Get a Personal Loan and Settle My Debts or File Bankruptcy?
We are trying to figure out which direction to turn. We are in $25,000 debt toward credit cards and medical bills. We owe the following cards : Old Navy Visa $3,800.00
Target: $2,700.00
FIA Credit Card: $9,500.00
GE Money: $3,000.00
Home Depot: $1,025.00
Hospital & Dr: $5,000.00.
Other than our credit cards and doctor bills,we have a mortgage on our home and owe $114,000.00,and we owe on a car. I have battled cancer for the past 4 years and find it hard to work. My husband has been working 6-7 days a week to support me and our 2 kids. We just can't keep it up any longer. I am tired of him working so hard,yet we still have no grocery money, yet we make too much for assistance. A year ago we fell behind on 3 of our cards, met with a lawyer re: bankruptcy and was told it was too early to use our "get out of jail free card" yet. So, we received our tax refund, called the cards we were late on and used ALL of the money to pay late fees and get caught up. The Old Navy Card gave us I guess a "hardship assistance" plan, to pay a set amount for 12 months at 1/2 of the interest. It is up in February. My husband is against filing bankruptcy but we just can't continue. I have so much stress from this we thought I was having a heart attack and after being rushed to the ER was told it was a major anxiety attack. To the tune of $3,000 in bills added to our already heavy load. ( I have no insurance because of my medical problems.)
We have no money in savings at all, the only other thing we have is a piece of property my mom left us,that we have been saving for our kids worth $25,000. My question is should we try to get a personal loan against the property, use that money & call the credit cards to negotiate a settlement?, or try to file bankruptcy? I am afraid if we try to file they will just take the property from us and sell it to pay off our debts. I have watched all of the videos on youtube to try to figure out what to do but at this point I just don't know! Any advice would be appreciated. Thank you.
Would we be better off to get a personal loan to have money to settle our debts or file bankruptcy?
—Laura
Let’s start by making a cost comparison of what settling the credit card debts by taking out a personal loan will look like, compared to the costs of bankruptcy that would not require taking out a loan.
How much of a personal loan will I need to settle my credit card debt.
From the background information you shared so far, I assume you are current with your credit card payments. Being current means you would have about 5 to 6 months to plan your settlement strategy with each card. I am pointing out the 5 to 6 months because your comment about calling creditors to settle is not something you can do while current with payments. You probably already knew this, but I am pointing it out to be certain.
Based the credit card lenders and amounts owed on each account that you listed, I estimate you need a little less than 8000.00 to settle. I did not include the medical debts in this estimate. If I assume you are making close to 600 dollars in combined monthly credit card payments right now, you could be saving that amount up for 5 months. That’s 3 of the 8k needed to settle. You are light 5k, which you are suggesting coming up with from a personal loan, or a loan against the property.
Settling medical debt.
I left the medical debt out of the estimate because it is difficult to provide general estimates on them without digging into greater detail. When there is an ongoing medical issue, such as in your case, I generally do not encourage settling medical debts with service providers you may be seeing again.
The bulk of your debt being from credit cards, tackling those could allow you to budget for, and pay off the medical bills over time. If that is not possible, medical debt can be settled, but typically not at the lower rates available with credit card bills.
Cost of bankruptcy.
When comparing bankruptcy costs I am assuming you would qualify for chapter 7 where you would completely discharge unsecured debts like your credit cards and medical bills. The national average cost of filing chapter 7 is about 1800.00. There are instances where you could pay a couple hundred less, or more than that.
That 1800.00 is substantially less than the 8k needed to settle and does include the medical debts.
You mentioned having already met with a bankruptcy attorney last year. I am not sure why you would have been told it was not time for using bankruptcy as a solution to being able to afford groceries, or to prevent a panic attack that centers on your debt. Perhaps you did not go into that type of detail with the attorney. Regardless, I would encourage you to speak with a different attorney if you move in the bankruptcy direction.
Other reasons to settle debt rather than file bankruptcy.
There are many reasons to avoid filing bankruptcy even when you qualify for chapter 7 discharge. The cost comparison is the easiest part. It would help me to know the reasoning behind wanting to avoid it that your husband has.
Here are some common reasons:
- Filing would cause the sale of personal items by the trustee and the proceeds sent to creditors anyway. This would perhaps include the property you mentioned taking a personal loan against.
- Too much equity in your home for your states homestead exemption in a chapter 7.
- Filing chapter 7 can only be done once every 8 years.
- Filing would prevent you from accessing parental plus loans for a child attending college for 3 years.
- Moral or religious beliefs.
