settling on debts vs bankruptcy: Need advice before 7/29!

[TupperLake1220]

What is the name of your state? OR

Hi, I just found your site. What a relief. I hope I am posting this question in the proper place.

Here is the situation: Due to my 3 yr old son's disability, finances have forced me to consider bankruptcy, but I have been squeeking by with making settlement agreements with the card companies. (I'm a single mom, have had to leave the work force for now, and have only a bit of disability coming in. All back payments for child support is going to pay these settlements.)

CITI BANK is already settled and paid, and will be reported as "settled" on my credit report, and the final payment of $2300 to MBNA is DUE JULY 31!! Then there are 2 more to settle with after MBNA, one is already in collections.

And NOW, I JUST found out that a "settled" report on my credit score is likely to be just as bad as filing bankruptcy, and that I should have negotiated with the first two cc companies to have them remove any negative remarks about my accounts, before I sent them a dime. So now that I know this, I do not know what to do about this huge payment that is due to MBNA in a few days. Am I wasting my money on these settlements if they are going to ruin my credit as badly as bankruptcy? Or are these settlements indeed at least a bit better than chapter 7 in terms of my future credit report? (Which was in the 800's before all of this happened.)

Do I attempt to renegotiate the terms wtih MBNA and get them to send in writing a statement that they will report my account as "Paid as agreed" upon receipt of the final payment? If they know that my alternative is bankruptcy, and that they would have to give back some of the money that I already paid them, then I am hoping they will agree. (although they played very dirty and I had to fight hard, just to get this settlement as it is in writing.) The fine print on the agreement they sent me for this settlement states that failure to make the payments by the due dates will result in them demanding the full balance immediately. If I file ch 7, that's not going to affect me. BUT I DON'T WANT TO FILE BANKRUPTCY!!

Is it true that my credit is just as ruined with these settlements as with a bankruptcy, and if so, is there access to any free, or very low cost advocates who can go to head with MBNA about this before they take the final payment out of my checking account? I don't think they will take me seriously. I had to fight like crazy with them just to get them to put this settlement agreement in writing. (That's a whole different post of what they pulled!)

And, although I have been reading about this on many financial advice sites, how is it legal for them to do that, when in fact, I have settled the debt, and not paid as agreed?

THANK YOU FOR YOUR HELP!!!
Cindy

 

[Debt Guy]

Major creditors, like these banks, will not remove the negative items from your credit report. So, trying to negotiate their removal as term of payment will not work. Go ahead and try but I have never seen it happen. There are reasons they have this policy and it is related to their internal operations and managing their legal risks.

In my opinion, a settled account is not nearly as negative as bankruptcy -- not by a long shot. I'm not going to suggest it is positive and paying the account does not improve your credit but it stops the ongoing legal risks.

My advice is to continue with your plan and accept the fact that you will have to rebuild your credit over time. This is one of those bumps in life and we all drag those around behind us.

 

[fairisfair]

if she settles for less than is actually owed won't she retain both the negative item in the credit history (ie 30, 60, 90 days behind) and ALSO be coded KD?

 

[Debt Guy]

what is KD?

 

[fairisfair]

what is KD?

Key Derogatory, at least that is what they call it on Experian, maybe it is different from agency to agency.

 

[Debt Guy]

My guess is that the tradeline is already a key derog so whether she settles for not makes little difference.

In my opinion, the decision should not be influenced by what happens to a credit report. A settlement (or payment) as all about reducing legal risk.

But, my belief is unchanged that a "settled for less than the full amount" is still way better than a bankruptcy. Time cures both.

 

[Ladynred]

I'd have to agree with DG here, a 'settled' notation is nowhere nearly as bad as a bankruptcy, however it IS still a negative on your reprots and won't raise your scores. These big banks are definitely not gong to agree to a 'pay for delete'.

 

[fairisfair]

thanks ladies and guys

I like to try to learn with the OP!! Hopefully, I won't ever need to know too much about this!! Good luck to the OP. Just remember, you are worth a million bucks in your little guy's eyes!!!