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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33530
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Im back negotiating settlement with a company 185 days out.

Resolved Question:

I'm back negotiating settlement with a company 185 days out. They are again asking for my income and expense info. Hardship letter and Settlement letter. They say they will want to speak to me about my household expenses when they call. However they don't call. They just reject the settlement offer and not even in writing. Are they fishing so they can sue me? How should I respond? I asked before about 180 days and expected to be talking to a collection agency by now. I think this is the end. One caller said it was the last chance before charge off. I think charge off means collection agency. I'm just worried about giving them ammunition to sue me.
Submitted: 10 months ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 10 months ago.
Hello,

How much money are we talking about?

Also, are you a candidate for a Chapter 7 bankruptcy filing (even if only for negotiation purposes)?
Customer: replied 10 months ago.

$5700 on the line of credit. I make too much for chapt 7. I'd have to file Chapt 13. That's why I went the settlement route. I have a 2nd mortgage with the same institution that I am current on for around 20,000. If Chapt 13 was on the table, could that have payment arrangements changed as part of Chapt 13.


 


I've told them multiple times that I'm doing this because I have to pay my kid's student loan (co-signed). I never planed to have to pay that and it has ballooned with the principal twice the original amount. My daughter is defaulting. Couple that with recession wage stagnation and I'm in trouble. (Single mom) I am working. No raise in 5 years.


 


Thanks for your help.

Expert:  socrateaser replied 10 months ago.
Okay, thanks.

A creditor won't sue, unless it believes that the debtor has sufficient net income or net worth to be forced to pay the debt, rather than to file for bankruptcy protection.

There is no means of determining this with certainty from any public record, unless it's obvious from the fair market value of the debtor's real estate and the public record of any mortgage, that the mortgage is recent enough to show that there is equity in the real property.

So, if you provide financial statements and the creditor sees you have equity sufficient to pay the debt, then you will be sued -- because that's what I would do, if I were representing the creditor.

Please let me know if I can clarify my answer or provide further assistance.

Hope this helps.

Hope this helps.
Customer: replied 10 months ago.

Thank you. They want 2 current paystub W2 records, a written hardship letter with detail, and another settlement letter. Then they said they will call me and I should be ready to discuss my monthy budget & payments.


 


Should I send the paystubs? I would black out all deductions. I figured they are trying to decide if they will sue, settle, or sell to collections.


 


Should I send the requested info and try one last time to settle with them or hold firm and say all I'm sending is the settlement offer?

Expert:  socrateaser replied 10 months ago.
Should I send the paystubs? I would black out all deductions. I figured they are trying to decide if they will sue, settle, or sell to collections.

A: I wouldn't send them anything, other than a settlement offer. And, I would mentioned that unless they accept, that you will have no alternative but to file for bankruptcy protection.

Should I send the requested info and try one last time to settle with them or hold firm and say all I'm sending is the settlement offer?

 

A: Here's the deal: $5,700 is not "chump change," but it's also not a lot of money, from the perspective of a large creditor. If you have income and assets, then you can afford to pay the debt in installments. The creditor knows that if it takes you to court, it will need a lawyer, and that increases its risk profile.The creditor also knows that if it wants to minimize its costs, then it will sue in small claims, and it cannot collect more than $3,000, because that's the small claims maximum for Ohio.

 

If the creditor goes to regular civil court, then it's legal fees will immediately double -- perhaps triple, and that's if you don't answer the complaint, and the creditor gets a default judgment. If the creditor gets a default judgment, then it can garnish your wages. Your employer cannot fire you if all you have is a single wage garnishment, because that would violate federal law.

 

All of this is bad for your credit score, but no more so than the original late payment problems. Your credit report is already damaged, and a default judgment won't make it any worse.

 

If it were me, I would offer them 50%, and threaten bankruptcy. And, I would tell them what I'm telling you, so that they know what you know -- which is that $2,850 is a deal, because that's all they'll get in small claims court.

 

I can't promise they will agree, but it's a pretty good argument, in my opinion.

 

Hope this helps.

