HELP: Which way to go BK Chapt 7, 13 or unsecured Debt Settlement? Confused...

Edwards Finance > Debt Recovery

Q. I'm needing some advice from hopefully someone else in this group that has been down my road before or works in the legal field to help me out. Here is the situation. Over the last two years I have sunk my family into $45K of unsecured debt, due to me starting up my own side business. I do however have a full time employer but I have started my own business to help with my families income as I am the sole bread winner and my wife is a stay at home mom raising our 3 year old son and son to be mother of our second son (due in early September). As of right now we are current on our bills, but I don't think we will be as of this month. Here are my options and my concerns. I've read a lot about debt settlement and I'm not sure if this is the way to go. They have offered to help eliminate this debt for $23,660 over a 36 month period using their plan. However from what I've heard the three creditors to which the $45K balance is due will now start showing us as being delinquent since we will be paying them in lump sums. Also from what I have read I can possible expect for them to be each sending me a 1099-C at the end of the year for the balance that was forgiven? Is this true? Further more which is worse a bankruptcy on our credit report or the deliquent payments over the course of the next 3 years. Bankruptcy. My side business that I have started up is that I operate amusement games (video games, toy cranes, etc.) in a few locations throughout the area. This business has been a lot of self-learning over the past two years and I can honestly say that it is turning around for the better at this point. (My first quarter of this year showed a loss, second quarter showed a profit and the 3rd is already in the plus column). I have four great locations now that earn well. My concern is if we are filing Chapter 7 is it likely that the trustee may want to take the equipment from my amusement business? We need the income that these games make to survive monthly to pay the bills. Not necessarily all credit card debt, but also we survive off of it for car payments. For the trustee to take this away would hurt our monthly income. Not all of this equipment was purchased on credit and a lot of it that was has been sold over the years or traded for other equipment. Furthermore if I was to loose equipment from one of these locations...I could very well loose the location. My only large purchase that was made within the last 6 months on one of the credit cards was for an air hockey table for $2275 for one of these locations....would I loose this or other equipment? What about Chapter 13, Under Chapter 13 would my equipment be protected.

A. Be VERY careful about using any "debt settlement service. Here's a summary of how they work: Say I have $40K in credit card debt and that I'm current on all accounts (not delinquent/late on any payments). I see an infomercial on latenight cable TV about settling for 50% so I dial their 800 number to get the ball rolling. There's a problem here: why on earth would Visa give a substantial settlement for an account that is not delinquent??? When you use a debt management service, you let them take over your accounts and you make a monthly "contribution" (say $400 for example) to them. The company holds the money and almost always ceases making payments to your credit card accounts to let them go into seriously delinquent or even charge-off status. It is only then that there is any incentive at all for Visa to settle the account. 4 months go by and I've paid $1,600...of which they've kept $800 for themselves, with the remaining $800 used to go towards the "settlement" offer. These firms must first ruin your credit before any negotiation can take place...and they charge to ruin your credit...something that can be very easily done for free on your end....just stop making payments. This is a tactic which CAN work, but I would rather do it myself...with the negotiation of a settlement through an attorney rather than giving some clowns $2K to wreck my credit. Of course, deliberately allowing your accounts to be become seriously delinquent can trigger some very aggressive collection activity (multiple phone calls a day). In summary, this tactic can work, but it can be stressful. Not knowing the specifics of your income/assets, it's hard to give advise about whether to file for Chapter 7....remember that filing a Chapter 7 should be reserved for absolute financial emergencies. I don't know the answers about whether you can keep your assets.

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