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I thought about creating an alt ID to post this, but I hate when other people do that, so I decided to post on my real username. This involves my GF of several years, whom I am likely to get married to (thus why this might become "my problem"). She was sick a few years ago and racked up huge medical bills during a two year time frame when she did not have any health insurance. She used CCs to live off of and paid off her medical bills with her (meager) salary. She now knows this is a bad idea, as she could have negotiated down the medical debt easily and never had to use CCs, but thats not something that can be fixed now. The CC debt over the period of a few years was large but not insanely large until she could no longer float it on 0% or low interest cards, now its exploded to about ~80k. She has never missed a payment on any CC and everything is current. Her job situation is that shes a graduate student and isn't expected to get her PhD for 3-4 more years. She now is under the university health plan so while she still has some medical expenses, the cost is now manageable even on a TA salary.

Once she graduates she will probably start at 70-85k, but she also has about 55k in student loans from undergraduate (subsidized stafford). However, she will almost certainly get a tenure track job at a public university, so those will be forgiven after 10 years through the public service forgiveness program (thanks taxpayers!).

I am aware of three options:
(1) Bankruptcy - Wipe it all clean, deal with the 10 years bad credit. My question is - if she does something like gets a secured credit card that reports to the bureaus and keeps it at $0 balance, will the credit recover enough to where its impact will be more manageable in a few years? Or is the 10 years of bad credit basically just that - no credit of any kind from anyone until its off the credit report?
(2) Stop Paying - This will from my understanding result in 7 years of bad credit or so once the balances get charged off. However, in the mean time she gets to deal with debt collectors and given that some of the individual balances are large (1 card is a 20k balance) - will she be sued for the larger amounts?
(3) PAY YOUR BILLS DEADBEAT - Always the preferred (and in my opinion, the best option) but realistically not feasible. She would not even be in the position to negotiate a pay off for deletion type strategy until she gets a job, which again is at least 3-4 years down the road. She is currently throwing every dime she has from her $20k/year TA salary at keeping current, her only other expenses are rent and food, and its not enough to decrease the debt at all. She called all the CC companies a few months ago to ask if they would be willing to lower interest rates or work out some sort of lower payment plan, but all of them refused to do so until she was delinquent with the payments.

Which option is best here? I am leaning towards recommending she pursue bankruptcy (cost: 1.5k, according to the lawyer she talked to) just to get it over with, but it may be better dealing with debt collectors for 7 years if it means 3 years sooner where she can get credit (and use it responsibly, this time). We are of course both reading credit boards about this, but I wanted to get the FWF opinion (with all the negative that will include) as well.

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My friend did bankruptcy some years ago. His experience was:
1) Get a lawyer
2) Get a couple of credit cards unafilliated... (more)

jmchain (Apr. 22, 2013 @ 4:33a) |

Just wanted to update this thread. First, thanks for the overwhelmingly positive and productive advice. GF has declared ... (more)

magika (May. 26, 2013 @ 6:34p) |

GL to you and your gf OP. It doesn't take much to fall behind with medical bills given our system here in the US. Even... (more)

stm69 (May. 26, 2013 @ 8:15p) |

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They may be able to help her. They can often negotiate a debt management plan with the lenders, where she could repay the card debt at a reduced rate.

If she BKs now, she starts the clock on the BK reporting now which makes it drop off in ten years from now.
She might be able to get a mortgage with you in 2-5 years with the BK on her bureaus.


If she quits paying, she might be able to negotiate with the creditors, but the bad marks on her bureaus will ensure no new debt for a while. If the statute of limitations to sue her are up before she has means to pay, it's not likely the creditors will sue, but if they sell it to the dregs of society (junk debt buyers), it'll keep coming up forever, and they might sue just before statute runs, or even after statute is up.

Normally I'd say stop paying, bank the money that would have been going to monthly payments, and make monthly offers on the debt until the original creditor sells it. In her case, it might be better to wipe the slate clean now, I can't claim to know which is ultimately best here.

An increasing number of universities and colleges are doing credit checks as part of the employment process (I work in higher ed), even for faculty (heck, even for adjuncts), so FYI.

props for using your real name.

tough to call.. will you post creditor/balance/CL/rate info?

it may be worth keeping the big balances current so they don't sue, but stop payment on the smaller 10k and under balances that she prob won't be sued for.

also need statute of limitations info. what state is she currently in, and has she moved interstate since incurring the debt? if she has moved we need to see what the tolling statutes are like.

is she up for a CN47 type battle to the death, or is that outside her personal tolerance for stress? if not, she may just want to BK and get it over with.