Customer: replied 10 months ago.

Thanks. I targeted the highest unsecured debts for settlement. Settled all but this one within 90 days. These guys are tough and the last one of 4 (all between 6,000 and 8,000) Settled others for 30% with one at 40%. I have not been paying Sallie Mae (co-signed) to save for the settlement. It's taking so long that I had to send $1,000 to SallieMae in July. Now SallieMae wants another $1,000, and that's interest only. I only have $2400 right now that I could give them. The most I offered was 50% in June and they did not accept it. Then I had to pay Sallie Mae. Once this is settled I can pay Sallie Mae on time and rebuild my credit.

 

I sent a settlement offer last week for 20% and they don't want to consider it without my sending the paystub info. I can send it again with a new date. I told them I would have to file bankruptcy if they don't settle.

 

Here is the letter text:

To Whom it may concern:

I am sending this letter to inform you that I can no longer maintain the payments pursuant to my contract with ### XXXXX I do, however, wish to propose the following resolution:

Although I am financially unable to keep current on the above captioned account, I am finally in a position to make an attempt to settle the debt I owe you.
I am willing to settle the above referenced matter for the sum of $1,200.00 to be paid in 1 payment of $1,200.00, due on or before 09-30-2013 to fully satisfy the account.

I sincerely XXXXX XXXXX will be able to work with me, as I am making every attempt to settle my debts, but I cannot promise how long the available funds will last. If I cannot settle my debts, I may be forced to file for bankruptcy. So you would deal with an attourney and not me. I am trying to avoid Bankruptcy. Please consider my offer.

Please forward me a letter and/or email responding to this offer, as soon as possible.


You may only contact me via telephone a##########, to discuss this offer. You may also contact me by US mail or email at the address above. If I do not answer, please leave a message that includes your name, phone number and hours you may be reached.
I will return your call promptly.

 

*******************************************************************************

 

I have a 2nd mortgage with the same institution that I am current on for around 20,000. If Chapt 13 was on the table, could that have payment arrangements changed as part of Chapt 13? I'd like to add verbiage stating that if I have to file bankruptcy the payments on the 2nd mortgage will be affected.

 

They are in the same state and county as me, so they could take me to court locally. They record all calls, but as soon as they put me on hold I record them too. They also violated my instructions to restrict contact to one phone number. So I can cite that in court if need be.

Expert:  socrateaser replied 10 months ago.
A Chapter 13 is not a creditor negotiation, as would be the case with a Chapter 11. In Chapter 13, the debtor must propose a plan that gives the unsecured creditors at least as much as they would receive in Chapter 7, and which also allocates all of the debtor's disposable income to pay the debtor's debts for the duration of the bankruptcy plan.

So, you cannot negotiate a deal surrounding your mortgage and your unsecured debt. There is no provision to negotiate.

Also, you stated that you are not employed -- unless you have a source of regular income, you cannot file Chapter 13. You can only file Chapter 7.

Hope this helps.
Customer: replied 10 months ago.

I think you have me confused with someone else. You said I am not employed. I do have a source of regular income and I asked you about sending the creditor pay stubs.

 

I am trying to frame my correspondence to get them to settle and not sue me. They normally charge off after 180 days according to a phone collector I spoke to in July. I sent them pay stubs in June and they say they won't consider a settlement unless it's accompanied by all my financial data again. I told them in August that I'm not sending them again and they are playing games with me. Their collectors told me I have to send a new packet with all the financial info every time I send a settlement offer. I feel that's a ploy to collect as much data on me as possible so they can sue. As I said earlier, I sent an offer for 50% in June that they did not contact me about, presumably because it did not have accompanying documentation of my income and budget. I keep telling them I have to pay Sallie Mae now and that was unplanned and overwhelms my budget. I tell them I have to live. Their letter says they want to go over my budget with me and that's why the need the info, but never do. Also need to do the whole process with all the info for every offer.

 

So I thought Chapter 13 protects you home while you are paying other debts. You are telling me it does not. I saw an attorney in February who told me Chapt 13 would protect my home. I decided to settle selected high balance unsecured debt on my own to avoid bankruptcy.