Long term credit impacts (this one is a red herring. See: https://consumerrecoverynetwork.com/debt-relief-options-vs-your-credit-score/)
I get the varied personal and financial reasoning of why bankruptcy can and should be avoided. The property you are thinking of taking a loan against could indeed be sold by the trustee because it is not exempt property. This makes your idea of getting a loan against it valid.
What about lowering all of your monthly credit card payments in a managed repayment plan?
You mentioned that you were on a temporary hardship plan on the Old Navy GEMB account. What if all of your credit card lenders agreed to a lower monthly payment for the life of the balances (including the medical debt)?
In a managed repayment plan I would estimate your monthly payment to be roughly 500.00. Is this something your budget can handle while still leaving a couple hundred dollars available each month? If so, you can avoid the personal loan, settlement, and bankruptcy.
Post your answers to my questions in a comment reply and lets go from there.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
In answering your follow up questions, as far as a monthly pay back amount we really can’t afford $500 per month right now. I tried to call a few of the cards today & no one was willing to lower my interest rates which range from 15%~24%. I think my best action would put back the monthly amount I normally send in, which is $500, that’s why we are struggling, until some of them start making a settlement offer. I believe we could put that much back for 5/6 months but not any longer than that. Thank you so much for your reply. It helped us to see bankruptcy is not an option because I’m not willing to lose my kids inheritance over our money struggles. I will have to try to settle on my own & hope after all is said & done we can rebuild our credit score to a decent number. Thank you again. Laura
Laura – Thanks for the follow up details. If you are current with payments when calling a creditor to ask about lowering your interest rates and payments you typically get the response you were given. Banks are not keen on giving up interest income unless there is a proven inability to pay. The exception to this stance by banks is when you work through a credit counseling agency who have ongoing relationships with the banks.
If we take out the medical debt and only consider 20k of credit card debt, and also assume you would qualify for additional hardship interest rate concessions, you may be able to get your monthly credit card payments reduced to something more like 360.00 a month. If you want to get an accurate quote of what your able to get payments reduced to, you would have to speak with a counselor. You can do that by calling 888-317-8770. Have your bills, or an outline of them, in front of you when you call. The call is free and confidential.
You mention holding back payments until GE Money, Target, FIA, and Home Depot start making settlement offers. That is sort of how it works, but you also have to be aware of which creditors make offers, when they make the best settlement offer, and the ones that may not make an offer to settle available until they send your account to a collection agency, or when offers are not made, how to start the conversation about settlement yourself.
You do not have to be by yourself in this. I started a publishing effort on this site that will be re-purposed and completed over the next couple of weeks. Basically we are taking what we used to offer as paid debt settlement DIY education and publishing that free to everyone.This way of educating people will ideally provide people with a DIY bent the tools and deeper knowledge they need to get their settlements done. This is for people who are not so shy to post questions, comments, and concerns while settling their debts – on the many pages of this site. The feedback given in return will be detailed and thorough, and… free. I encourage you to make use of this. Since the publishing and re-purposing begins anew this week, subscribe to the RSS feed for the site so you get notified to each new piece of the debt relief system as it is published.
If you do want to learn more about signing up for a full debt negotiation and settlement service, call the hotline at 800-939-8357, and select the option for settling debts. The call is free.
As far as credit scores and credit reports go, it is best to put that out of your mind for now. The debt situation needs a resolution first. Your credit, and access to new credit, gets impacted by all debt relief options. You can bounce back and rebuild quicker than you think. I have worked with members whose scores return to where they were before settling within as little as 6 months to a year (these would be members who settled debt quickly rather than with a prolonged approach. The credit rebuilding section of our publishing effort will be out within several weeks, so keep a look out for that too.
Hi Michael,
I know it has been a few months since I started this conversation but we are still trying to figure out what we should do. We are behind and trying to figure out how to start the negotiating process. I have watched your you tube videos, and read everything at least twice but still struggle with how to get started. We are getting certified letters in the mail, and of course the non stop phone calls. They start out nice but when you tell them you have no money to send in they change their tone of course to not so nice. Could you please advise me on what we should do next? A couple of the cards have already turned us over to collection agencies. I would appreciate any and all advice. If you would rather speak to me by phone or email just let me know.
Thank you
Laura
Laura – There are situations, and people, who are just better guided by having access to a professional to work with one on one to implement all that you are going to do settling your credit card debt on your own. That is why we have the affordable membership program. You get to work directly with, and have knowledgeable support from, someone who has been doing this every day for years. Given your comment, I would suggest you consider working with a CRN specialist. You can call in and consult for free in order to establish there is value for you: 800-939-8357 ext 3.
Have that consult first.