I'd say under the circumstances, her situation is what BK was meant for. I'd do the BK and get out from under the overwhelming stress of the debt. She can get credit again, in as short as a couple of years. My sister went through BK and has been good enough to listen and learn. Her first credit post BK was a car loan which was cosigned. After 2.5 yrs of paying on time, she called the CU and asked if she could take on the loan herself and get a lower interest rate. She did qualify. She will have that 5 yr loan paid off in 4.

She started with high interest CC's from Cap 1 that had yearly fees, but didn't have other options early on. She used them sparingly and paid off every month. After getting some better cards, she canceled the yearly fee ones. She also got our parents to put her as an AU on one of their accounts which has a 25 yr perfect history. That helped her score quite a bit. They gave her NO access to the card or acct info.

Long story short, she is 5 yrs post BK and has a credit rating of 721. She has a stack of CC's and only uses a couple at a time and pays them off every month.

The stress relief from the seemingly insurmountable debt was worth the 10 yr black mark.

Option (3)
From a moral standpoint, an individual should honor his/her commitments. If there is a willingness to pay, a creditor will not turn money they are owed down. How would she have felt if the hospital turned her down because she could not pay for her care? I think it is the right thing to do.

Best wishes with your future marriage to her!

GF pics?

Sorry to hear your situation, but as other have said - BK now and get it over with as well as the stress. After BK it's not that you can't get credit, it is just tougher to get at a good rate and just remember any new debt is no longer protected because you cannot file for another BK for the duration, so make sure she manage her finances. If she need help with medical get help fast from any source and negotiate what she is responsible for. Good Luck.

It is very common for people to negotiate a large decrease in the balance due for guaranteed payment - they sometimes see it as something is better than nothing. I would look at similar discussions on financial forums for the best way to address that.

I think you do what is in the best financial interest for the party so long as it is legal. BK fits that. As long as you can live with that (I could) who cares what anyone else thinks?

You've correctly pointed out that BK will stay on credit report for 10 years.
You've also correctly pointed out that negs will stay on credit report from date of last activity.

However,
If she is sued (and it seems like this is likely if she has this much debt unless it is evenly spread out over MANY different credit cards), and they get a judgment, then the judgment will be a fresh mark on her credit report that can stay on longer than 10 years if they continue to renew judgment.

What I'm saying is, the credit report will likely be trashed regardless.

Many people in her situation would benefit from a consultation with a BK attorney. With proper BK exemption planning, she can save a lot of money so that she has a fresh start WITH some money instead of a fresh start WITHOUT money. Have her talk with a BK attorney.

Also, most people don't see a BK attorney until they have a fire. It's better to see a BK attorney when there's smoke so that exemption planning and asset protection measures can be put in place.

I would say bankruptcy. The alternative would probably end up dragging on even longer, and be far more stressful.

I've seen both. Because of the high amount and low Income / Assets I'd vote for bankruptcy. This is my best guess without knowing your state or her desire to fight/ deal with creditors.

Most important considerations:
1. State
2. Desire to fight (I'm guessing this is low, as it sounds like she has a job to focus on)
3. Amount of debt
4. Income / Assets

State is very important for either path:
BR: assets / income and other factors are outlined under state law.
Not Paying: Statute of limitations for being sued are outlined under state law. There is a fair chance she would get sued by at least one of her cards. But they also have to win. - If going this route she needs to be willing to fight them in court or arbitration if they come after her.

Either path - Having a Sig other with good credit can be a big help in building credit. The two of you can go ahead and start frequenting credit building sites to learn what you need to know. PM me if you want more advice. It's a little generic, and fairly well known, but I'd rather not Post It.


Green for using real ID.

remember that student loans are not discharged in BK, thus she will have bad credit and student loan debt.

mbzoltan said:   An increasing number of universities and colleges are doing credit checks as part of the employment process (I work in higher ed), even for faculty (heck, even for adjuncts), so FYI.

With this a given, can she survive making payments until she lands the job she wants? Then file bankruptcy and then get married. I wouldn't marry until that debt is gone.

Can she stop paying and when she is in the 30-60 day late period start negotiating with the CC issuers and/or collectors and pay off a $80K debt for possibly under $20K in exchange for PFD? Clean credit and she walks away debt free. Possibility?

You might consider Chapter 7 now while her salary is low and (presumably) she can pass the means test. If you wait until she has a tenure-track position, she may earn too much for Chapter 7 and be forced into Chapter 13 (in which case the debts would not be wiped out and she would need to enter a repayment plan, which might only wipe out some of the debt). Consult with a BK attorney. Definitely clear this up before you get married. You do not want to be in a position where you might be helping to pay her premarital debt and open yourself up to the argument that those premarital debts are commingled and therefore are treated as if they were post-nuptial debt.

