Need Your Advice Debt Settlement Or Other Alternatives
Q: My total debt is almost half of my gross annual income. Most of the debts are over 5 years old. I was out of the country during this time and I recently came back and took a job. All of my debts (except for the car loan) are unsecured and in the collection phase and charged off by the original creditors. My goal is to be able to get a house mortgage so I can buy a house as soon as possible. However, even with a credit score of 640, I am not able to get a mortgage until all these collection items are cleaned offmy report. I approached a debt settlement firm and even made the first payment and now I am getting out of the contract because I learnt that the forgiven portion of a debt is considered as taxable income by IRS. So I did my homework (although a bit too late)and found out (taking into account tax brackets) that I will end up paying something around 70 to 80% of my total debt if I use this firm. They charge 15% commission and on the average, debts can be settled for 35% of the original amount (optimisitcally speaking). I have to pay between 40 to 50% taxes on the 65% of the debts that are forgiven. So this all can add up to 80% of my total debt. Bottom line: this settlement deal sucks! What are my other options? Chapter 7 or Chapter 13? Please enlighten me. The lawyers always advertise bankruptcy so they will make money. The debt settler advertises his/her plan. Debt cosolidation is out of the question coz they suck and they are on the creditor's payroll. Because of my job, I don't have much time to negotiate with collectors myself. It was the mortgage officer's advice to go after settlement plan coz she was so against bankruptcy
A: This is great. Your issues are just like mine except with a twist. I have bad debt that is over 5 years old. Most should be dropping in the next year or two. However recently I had two car repoes and have been searching for answers as to whether or not its worth paying them off. I found the same kind of information you did. The BK attorney is all for filing the BK to make his money and the credit counseling is all for negotiating to make his money too. I also found the bandruptcyforum.com which basically say file before October. My advice for you would be to wait to buy a home. You got two years left. Save that money and invest it in mutual funds stocks whatever. Now if youre only interest in buying a home is tax writeoffs. Then you need to consider whether or not the debt you'll pay and the money you'll loose for not investing