I have a payment plan with the third party debt collector, but that payment is too high now that I am not working, and they will not settle the account. I have decided not to continue paying on this debt. (I am not worried about the resulting poor credit rating.)
I know that a court would seize my bank account (money for expenses from the IRA), but since there is never much in the bank, that would not worry me too much. I want to know if this is a viable alternative to bankruptcy as, in the latter, I am worried about the trustee's assessment of my property, etc., and take-over of same.
Thank you very much.
Depending on the situation, there are several alternatives that may be available to consumers who are facing financial troubles. If the debt at issue is primarily unsecured debt, debt relief agencies may be able to help consumers by negotiating reduced payments and additional time to pay debts. In most of these programs, the debtor will sign up with a debt relief company who will attempt to negotiate a lesser amount and/or longer terms with creditors. In some cases the reduction in debt can be substantial. Typically, the debt relief agency will analyze the debtor’s financial situation and come up with an amount that they think the debtor can reasonably pay each month. The debtor will then pay this amount to the debt relief agency. The agency will hold the money (after deducting their fees) so that it can be used to strike deals with creditors. Once deals are reached, the agency will pay the creditor out of the funds they are holding.
However, there are several drawbacks to this approach. First, any debt that is settled for less than full value will typically be reported negatively on the credit report. In addition, the debtor will usually fall further behind on their payments during the negotiation process; thereby causing further damage to their credit reports and leaving them in more trouble if no deal can be reached. When compared to a bankruptcy (which, of course, also has a negative effect on a credit report), the length of the non-bankruptcy payment plan must be considered. In many cases, a debtor in bankruptcy will be able to improve their credit scores in as little as one year (compared to what it was prior to filing bankruptcy). Thus, from a credit reporting point-of-view, a bankruptcy may actually be advantageous over the non-bankruptcy repayment plan if the plan will take longer than the amount of time required to improve the credit score after a bankruptcy.
Second, the portion of the debt that was forgiven can be deemed income to the debtor. The creditor will often send an IRS Form 1099 to the debtor who will have to report it on their income taxes and will typically incur additional tax debt as a result. On the other hand, a debt discharged in bankruptcy is not generally considered to be income for tax purposes, and the debtor should not have to pay income tax on the debt that was discharged in a bankruptcy case. If a debtor in bankruptcy receives a 1099C from any creditor whose debt was discharged in the bankruptcy, the debtor will simply have to complete IRS Form 982 and attach it to the tax return for the year that the debt was discharged.
Third, this form of a debt relief repayment plan is completely voluntary on the part of the creditor. In other words, there is no guaranty that the creditors will accept the terms of the proposed repayment plan. Meanwhile, during the negotiation process, the debtor remains susceptible to collection actions, including phone calls, lawsuits, garnishments, repossessions and foreclosures. Even if the debt relief agency is successful in getting most of the creditors to accept reduced amounts and payment plans, a single creditor who does not agree may be enough to eventually force the debtor into bankruptcy. Any money spent along the way will have been for naught. Therefore, this type of debt relief works best when the number of creditors are relatively few.
You should probably sit down with a bankruptcy attorney and discuss the specifics of your situation - including what assets and debts you are dealing with.
In the fact pattern you outline, it sounds like a creditor would have difficulty collecting from you. However, I am curious about what property you are worried about a Chapter 7 Trustee seizing. If you have assets that the Chapter 7 Trustee would have a right to seize, then you have to worry about your other creditors attacking those same assets. Most collectors confine themselves to going after wages and bank accounts because those are the simplest assets to get to. However, a creditor who wants to go through the work involved can usually seize most of the same assets that the Chapter 7 Trustee can. In general, you can protect the same property from the Trustee as you can protect from other creditors (such as the money remaining in your IRA which is protected from both).
Talk to an attorney. You may have less to worry about from a bankruptcy trustee than you think.
I think what you are asking is "can I make myself judgment proof" or an "uncollectable debt" from the creditors. The answer is YES, you can do that, but only if you have no job for them to garnish wages, no bank accounts for them to freeze and no real estate for them to place a lien against.
You, however, indicate that you may have assets that a bankruptcy trustee would be interested in... You should contact a bankruptcy lawyer for the free consult to find out if that is true or not. Most times, what you think might be an asset, is not really an "asset" in the eyes of the Trustee.
We practice in Hinsdale, give me a call and I'll go over your situation for free in about 10 minutes.
Very truly yours,
Dean D. Paolucci, Owner & Attorney
Paolucci Law
Ohio: 330.474.9529
Illinois: 312.427.9131
[email protected]
www.PaolucciLawFirm.com
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Disclaimer: This e-mail or other correspondence does NOT create an attorney client relationship. This e-mail or other correspondence represents a general overview of law developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to a specific legal situation. Any information contained in this communication was not intended or written to be used, and cannot be used, by the recipient for the purpose of legal advice.
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They have to get a judgment first, before they can go after your assets. If the debt is now owned by a debt buyer, as opposed to the company that gave you the credit card, it is possible that they do not have the documentation they need to prove you owe the debt. If they do sue you, you might want to consider hiring an attorney who specializes in handing consumer protection cases. We have found that debt buyers often dismiss their cases when a consumer appears (especially if they have an attorney) because they know they cannot prove their case at trial. The hard part in your case, however, is that you do admit it is your debt, and have been paying it recently. Also, if the debt is still owned by the original creditor, they will most likely have the documents they need to prove you owe the debt.
