, etc...She is falling behind on almost every debt she owes and needs to get out from under this so she can start getting ahead.

I suggested Bankruptcy, since her credit is shot already, but i dont know anything about it...chapter 7 or 13? Should she pay a lawyer, or is this something she can do herself? I also thought about having her meet with one of those debt consolodators, but dont know anything about that either.

Anyone been in, or been involved in a similar situation? What would be the best course of action to take. The way she is doing it now, she will honestly never get ahead.

[CosmicCowboy]

Bankruptcy is not near as easy and painless as it used to be. That should be a final resort.

If she is behind/skipping payments on credit cards they have probably jacked her to the max interest. It's almost impossible to get ahead then.

A consumer debt counselor may be her best bet...basically, she gets all her debt info together and they go through it and figure out the max she can pay. Then, they negotiate with the banks/credit card companies to reduce the interest back to the 6% to 8% range and make payment arrangements with every one of them to electronic deposit an agreed payment every month. She agrees to cancel all her credit cards and to not take out any new credit. She makes one payment a month to the service and they distribute it. They usually charge about $25 a month.

An individual can possibly call/negotiate individually with their credit card companies and not use a service but it can be a real hassle. It's still a hit to her credit, but if she sticks to it she will eventually get out of debt.

[Thunder Dan]

she should talk with her lenders before declaring bankruptcy. Bankruptcy is something both lenders and lendees do not want to see. Sometimes lenders will give breaks or set up payment plans. With that kind of annual income flow it's hard to believe she doesn't have any assets she could do without- or atleast sell to get above water. I'm not a financial guru, but I work in a business that sees the downfalls of bad credit. Having bad credit without a bankruptcy is easier to dig yourself out of than having one on your record. Having bad credit means you will pay more for everything, so it is a catch 22--guy doesn't have money so he has bad credit--guy has no money because he has bad credit.

I would have her call each one of her lenders, and start cutting back on everything- no eating out, no movies, no nothing for a solid year and maybe that might change her ways-though I don't know her or her situation I'll admit. But Bankruptcies are not a start all over free card like some people think- again not assuming you or her think that, just saying

[CosmicCowboy]

BTW, do not believe those ads on radio/tv...they do not eliminate DEBT, they lower the INTEREST rate...those claims of "eliminating 30%-60% of the debt" are really referring to the outrageous interest she no longer will have to pay...

[Sportcamper]

Cosmic is like freaking smart...I would listen to him....

[BacktoBasics]

I would absolutely never ever ever use a debt consolidator or counselor.

A consumer debt counselor may be her best bet...basically, she gets all her debt info together and they go through it and figure out the max she can pay. Then, they negotiate with the banks/credit card companies to reduce the interest back to the 6% to 8% range and make payment arrangements with every one of them to electronic deposit an agreed payment every month.

and this is why. its misinformation about how it works. There is an astronomically small percentage of companies that truely take the right path for someone in this situation. They usually look at the finances and distribute the money like stated above but on closed accounts not active ones and they do it typically without negotiating a lower principal amount so what you end up with is a debt paid in full that ends up being a collection that reads charge off rather than a removed trade line.

IE they negotiate to close the account so no more interest accrues and then pay it down as a collection.

Its not that hard to negotiate the deals. With that kind of income she needs to get small chunks of money together...maybe 4 or 5k a pop and start offering settlements at 25% of the principal amount and negotiate to only pay if they agree to remove the tradeline completely when they recieve the agreed upon amount. This may take 3 or 4 times but it works and its worth the extra effort.

A paid off collection doesn't fare any better than an unpaid one.

Also debt consolidation show up on a credit report in nearly the same bad light as a bankruptcy. So not only do you end up paying more but you end up with a ty file after its all said and done.

I can go into more detail but be careful about the advice you get on this board. Its insane how many people think they know how to do something but have no clue how it really works.

[CubanMustGo]

I can go into more detail but be careful about the advice you get on this board. Its insane how many people think they know how to do something but have no clue how it really works.

And it's ing insane how some people think they are the only ones who have the answers.

[BacktoBasics]

BTW, do not believe those ads on radio/tv...they do not eliminate DEBT, they lower the INTEREST rate...those claims of "eliminating 30%-60% of the debt" are really referring to the outrageous interest she no longer will have to pay...

