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How do I Settle Default Judgments?

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TheGreatBambino

Junior Member
What is the best way to work out "monthly payment" settlements with Credit Card companies who have Default Judgments against me? I'm trying to decide if I need the help of an Attorney (i.e. Chapter 13), or if I can handle this myself by either contacting the various Attorneys directly or enlisting the help of a legitimate non-profit advocate, such as CredAbility (formerly CCCS). Also, 4 of the 7 credit card judgments are debts that Chase sold off to another company (2 to Vanz LLC and 2 to Baxter Financial). Two of the judgments are from American Express cards and those debts were not sold-off.

Quick background on my situation - I've been a business owner for 21 years (Sole Member LLC since '06). I did well for my first 17-18 years in business. But then I hit a major bump in the road during the economic downturn in 2007-08. My business suffered. I also personally got caught in the housing bubble crossfire by buying high and selling low, and I have several other documented hardships that occurred within that time period. Meanwhile, I had large credit limits that I was always able to pay down. Well, all of a sudden I couldn't pay them down anymore. I got caught in a snowballing avalanche that I couldn't fend off any longer. It was so overwhelming that I foolishly avoided all of the legal judgment paperwork. I couldn't handle the storm coming at me because I was desperately trying to stay positive and build my business back successfully.

The good news is that my business is now 100% back on course. I have strong accounts in place and can show a solid income stream. The bad news is that, due to the past 3-4 years, I have an IRS levy on my home, a home potentially facing foreclosure, and a series of credit card judgments against me.

I know that if I can rework my mortgage, make an offer in compromise to the IRS, and make monthly settlement payments to the credit card companies that I can dig out of this mess due to the current state of my business.

The question is - how do I go about doing this? It overwhelms me every time I think about it. I have the odd dichotomy right now of doing well on a daily basis at my business, while also trying to overcome the past that I’ve buried for a few years.

I've consulted with a BK attorney regarding Chapter 13, but even that seems overwhelming because if I don't settle first with the IRS, and also rework my mortgage, then I’ll be on the hook for ALL of the missed Mortgage interest and 4 years of IRS penalties & interest. Yes, the Chapter 13 would protect me and buy me time, but it would create an enormous monthly payment for the next 3-5 years. Chapter 7 is not an option because I want to save my home and protect my other assets too.

I'd be grateful for any helpful suggestions. Thank you for your time and attention…
New Jersey
 


cosine

Senior Member
Chapter 13 works to customize a payback plan within your means, at least for a specified period of time. Why would you want to pay any less?
 

TheGreatBambino

Junior Member
Thanks for the reply. But I'm not sure I understand your response. Why WOULDN'T I want to pay "less"? It's my understanding that if I do a Chapter 13, the IRS (they have a lien) and the Mortgage Company would want EVERYTHING that I owe them (penalties/interest to the IRS & missed payments plus interest to the Mtg Co).

So if I go Chapter 13 right NOW - before working out something with the IRS & Mortgage company FIRST - then I'll have to pay much MORE on a Chapter 13 workout.

So the question is... why would I want to pay MORE?

And I do understand that Chapter 13 would probably allow me a major break on the Credit Card judgments and I'd also be able to release any debts to unsecured creditors, but Chapter 13 would still force me to pay EVERYTHING (and then some) to the IRS and Mortgage Company. Correct?
 

cosine

Senior Member
There is a certain monthly amount you are CAPABLE of paying. It is very typical for creditors to pressure you to pay more (or in some cases to pay them only and not pay other creditors). The creditors have no idea what you really can pay. Typical debtors will claim a lower amount that they are able to pay. Creditors know this and assume it applies to every case. Once they have a judgment, they have even more legal powers that vary from state to state, and they intend to use those powers. At this point, they are not willing to negotiate because they just want all of their money as soon as possible.

What chapter 13 does is establish what you can pay (leaving you only basics to live on) and establish a payment plan for that, with a time limit after which the remaining debt is discharged.

What you want to do is pay less than that. Why would the creditors be willing to agree to that knowing that they can either execute their judgment powers and get everything available, or get the max payment plan in chapter 13.

The only reason for a creditor to be willing to take less now is if they can get more later, with a confidence level that it will happen. Merely offering such a payment plan won't give them that confidence. Opening up all your finances, as you will have to do to in chapter 13 for the trustee and court to determine your plan, to the creditor might accomplish that. More likely it won't.

As for the IRS aspect of that, I really don't know because I have never really studied all that a chapter 13 would do (never have done BK myself ... just know some friends who have, and theirs were all chapter 7) ... especially the IRS aspect.

What I can say is you will have a very hard time convincing creditors holding judgments to negotiate. Are you saying that the amount to pay creditors in full over time plus IRS via OIC is less than paying creditors partially by chapter 13 plan plus IRS in full?
 

TheGreatBambino

Junior Member
Thanks for the detailed response. I understand totally what you're saying about the judgment creditors expecting full payment. To answer your question, getting an OIC with the IRS and a rework of my mortgage (but then having to pay the credit card creditors in FULL) will actually save me significant money - as opposed to Chapter 13 forcing me to pay the IRS and Mtg in full, but then cutting me a break on the judgment creditors.

