Preparing to begin debt settlement

Chase and Bank of America will take a look at your credit report to see if you are behind in other payments. Also, you need to be in default on these credit cards before they will entertain settling. If they see you are paying everyone else, I doubt you will get a good settlement.

I was able to get 50% with Chase (balance wasn't that high) and about 25% with Bank of America (2 cards). BUT I had defaulted on Discover, Citibank, Capital One. Before I defaulted I had been in a debt management plan.

Perhaps you should look at a DMP where they can get the interest rate lowered.....

The only payments I kept up were my mortgage and my car. The credit card companies will want to know your income, current expenses and why you can't continue paying them.

If you do it right, you should do better than 50% with Chase. You just need to know who to contact and when to contact them. Sounds like the previous poster probably didn't pull the trigger at exactly the right moment. Bank of America will be between 15% and 35% - again, depending on when you pull the trigger, and with whom.

The only obstacle you may face could be a potential lawsuit with Chase. They've gone through some phases where the get "litigation-happy" for people residing in certain states. Let me know what state you're in, and I'll let you know if you're in danger.

Thanks!

Marie Megge
Donaldson Williams, Inc.

Hi Marie!
I live in NC. Chase made the list of creditors I intend to deal with because they brought up the option of settlement to me; not the other way around. It seems to me that, for whatever reason, settlement is reasonable for them in dealing with my account. I didn't press them for a figure at the time, because I wanted to research debt settlement first and find out my full range of options. Having done my homework, I agree with your assessment and think this resembles a game of cat-and-mouse. I imagine the right time to "pull the trigger" can vary widely.
Better than 50% for Chase and 15%-35% with BofA is about what I expected based on other comments in the forums. One thing I have going for me is that I'm willing to be very patient and won't necessarily jump at the first offer a bank may make.
Please let me know your feel for how Chase behaves in my state. Thanks!

Hi Aubrey!
I'm perfectly willing to miss some payments in order to achieve the larger goal of eliminating my account with these two banks, so defaulting is an acceptable solution. These accounts are two of my three highest monthly payments and both have reduced interest rates (Chase @ 12% and BofA @ 3.5%) through in-house hardship programs. My highest bill is CitiBusiness; I am currently working with InCharge Debt Solutions to negotiate a more reasonable monthly payment with Citi. I had that bill under control with a 12-month 4.5% hardship rate. When that expired, the rate shot up to 29.99% with an offer to lower it to 9% on a $25K balance. Couple that larger Citi payment with the fact that I'm suddenly being double taxed by two counties which blew up my mortgage payment (my property is on the county line; the counties are tied up in court over it) and that's my reason for going down the debt settlement road.
Any other thoughts or comments are always welcome! Thanks!

Another thing....assuming my debt settlement is successful and given that I will be liable for taxes on written-off debt, what kind of tax rate should I expect? For the balances I quoted, let's assume the worst from a tax perspective. If I get $23K written off, what is a ballpark tax rate on this debt which the IRS now sees as income?
Thanks!

Fortunately, we haven't seen a lot of litigation taking place in North Carolina, so you should be okay. If you do happen to receive something from a law firm, please post it so I can tell you how to deal with the issue.

Regarding taxes, please remember that the IRS has an insolvency rule that states if you are considered insolvent during the tax year in which you settled your debt, you can complete IRS Form 982 and at least some of your tax liability will be eliminated. A lot of our clients are considered insolvent right now due to the housing market. Since many people counted on the equity in their home to be considered in their net worth, and can no longer count on that equity, their solvency has all but gone out the window.

Good luck to you!

Marie Megge

A couple of follow-up questions:

• How many days behind on a CC payment should I be before bringing up the topic of debt settlement with the CC representative? My Chase account is currently 38 days behind; BoA is 24 days behind.
  
• Typically, how far behind will these banks let an account get before handing the account over to some sort of third party?
  
• Should I take phone calls from the CC companies while I wait for the accounts to get far enough behind to expect a decent settlement amount? It seems like there's not much to be said.
  
• How can I tell if I am insolvent in the eyes of the IRS? What counts toward my net worth (401(K), stocks, home equity, etc)? What counts toward my debt (CCs, car loan, medical bills, utilities, etc)?
  

Chase and BoFa will both go for about 25%-35% if you do things right. You should close both accounts out first, then send a real detailed hardship letter explaining what happened to you financially not to make good on your promise to pay back your debt. In the hardship letter you can mention everything from loss of job to medical reasons, this will give your situation more credibility.
After about 90 days of not making your payments you will start receiving offers from your creditors, do not give in and negotiate. Always negotiate from a standpoint that you will be able to come up with funds. Tell the collectors that if the offer is right your friends and family are going to fund the settlement offers.
At about 150 days delinquent things get really good and you should be able to settle for low amounts, always stick to your guns and never cave in. Make sure to receive a settlement letter before you make any payments to your creditors, make sure your name, account number and settlement numbers appear correctly on letter before making a payment to your creditors.

Kevin,

1. How many days behind on a CC payment should I be before bringing up the topic of debt settlement with the CC representative? Don??t worry, you can ease in the words ??Settlement?? after about 90 days into delinquency, but I believe your two creditors will bring it up first. Simply wait them out for their best offer.


2. My Chase account is currently 38 days behind; BoA is 24 days behind.
Typically, how far behind will these banks let an account get before handing the account over to some sort of third party? They usually wait about 180 days or 6 months in most cases.


3. Should I take phone calls from the CC companies while I wait for the accounts to get far enough behind to expect a decent settlement amount? It seems like there's not much to be said. YES, go ahead and speak to your creditors, keep a log of all conversations and of offers they make to you. Only by talking to them will you be able to achieve a great settlement. If you must communicate via written correspondence with them, make sure everything goes out certified mail with return receipt.


4. How can I tell if I am insolvent in the eyes of the IRS? What counts toward my net worth (401(K), stocks, home equity, etc)? What counts toward my debt (CCs, car loan, medical bills, utilities, etc)? Talk to an accountant about this one.

Hi,

For people who have decided to go for debt settlement, do you really know what to do before you start the negotiation process with your creditors or debt collection agencies? In fact, there are many preparations you need to do before you start settling your debt. In order to ensure that you can resolve your debt problems in a smooth manner, here are some useful guidelines you should follow:

Step 1: Confirm the total amount of your debt

Step 2: Check your credit rating

Step 3: Choose your financial solution

Step 4: Work out your budget plan

Regards,
debt settlement attorneys

In addition to the four steps listed above, there's a lot more that goes into it, as well. Unfortunately, I read a lot of posts where people are attempting to settle their debt and going about it all wrong, and then wondering why it is they're not seeing good results.