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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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I have a financial reorganization question. I own a PLLC

Resolved Question:

I have a financial reorganization question.

I own a PLLC firm, and it operates in the red every year, due to my husband's income. I also have tax-free unearned income from a trust account that is managed by trustees (I cannot access the principle.) I have 60K in personal credit card debt. I am on the mortgage to the property where my business is located and have $80K in equity. My husband and I jointly own (and owe) over $2 million in other properties (including our family home), but I amnot on any of the mortgages for this property (only the deed).

I have recently heard about collection companies buying bad debt from creditors for pennies on the dollar and settling the debt with the consumer for 10 -15% of the entire debt amount. I spoke with a TN lawyer recently, and after he explored my economic situation and suggested I try settling before I look at chapter 7. He didn't like chapter 13, which I can understand, and he said if both my husband and I were looking at reorganization, we would need to file chapter 11.

What do you think about the debt settlment idea? Is this feasible? What are the risks?
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 5 years ago.

Hi JACustomer,

Regarding debt settlement, are you asking about the credit card debt only, or also about the mortgages?

Customer: replied 5 years ago.
Yes. Credit card only.
Expert:  cfortunato replied 5 years ago.

In general, credit card companies will not settle for less than the balance on the card unless the debtor has missed one or two payments. Once a payment is missed, the creditor will typically start calling immediately and will in a short time make a settlement offer of 50 - 60% of the outstanding debt.

If there is no settlement agreement, and if the debt is still not being paid, most credit card companies will then sell the debt to a collection agency for "pennies on the dollar". A collection agency will also typically allow the debtor to pay around 50% of the outstanding debt.

Neither the original creditor nor a collection agency will settle for 10-15%.

The risk involved is the reduced credit score that will result from the missed payments, and also from a settlement. Also, you may have to pay income tax on the amount that is forgiven, as you will be issued a 1099-C for the forgiven debt.

 

I think this is what you wanted to know. If not, please let me know.
Thank you!

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