That's the crux of my dilemma. Chapter 13 right now will cost me more money, but it will protect me against the avalanche that's raining down on me. I feel I'm running out of time and the time it may take me to negotiate with the IRS and Mtg company might backfire on me. I'm a business owner and I can't risk the judgment creditors latching onto my business revenue. I also can't risk the mtg company turning down my workout plan and foreclosing on me. At least a Chapter 13 will swiftly protect me against that, but then it will definitely cost me a LOT more since it won't allow me to reduce my IRS and Mortgage debt.

I feel that this is a major catch-22 situation.
 

bigun

Senior Member
Chapter 13 works to customize a payback plan within your means, at least for a specified period of time. Why would you want to pay any less?
There is one huge caveat in Chapter 13 plans. Unsecured creditors can't get less in a 13 than, they'd have received in a Chapter 7.
You can't determine what sort of dividend unsecured creditors could expect without knowing the details of the petitioners schedules I and J and then applying whatever exemptions his state allows.

Were I the poster, I'd have to seriously question is, the house and other assets worth saving vs, the relief you'd get from a Chapter 7.
I'd at least pursue that avenue. See if you do qualify for a 7 and if so, use the "B" word as a bargining chip with creditors.
 

TheGreatBambino

Junior Member
Thanks for the insight, bigun. My answer is that, yes, saving the house and other assets is worth going Chapter 13 vs Chapter 7. Yes, Ch 7 would certainly give me more immediate financial relief, but then I'd lose a house I've put a LOT of cash into and I'd possibly lose a big chunk of my retirement savings. Plus, I also have a business with value.

When you say to use the "B" word as a bargaining chip with creditors - do you mean in lieu of actually including them in a BK?

If I tell them I'm facing BK and that they may get little or nothing from me, won't they have incentive to quickly come after me before that happens?

And if I do use it as a bargaining chip and it works to successfully create an installment settlement plan with those creditors, then I obviously wouldn't include them in my Chapter 13 filings, correct?
 

TigerD

Senior Member
If I tell them I'm facing BK and that they may get little or nothing from me, won't they have incentive to quickly come after me before that happens?
<-No. -> -- ignore this. I am not sure where it came from.
Yes.

And if I do use it as a bargaining chip and it works to successfully create an installment settlement plan with those creditors, then I obviously wouldn't include them in my Chapter 13 filings, correct?
No.

DC
 
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bigun

Senior Member
You need to see a few more bk lawyers because you've got a lot of misinformation in your post.
ERISA qualified retirement accounts are exempt assets in bk. 401K's totally exempt and IRA's exempt up to $1,095,000.
While you may lose a lot of cash that you invested in your home something tells me you're way upside down and that cash is likely lost anyway.
Do you have a 2nd mortgage on the home and is the value of the home less than the value of the 1st mortgage. In other words, is the 2nd {if you have one} totally unsupported.

I'd not bluff about bk. If, you qualify for a Chapter 7, and would like to try a last ditch settlement then, I'd threaten bk unless you can come to an agreement and if you can't strike a deal-go ahead and file,
If you file a 13 and have a settlement arrangement with a creditor that involves installment payments that creditor must be included in the filing. In addition, if you pay over $600 to a creditor within 90 days of filing bk the trustee may sue the creditor for the return of the funds since it'll be a preference issue.
Were I you, I'd do a lot more research and plenty of soul searching before I abandoned the idea of a CHapter 7.
 

TheGreatBambino

Junior Member
While you may lose a lot of cash that you invested in your home something tells me you're way upside down and that cash is likely lost anyway.
.
I'm not nearly as upside down as you may think. The estimated current Home Value and the mtg balance are about equal right now. When I bought it 4 yrs ago I put down a 60K cash deposit, plus I sunk about 50K cash into home improvements. The estimate after home renovation was that I had about 80K to 100K in equity. That was in '07. Things were good then. But of course, the mortgage bubble has since burst, and my business also suffered between 2008-2010. So between the drop down in the Housing market and the missed mortgage payments, I'm about even on the mortgage. So that's not too bad actually. Plus, my wife and I love the house. And I can afford it now (moving forward at least) based on my 2011 income.

So with that in mind, does that change your view on Ch 13 vs Ch 7 for my situation?

And yes, obviously I have to do way more homework about this. Until this happened at around 40 yrs old, I had never even missed a payment on ANYTHING, let alone been part of a judgment or lien. That would have seemed outrageous to me for most of my life. So it's all new territory to me. I'm in the early stages of resolution. but I want to move fast from here. And yes, I know they can't take my Roth and my SEP in Chapter 7 or 13. So I'm good there. But what about assets such as cars, memorabilia, jewelry, etc? And what about my LLC business? Are my business assets protected in Chapter 7? I know they're protected in Chapter 13. I really haven't given Chapter 7 much thought (or research) because I want to save my home... and hopefully now you see why that's the case.

Your input is appreciated. Feel free to follow-up. Also, do you (or anyone else out there) know if there's a way the IRS will consider an OIC or an Installment Agreement even if I file Chapter 13? Or does filing Chapter 13 mean I'm absolutely on the hook for the full IRS balance, plus interest and penalties? For what it's worth, I'm up-to-date with the IRS, except that I carry a past balance from 4 years ago (over 25K). They have a lien on my home for it. But again, I don't owe them any new taxes, I'm paying the right estimated taxes, I'm fully paid on Payroll taxes, and I'm up-to-date on my LLC filings. I can also show some legitimate hardship issues. Thoughts?
 

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