 

I am looking for help to negotiate without sending my financial data. I can add your suggestion about small claims court limits in Ohio to a new settlement offer. (How mush would it cost them (typical) to have an attorney prepare a case and take me to small claims) The small claims limits in Ohio is why I chose the accounts that I did to settle. I figured my settlements would be under the $3000 mark for each creditor. (Sallie Mae already ruined my credit anyway) I believe they will either sue or turn it over to a collection company with the $5700 balance. I had a company turn it over to collections in June and they took 40% immediately. The balance was $5100, when I stopped paying this last creditor. It ran up to $5700 with fees. They say I owe them a payment of $1100 for missed payments. I offered them $1200 to settle. When I upped it in June to $2600, they would not consider it because they want all my financial data again. I think it was just not in their loss prevention procedure guidelines for the age of the delinquency.

 

My experience is creditors have a number in mind and they won't settle until the last minute. Besides they know I am working, and they want to try to get as much out of me as possible before they settle or charge off.

 

I appreciate your help.

Expert:  socrateaser replied 10 months ago.

I think you have me confused with someone else. You said I am not employed. I do have a source of regular income and I asked you about sending the creditor pay stubs.

 

A: How odd. I could have sworn you said that you were unemployed and attending school. I guess it must have been a different customer. I hope I didn't confuse him/her with you on the other Q&A session, too. Thanks for the alert.

 

I am trying to frame my correspondence to get them to settle and not sue me. I sent them pay stubs in June and they say they won't consider a settlement without all my financial data. I told them in August that I'm not sending them again and they are playing games with me. Their collectors told me I have to send a new packet with all the financial info every time I send a settlement offer. I feel that's a ploy to collect as much data on me as possible so they can sue. As I said earlier, I sent an offer for 50% in June that they did not contact me about. I keep telling them I have to pay Sallie Mae now and that was unplanned and overwhelms my budget. I tell them I have to live. Their letter says they want to go over my budget with me and that's why the need the info, but never do. Also need to do the whole process with all the info for every offer.

A: In my experience, negotiation with a large institutional creditor, is largely a function of telling the creditor that unless it agrees to your terms, you will file for bankruptcy, because you have no alternative. Everything else that happens is generally just treading water, because the creditor has it's botXXXXX XXXXXne, and the loss mitigation representative usually has very little negotiating room. In my opinion, all that's happening here is that the creditor is determining whether or not it can get more money, net from you through negotiation, than it can get by either selling the debt to a collector or hiring a lawyer to sue.

Since a large corporation will pay 35% of its income in federal income tax, the debt is worth that same 35% if it's charged off. So, there is no economic benefit to reducing the negotiation to 35% or below -- especially as it costs nothing to simply charge off the debt. As long as the creditor has net income, 35% deducted from taxes is better than a 20% settlement.

So I thought Chapter 13 protects you home while you are paying other debts. You are telling me it does not. I saw an attorney in February who told me Chapter 13 would protect my home. I decided to settle selected high balance unsecured debt on my own to avoid bankruptcy.

 

A: The bankruptcy "stay" (Bankr. Code sec. 362) prevents a creditor from foreclosing a home loan, if the debtor is not current on the loan, unless the creditor asks the bankruptcy court for relief from stay. A creditor will not seek relief from stay, unless the property subject to foreclosure has equity (fair market minus loan balance), sufficient to pay the loan balance in full, plus reconveyance/auction costs.

 

In cases where fair market value falls below the loan balance of the first loan, the second loan can be stripped off in Chapter 13, making it an unsecured debt, and if the debtor pays the bankruptcy plan in full, then any remaining balance on the second is discharged entirely, leaving the debtor with only the first loan.

 

If fair market value is greater than the value of your first loan, then no lien stripping is possible, and unless you pay both 1st and 2nd loans during the bankruptcy plan, a creditor can request relief from stay and then foreclose.