While having a public record on your credit report is certainly not a GOOD thing, it doesn't equate to automatic BAD credit either. If she files for BK before she starts racking up a bunch of 60-90 day lates, and the BK is the only black mark, she should be in a normal range within 12 to 18 months (normal range being somewhere in the low 700's). After about 6 months she can apply for a mastercard/visa at a couple of credit unions that are BK friendly, and will get a couple of unsecured cards with $5K-$15K limits. Use them for monthly expenses only and PAY IN FULL each month. Her credit will recover quite nicely. She'll even qualify for a home loan after a couple of years should she need one.

Sorry to hear about her medical issues. With all the true deadbeats out there skipping for the heck of it, I personally give a "one-time" pass to a student with bad insurance who racks up med bills.

Just like she could have negotiated the med bills down , she can negotiate the cc balances down

Stop paying for a few months and settle for 15-35% of the balance owed before charge off , or even less after charge off

She can do that, but her credit will actually be more damaged if she does. No creditors will negotiate with her until she is already at least 60 to 90 days late. Sadly, the hit to her credit will be higher with a bunch of lates, and "settled" bills, than it would be with one clean BK. Just sayin'

BK

That debt will become your problem too. Not a great way to start a marriage when she could be 100k in debt (she have student loans too?). You are asking for relationship problems when your hands are tied financially so badly.

What state is this in?

If it is in a state where there's no wage garnishment, the CCs have added incentive to negotiate for something and you can settle as SiS suggested.

If not, then as soon as she gets what will (assuming) be a high paying job in the medical field, she will owe everything + interest and late fees if she just defaults. The CCs and/or 3rd party debt collectors will file suit as soon as she has a good job and there's potential to collect.

If only 3-4 more years away from a solid 6 figure income, I would continue to float it.

BK may affect possible future employment and doesn't sound worth the 10 years of everything only being in your name.

Thanks for the responses. The state is North Carolina, if that changes anyone's opinion (consensus seems to do BK). I have to say I was not aware that university's were now running credit checks on potential faculty - I wonder how much impact that really has (usually, hiring decisions for college faculty are almost completely in the hands of the department search committee unless something goes really wrong). I wonder what looks worse to a potential employer - a 3-4 year old BK or various charge offs - equally bad?

I see some people recommending trying to get them to negotiate it down, but she doesn't have enough money to pay down even 20k of that balance even if she could get it negotiated down to that. She could save that much in about 2-3 years with her current TA salary - but then the risk would be no one would settle for 1/4 of the current amount, so we would be delaying the inevitable. I think. Other thoughts on that?

Regarding the will to fight, she and I are willing to spend a reasonable of time to minimize the negative credit consequences (few hours a week) long term but not willing to go CN47 on it. PhD programs aren't easy and my sense of going to full scale war with debt collectors is it can take up quite a bit of time out of your week.

I should clarify - graduate school for a PhD, not MD. She won't start out any higher than 75k, although 80k is a possibility. It varies based on school location, of course. For financial planning purposes we are assuming 60k (which is probably low balling it).

Finally, GF met with a local bankruptcy lawyer this morning and he re-confirmed a $1.5k price but also stated that while its unlikely, creditors may go after her because she used balance transfer checks (because of the low interest rates) for large portions of the debt. The idea being that she could have stashed it away instead of spending it. She used those checks to pay for living expenses, mostly things you cant use CCs for, like rent (cash the check, then use the cash to pay the rent). In the event that a creditor fights, the lawyer cost goes up - he was hesitate to quote a range but said 2-5k depending on the level of the fight. Is this a reasonable concern or so unlikely we should not worry about, for any lawyers/recent BK filers?

EDIT: Also, in the interests of "giving back" to the FWF community I have asked GF if she is OK with me posting a pic. If I can get permission (she knows I post on FWF, posting without permission would not end well) it will probably be with the face blocked out...I hope that doesn't disappoint anyone. I'm sure all FWF readers are lovely people and no one here is a psychotic internet stalker, but you know, better to be safe...

I am 9years post ch 7. file ch 7, no other answer. the only regret that I have is not filling sooner than I did.

Call Consumer Credit Counseling Seervice. DON'T be a deadbeat. BK just another name for legal theft.

Call Consumer Credit Counseling Seervice. DON'T be a deadbeat. BK just another name for legal theft.

I have worked at a plublic university in North Carolina the last 9 years. I am classified as staff not faculty and over that time I've made several moves between departments within the same campus. Each time, because its classified as a new position they re-run a background check. I've kept my credit reports frozen the last 6 years and have been through 3 background checks in that time. I have nothing on there but there that would hurt me but there could be lots and lots of negative information. They've never asked, I've nevered offered and it's never been an issue.

My expereince within this University (and I suspect most), unless you are in a position that would allow you to embezzle funds, they care more about any criminal issues in your background then financial ones, especially if you are interacting with students. If they do care, there is a completly reasonable explanation. Everyone can relate to unexpected medical costs.