True. I have never had to fully pay a collection. They alway negotiate a lower amount but credit counselors rarely do that for you.

[Soul_Patch]

Yea thats one of those things i dont know about, id like her to pursue the consolodation route first...so many of those things seem like a scam to me, so i dont know where exactly to go to first.

The person in question is my mom, she is 51 years old and makes great money. I hate to see her in this kind of finanial stress, but due to my younger sister her credit is shot, and due to her own bad decisions and her divorce, she is in debt to her eye balls. She has reduced her 401k contribution to 3%, from 15%, and is still not getting anywhere. She wanted to see if i could get a consolodation loan for her, but im tapped, credit wise, myself for the time being...but i hate seeing her like this.

not sure what to do about it, but i know she will just reclude from it all and not fix it...she is too proud to seek help.

[BacktoBasics]

And it's ing insane how some people think they are the only ones who have the answers.

you can talk all the you want but I work with this every single day. I'm not the only one with the answers and yes there are more ways to skin a cat but I know what the I'm talking about.

I'm only trying to help. I'm sorry you don't think I know what I'm talking but then again you don't know me or what I know.

I'm not out here selling credit fixes ok. I know how to fix the problems and make them go away and its not free...well sometimes it is but thats another story.

Feel free to keep flaming someone offering some real applicable help....someone who works balls deep in it every ing day.

[1369]

Lots of folks don't agree with his plan on living credit card free and other aspects, but he does have an effective debt payoff plan.

[Soul_Patch]

B2B she has direct deductions from her paycheck twice a month that pays almost everything she owes on. All said and done, she probably takes home 500 dollars every two weeks. That is after everything is deducted.

I dont know what she does with that money, but im assuming nothing of any value. Would the best bet for her be to stop all of the direct deductions and start paying this off in larger ammounts, with the negotiations?

[BacktoBasics]

Yea thats one of those things i dont know about, id like her to pursue the consolodation route first...so many of those things seem like a scam to me, so i dont know where exactly to go to first.

The person in question is my mom, she is 51 years old and makes great money. I hate to see her in this kind of finanial stress, but due to my younger sister her credit is shot, and due to her own bad decisions and her divorce, she is in debt to her eye balls. She has reduced her 401k contribution to 3%, from 15%, and is still not getting anywhere. She wanted to see if i could get a consolodation loan for her, but im tapped, credit wise, myself for the time being...but i hate seeing her like this.

not sure what to do about it, but i know she will just reclude from it all and not fix it...she is too proud to seek help.

I can help you. It won't cost you anything. PM me if you want real help. You go debt consolidation she'll regret it. This is all stuff she can do and its easy. You'll fare much better avoiding a bankruptcy but then again I don't know the entire story.

But then again feel free to take advice from guys who don't work with credit, banks, debt collectors, underwriters and brokers but think they know how it all works.

[Soul_Patch]

Lots of folks don't agree with his plan on living credit card free and other aspects, but he does have an effective debt payoff plan.

I need to look into that myself. I have too much debt. Im well able to afford it, but i hate having it.

[Thunder Dan]

Lots of folks don't agree with his plan on living credit card free and other aspects, but he does have an effective debt payoff plan.

I like Ramsey but I choose to use credit cards for the rewards. I use a AMEX card for just about every purchase and just pay the bill at the end of the month. I don't owe them anything, but I will get some cool stuff I normally wouldn't get if I just used cash. So I agree with him to certain extents, but I don't think he is anti credit card if you use them properly, if you abuse them I can see his point

[J.T.]

B2B she has direct deductions from her paycheck twice a month that pays almost everything she owes on. All said and done, she probably takes home 500 dollars every two weeks. That is after everything is deducted.

I dont know what she does with that money, but im assuming nothing of any value. Would the best bet for her be to stop all of the direct deductions and start paying this off in larger ammounts, with the negotiations?

Does she live in TX? TX is a non-garnishment state, so no collection agency or bank should be a taking money from her paycheck. She needs to talk to the payroll department at her job and tell them to stop deducting her wages.

