Kind of lengthy....sorry

[ksjane]

What is the name of your state? KS

Here's the scenario: My cousin; a single mother working full-time and going to school part-time, is considering filing for bankruptcy. Heres her info: She has 6 credit cards: 3 of them are 2 months (or more) behind on payments (totaling about $6000.00) 3 of them are current. She also has some past due medical bills totaling about $10000.00 ranging from 2 years ago-to-7 years ago (they are threatening to sue/garnish wages). 2 out of the 3 shes behind on have gone to collections and are also "threatening" to "sue". She has a high interest car loan that (she basically owes more than what the car is worth) she has paid, on time, for 3 years and is current. Her question is this: Should she file for bankruptcy? And if she does can they take her car and the credit cards that she is current on? I dont know if this is relevant or not but, she has lived in the same place (rental) for 4 years, she has been at the same job for 5 years. She got upside down on the credit card payments because the interest rates were so high and she was paying the minimum amount due, but the balance was actually going up, and she ended up not being able to pay even the minimum. She attempted to make "arrangements" with these companies, however they said they wouldnt accept anything less than an amount she absolutely couldnt pay.
I apologize for the length of this, I just didnt know how else to put it. Kind of a confusing situation. Thanks for any advice, opinions, etc. Good or bad, they are appreciated.

 

[Ladynred]

There's no reason, from what you've said about her situation, that she can't file for bankruptcy. If she's current on the car loan, and wants to and can make the payments, she could reaffirm that loan and keep the car. The rest of the debts are dischargeable.

As for the credit cards, you can't keep them, in general, even if your current. You MUST list and include ALL your debts, you can't pick, and choose. You don't have to be behind on bills to file for bankruptcy. Even if the Trustee allowed her to keep 1 or 2 credit cards, there is absolutely NO guarantee that those creditors will leave the accounts open anyway. 99% of them will close the accounts when they see the bankruptcy on her credit report. Rebuilding credit post-bankruptcy is actually easier than struggling with bad credit for years to come.

 

[ksjane]

Ladynred

Hey again, thanks for the reply. One more question, what is the "typical" procedure (if any) that the credit card companies will go through once the account has been turned over to collections? I.e...do they just attempt to contact/harass you, then attempt to sue you, then attempt to garnish etc...
(ok that seemed a lot more confusing after I wrote it--sorry)
She is trying to "work something out" with her creditors, but not having much luck. Thanks again for your time. It is much appreciated.

 

[kevinss]

I'm not trying to step on Ladynred's toes here.. just wanted to (not so) quickly interject...

Credit sucks. It sucks bad. You only learn that lesson once you default.

Creditors are not likely to work with you until you're seriously past-due (60 days or more.) After that, they will offer you "hardship" programs, which are essentially deferred interest/lowered minimum payments. It won't really help you out in the long run (what's the profit in that?) It's worth a shot if you don't plan on being in a "hardship status" for a long period of time. If you do, don't bother with it. Since you become a greater credit risk at that time, they'll want to gather all sorts of nifty information from you like your income, bills (debt/income ratio), checking account number, current employer, and all sorts of other garbage that isn't relevant in any way to them helping you out. They pretend it factors in to your reduced payments, but really they're trying to ascertain exactly how likely you are to pay them back and to gather information from you that will be useful should they decide to sue (or pass the info along to a collection agency.) You can get proof of this concept when you sign up. When they ask for your checking account number and bank name, tell them you don't want to provide it. They will tell you that the application can't proceed without it. It has no bearing on your claim. You'll get the same deal everyone else gets based on your credit/debt ratio (something they can pull out of the computer in less than a second.)

Once you get passed off to collection agencies (after 180 days of non-payment or insufficient payment), what happens next depends on your debt. If you have $15k in debt, you're probably going to be hounded to pay out in a lump sum that you can't afford or to make installment payments that you can't afford (no reasonably-abled person could.) They will REALLY want to talk to you on the phone badly for this high of a debt. They'll want to scare you all they can. Never, EVER mention you're considering bankruptcy to them or they'll proceed immediately to lawsuit (unless they're disorganized or a miracle occurs.)

With smaller debts ($1.5k or under), they'll want to harass the hell out of you on the phone because that's really all they're going to do. Unless the agency files a LOT of lawsuits and can do so cheaply in your area, they won't bother. They have bigger fish to fry. It's best to reduce contact for this type of debt to mail only. They will hound you forever on this and probably do nothing other than try to scare you into paying. Obviously if you CAN pay, do it. This isn't a get-out-of-debt-free info center - it's to help those that can't help themselves.

Debts $2k-$10k are a tricky issue. It's hard to say how they'll react. It's best with these to reduce communication to paper, but be very careful how you word your correspondence. One slip-up and they may proceed to lawsuit.

Medical bills like the ones you mentioned are risky business. As long as you're making a payment that's reasonable (say, oh, $150-$200/mo), they're going to harass the living daylights out of you and make as many illegal threats as they can, but probably won't sue. Only they know whether or not they really will.

I know I say "you" a lot - I don't mean you specifically; generally speaking.

Here are a couple of links to help you out. Information and sample letters:

http://www.creditinfocenter.com/rebuild/
http://www.creditinfocenter.com/forms/

Hope this was helpful. Best of luck!

 

[Ladynred]

Kevin's hit the nail on the head

As for your friend 'working it out', just a note - she should do EVERYTHING in writing. Do NOTHING over the phone, its useless. CA's and creditors will conveniently 'forget' you had any kind of 'agreement' whether its for reduced payments or for a settlement.

As Kevin said, creditors won't even consider settling until you close to charge-off and past it. The newer the charge-off the more they will demand for settlement. Some, however, will offer as low as 30-35% around charge-off.

Your friend should also read the Fair Debt Collections Practices Act (FDCPA) so that she can deal with collection agencies.
You can find the FDCPA at www.ftc.gov.

 

[ksjane]

Thanks a lot for the info, it was very helpful.

kevinss said:
"With smaller debts ($1.5k or under), they'll want to harass the hell out of you on the phone because that's really all they're going to do. Unless the agency files a LOT of lawsuits and can do so cheaply in your area, they won't bother.Debts $2k-$10k are a tricky issue "
Now heres the catcher:
cc#1-started out at $950.00, but add in; over the limit fees, late fees, monlthly maintenance fee etc, it is now over @2000.00.
cc#2-started out at $1700 and is now around @3000.00
cc#3-Department Store--was $1200.00 they've been sending letters "claiming" they will accept $600.00

Is it likely they will sue on these? Or just one of those maybe they will, maybe they wont type things?

Ladynred said:
"Your friend should also read the Fair Debt Collections Practices Act (FDCPA) so that she can deal with collection agencies.
You can find the FDCPA at www.ftc.gov."
My cousin doesnt have access to a computer, except through me, but I am pretty busy, so do they have books, or could I print this stuff out (or does it go on and on)?

I really appreciate this guys, really, my cousin JUST turned 21 and JUST had her THIRD child (yikes) so I am trying to help her all I can. Thanks again

 

[Ladynred]

The text of the FDCPA isn't all that long and is readable, so yes, you could print it out w/o any problems.

As for whether any of them will sue, there's just no way to be sure. Discover, CitiBank, Cap1 and Sears seem to be suing the most often, quicker, and for almost any amount. If they're on her list, its a crap shoot.
.