Have her declare BK and move on. You want her to focus on her degree and thesis so she can get that $75k a year job in 3-4 years. Not doing a poor job or giving up entirely because the harrasements from collection agencies is too much to handle with her course load.

newbietx said:   Can she stop paying and when she is in the 30-60 day late period start negotiating with the CC issuers and/or collectors and pay off a $80K debt for possibly under $20K in exchange for PFD? Clean credit and she walks away debt free. Possibility?

I am very interested in this. Has anyone tried this and have success.

Thanks.

+1 for BK. Have her leave the baggage behind and get a fresh start.

My now wife was in a similar situation except she stopped paying for a few years. There was ~$60k of debt half of which was interest and late fees umpteen times compounded. We wanted to get it cleaned up before we got married. She wasn't aggressive about rebuilding her credit and had new cards with small limits in 3 years.

The process was painless and eliminated a huge stressor in her life (creditors, one of which even showed up at her apartment threatening to inventory her stuff). Do it sooner rather than later and don't feel guilty about it. It's not a great position to be in, but the best way out of the bad situation.

I think that only works if they send you to collection. When the debt is bought out by collection company and you just ignore them they will offer you a one lump sum payoff. Usually it's 20 to 30 for a dollar. It ruin your credit but you are paying near nothing for a better start. So my opinion is to stop paying your CC and save up for the collection offer. The offer is only good if you pay them all at once NO MONTHLY PAYMENTS.

+1 for BK. I wouldn't pay 80K or even 20K via collections to be eligible for a 70K job from employers who pull credit reports. Zero is a lot better. And you don't have to deal with the problem anymore after the BK hearing. I would declare the BK and hope some future employers overlook this transgression, which will have aged 3-4 years by the time the PhD is done.

BK for someone who has successfully managed to make payments on debt and will earn a good income in near future, give me a break! I guess not even the boyfriend endures delayed gratification.

stop paying and that cc debt will go from 80k to 8k in 6 months and by that time, renegotiate with the collection agency for 50% off to 4K and pay off via a written confirmation that they will report the debt fully paid to the credit bureau.

my friend did that.

magika said:   
I see some people recommending trying to get them to negotiate it down, but she doesn't have enough money to pay down even 20k of that balance even if she could get it negotiated down to that. She could save that much in about 2-3 years with her current TA salary - but then the risk would be no one would settle for 1/4 of the current amount, so we would be delaying the inevitable. I think. Other thoughts on that?


Better to do it now when her balance sheet is poorest. Call the lenders and say she wants to settle in lieu of Ch. 7 BK. She will probably have to miss payments to get the lender's attention but if she shows minimal liquid assets then the discounts will be higher. When a lender see a Ch. 7 BK (no assets/liquidating) looming they are more likely to settle then get $0 in BK court.

suezyque said:   I'd say under the circumstances, her situation is what BK was meant for.

Agree with SQ on this. And the key fact is, future employers will see that too...but she should do this *immediately* to get the clock running ASAP, and while she's a ways away from a real salary.

On other thought. Given that I suspect your PhD-to-be GF is quite articulate, and she does have a compelling story (student whose medical issues forced her into this debt who's done all she can to pay her bills), she might have some luck negotiating those balances down, with a (credible) threat of BK to follow if they aren't settled for >30% or so of principal. FWIW.

We had a similar situation...both of my kids had to have brain surgery within 16 months of each other, and it cost a fortune. we hoped that they would then get better, but they didn't. Long story short, we were in debt up to our ears. We did the debt consolidation thing....DON'T DO THIS.....we never made any head way...just paid the company, it was awful, wasted thousands of dollars. Our lawyers told us to file Chapter 11, and within 90 days we were clear. Within like 120 of that, we were able to open up another credit card, and our credit score has gone up 120 points to 700 in 14 months. It's not that hard, just had to keep on top of it. We didn't like to do it, but with our situation, we were told it was the best way to go. Good luck!!

SUCKISSTAPLES said:   Just like she could have negotiated the med bills down , she can negotiate the cc balances down

Stop paying for a few months and settle for 15-35% of the balance owed before charge off , or even less after charge off


I question if this is good advice, given the post just below it.

If you spend some time on creditboards, you might learn how to get a bankruptcy off your credit report in less than ten years, if you care to go that route and require they verify its accuracy or some aspect of it once a month for ten years (or until they shut you down - which Experian will pretty quick)

Skipping 54 Messages...
GL to you and your gf OP. It doesn't take much to fall behind with medical bills given our system here in the US. Even with decent but not great insurance (from state govt, HMO) a knee injury (ACL) playing rec soccer ended up costing me dearly for about a year, couldn't even fund Roth fully that year.

Get on with your life, and tell your gf that as long as she picked the right major, academic life is really great.



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