 

It is possible to create a bankruptcy plan where you do not pay your home loans in full during the plan, but where you must pay a balloon at the end, or the plan is dismissed entirely. Some debtors take this route in the hope that the real estate market will recover, and the debtor can refinance or otherwise find the money to pay the balloon. This is an extremely risky choice, but for debtors who have no other choice, it's one that is frequently chosen. I would never recommend this route, because in my experience, it is just delaying the inevitable.

 

I don't know your entire financial picture, but as a general proposition, unless you re a candidate for lien stripping your 2nd loan, then you must pay your home loans as originally agreed during the bankruptcy plan, or the creditor may seek relief from stay, or the trustee may ask the court to dismiss your bankruptcy for failing to pay according to the plan. In either case, your goal of protecting your home from sale would be defeated.

 

Hopefully, my explanation is more thorough than that which you relieved from the attorney you consulted, and you now have a better picture of exactly what a Chapter 13 can do for you. It may still be the best option in your case -- as long as you can pay your home loan while satisfying the rest of the bankruptcy plan, because if you make all plan payments as agreed to, then your unsecured debts are discharged and you keep your home.

 

If your home is underwater, or you cannot make the mortgage payments, then dependent upon your income, you may be better off with a Chapter 7. Regardless, in my opinion, bankruptcy is generally the only satisfactory means of getting a fresh start on your debts. But, if you can negotiate your final creditor for less, then you don't have much to lose by trying.

 

However, the creditor can "run the numbers" for bankruptcy as easily as you can. So, by providing all of your financial info, you are telling the creditor what your likely bankruptcy plan will be, which means that the creditor will know in advance how much it will get paid during the bankruptcy. Consequently, it has no incentive to negotiate for anything less than that amount.

 

If I were you, I would have a competent bankruptcy lawyer take all of your financial info and plug it into the computer, create a pro forma plan and the determine what you will have to pay your uncooperative creditor. That's probably the amount that the creditor will accept -- and you could use your pro forma plan to try to negotiate -- i.e., "If I file Ch. 13, you're going to get $X. So, we can either settle on that amount, or I'll file Ch. 13, and that's all you will get."

 

Hope this helps.

 

 

Customer: replied 10 months ago.

Thank you for the clarification. My house is underwater, but only slightly when both first and second mortgages are considered. I know that I am a borderline case for Chapt 13, but my main issue is the Sallie Mae co-signed loans and Chapt 13 won't help with that. I have a decent job now, but they just announced layoffs and the bank is local and know that it was announced by the large local employer (they have my paystubs...). I am drafting a new settlement letter with the info you gave me and I will offer 40%, and I have that ($2280), based on your last reply that 35% is the tax write off.


The attorney I spoke to gave me an estimate of $3000 for the bankruptcy. He said I would still be responsible for my unsecured debt and I did discuss debt settlement as an option. (5 accounts settling for $3 to $4 thousand reductions each). So when I figured I could settle for 30-40% of my large credit cards for no cost to me, it seemed more prudent. Once this last one is settled, I'll pay Sallie Mae and try to get my credit above 500 so I can get a rate reduction on my first mortgage. (If I'm not laid off) I am begging my daughter to deal with her loans and I think it would be better for her to file bankruptcy than me. We are getting her 2012 taxes done next week and I'll ask the preparer to advise her.


 


One more question on my correspondence. I have documentation that their collectors called me on my cell phone several times in May. That was after I sent certified letter stating to only contact me on the home phone in April. Should I note that I can sue them for doing that?

Expert:  socrateaser replied 10 months ago.
An original creditor is not subject to the Fair Debt Collection Practices Act (FDCPA). Only a third party debt collector is subject. So, it's likely that you cannot sue the creditor for harassment, since it can contact you on any phone it wishes without violating the FDCPA.

Moreover, you cannot limit communication with a debt collector even if it is subject to the FDCPA. The law is "all or nothing." You must either give the debt collector a blanket "cease and desist" notice not to contact you at all, or the debt collector can contact you in any manner it wishes, except as provided in FDCPA Section 805.

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33530
Experience: Attorney and Real Estate Broker -- Retired (mostly)
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