[BacktoBasics]

Does she live in TX? TX is a non-garnishment state, so no collection agency or bank should be a taking money from her paycheck. She needs to talk to the payroll department at her job and tell them to stop deducting her wages.

Some of those deductions are probably going to current accounts like a car payment or furniture loan or something. Look first before shutting things down.

What might have happened...and you won't know until you look is that she has direct payment set up on a say something like a Visa.

Say she's making automatic payments of 30 bucks but she ends up over limit and they charge her overlimit fees and this Visa decides to charge over limit fees monthly. They close the account hold off on putting it into collection and continue to accept the 30 dollar payment. So she's doing nothing but balancing out the over limit fee month after month. Its not technically garnishment.

Most importantly he/they need to look at whats getting paid monthly and compare it to the status of the account and then her 3 credit bureaus to determine if the electronic payment should be stopped in lieu of a settlement or if the account is current and workable.

[2centsworth]

Dave Ramsey!!!! You don't have to agree with everything, but the central points are spot on!

[Man of Steel]

Like they say, bankruptcy is the last option.

The laws re bankruptcy have changed. Cannot discharge credit card debt as easily as before.

One thing to keep in mind:

In Texas, the statute of limitations to sue for a debt of these kinds is four years starting from the date you made your last payment.

I bring this up because I see people who get letters from attorneys who threaten to sue them for old creditors they have not had any contact with in more than four years.

State law determines the limitations period.

In Texas--four years.

Now if you make a payment, you've just helped them and the limitations period starts all over again.

In a nuts : for debts within the four year period--go on a tight budget--negotiate the buyout--offer to make a lump sum payment for much less than the total. Or, negotiate a lower interest rate.

If you haven't paid on a bill in four years and you get a threatening call or letter from a law firm, send them a letter begging them to sue you in small claims court so you can get sanctions against them.

[Aggie Hoopsfan]

1. Don't file for bankruptcy.

2. Don't go with a debt consolidator, you can do everything they can in direct communication with the lending companies without paying said consolidators another fee.

With those two items out of the way, B2B has a lot of good tips.

How much is she supporting her boyfriend with? It sounds a little callous, but all things being equal if she is supporting him she needs to cut him off and fix her own problems first.

It's really hard to give her some good advice without knowing more specifics of her financials. If she hasn't already she needs to:

* stop shopping

* call her creditors and ask them to work something out. As greedy as they are they would rather get some money than none (should she have to file bankruptcy). Usually you can get either the interest rate reduced or negotiate a flat settlement.

* cut out any nonessential services (cable, satellite, car washes, spa treatment, gym membership, tanning salons, etc.) and apply those savings towards debt.

That's a start. The deductions from her paycheck sounds a little iffy. If she is making minimum payments on each of her cards then with what her interest rates are jacked up to she's not really putting a dent in her debt at all.

Generally speaking she needs to focus on paying off the cards with the highest balances first, unless there's a couple of smaller ones she can knock out and then apply the 'new' freed up cash to the larger ones. This is a tough call and hard to say without knowing more particulars.

[
Most importantly he/they need to look at whats getting paid monthly and compare it to the status of the account and then her 3 credit bureaus to determine if the electronic payment should be stopped in lieu of a settlement or if the account is current and workable.

Good advice there as well, I'd listen to B2B.

[Anti.Hero]

Making $95k and having to file for bankruptcy seems pretty awkward.

Is there no way she can begin to chip away?

I used to listen to Ramsey a lot and it seemed like there was loads of stuff you can do before even considering having to file for bankruptcy. Some of the callers were knocking out 100s of thousands of $$ within a 5 year span.

[exstatic]

Cosmic is like freaking smart...I would listen to him....

Yeah, but what could a Richer know about debt and bankruptcy?

[Soul_Patch]

We spoke in detail about it last night, and although i didnt and dont get into her boyfriend details, she is apparently not behind on many things, just so spread out that she will never catch up or get ahead. I dont know what or if he is contributing to.

She has a 2 loans out in her and her ex husbands name, she wants to get payed off immediatly, since he is on her ass about it apparently...that is what sparked the call to me.

I jumped the gun, but regardless she needs to do something, or this will just sink and sink until she will never be able to get out of it.