Can You Settle New/Young Debt?

[DynamiteMan]

Long story short

 

I have $200,000+ in personal Loans and Credit Card Debt. I am about to stop paying and let them default in March. 
 

All the personal loans are new debt and are 6 months old. The credit card I have had for awhile. 
 

I got screwed trying to start a new business, and can't afford to pay these back. I make $78k a year. 

I have access to $150k cash

I don't own a home

 

Here are my debts

Wells Fargo Credit Card $15k

Wells Fargo Personal Loan $40k

Sofi Personal Loan $70k

Amex Personal Loan $9,500

Laurel Road Personal Loan $30k

Lightstream Personal Loan $20k

Discover Personal Loan $35k

I am trying to avoid chapter 13 bankruptcy. 
 

So my questions are..., based on your experiences, do you think I'll be able to settle all these debts with my $150,000? Or will they not budge since the debt is so new?

 

Will they just sue me right away and only take the full amount? 
 

Will they consider this fraud because the debt is only 6 months old? 
 

Please let me know what y'all think. Thanks!  

 

PS. Please don't judge, my life is ruined for awhile so I am looking for serious help. 

[MarvBear]

Welcome to CreditBoards. 

[TheVig]

2 hours ago, DynamiteMan said:

Long story short

 

I have $200,000+ in personal Loans and Credit Card Debt. I am about to stop paying and let them default in March. 
 

All the personal loans are new debt and are 6 months old. The credit card I have had for awhile. 
 

I got screwed trying to start a new business, and can't afford to pay these back. I make $78k a year. 

I have access to $150k cash

I don't own a home

 

Here are my debts

Wells Fargo Credit Card $15k

Wells Fargo Personal Loan $40k

Sofi Personal Loan $70k

Amex Personal Loan $9,500

Laurel Road Personal Loan $30k

Lightstream Personal Loan $20k

Discover Personal Loan $35k

I am trying to avoid chapter 13 bankruptcy. 
 

So my questions are..., based on your experiences, do you think I'll be able to settle all these debts with my $150,000? Or will they not budge since the debt is so new?

 

Will they just sue me right away and only take the full amount? 
 

Will they consider this fraud because the debt is only 6 months old? 
 

Please let me know what y'all think. Thanks!  

 

PS. Please don't judge, my life is ruined for awhile so I am looking for serious help. 

 

Despite the occasional tough love, no one is gonna judge you. Most every one here has been in your shoes, or worse when it comes to financial misfortune.

 

Some will come along and have questions for you. Such has what state you are in? It matters!

 

Hang in there!

[MarvBear]

And one primary question most will ask is how you have a source for $150,000.00 in cash.

 

I have been where you are and somehow have always managed to make it.   There won't be any judgment from anyone with half a brain on this website.

[DynamiteMan]

28 minutes ago, TheVig said:

 

Despite the occasional tough love, no one is gonna judge you. Most every one here has been in your shoes, or worse when it comes to financial misfortune.

 

Some will come along and have questions for you. Such has what state you are in? It matters!

 

Hang in there!

thanks! I am in Montana! 

[DynamiteMan]

23 minutes ago, MarvBear said:

And one primary question most will ask is how you have a source for $150,000.00 in cash.

 

I have been where you are and somehow have always managed to make it.   There won't be any judgment from anyone with half a brain on this website.

I got it from a family member! That’s it though, no more from them.
 

I have to pay back $55k of that interest free at some point. So that makes my debt $100k which is not manageable on 78k salary haha. 
 

Was hoping to settle all these accounts for 40%-65%

[shifter]

Having been in that position x10 I will say that it's very stressful, so take a deep breath. 

 

Next step is looking at all your options. Once you lose your good credit, it's a long road back. It can be worth doing everything you can to avoid letting that first loan go bad. 

 

Where is the 150k coming from? If this is a situation of robbing Peter to pay Paul or kicking the bucket down the road, it may end up worse in the end. 

[hdporter]

I certainly agree that bankruptcy is to be avoided, if feasible.  But are you that much ahead of the game if you end up with a credit report chock full of "charge off" and/or "settled at less than full amount" notations. 

 

The latter may be modestly easier to rebuild from, but you're still going to be locked out of most desired credit options for at least 4 years.  I think the choice between the two should be weighted more carefully, given that you can go the bankruptcy route without your family member committing serious financial resources to the cause.

 

Bankruptcy has some very dark connotations about it.  However, it's worthwhile to discuss the true implications with members of this group who've "survived".  They'll certainly affirm that it's not the "end of life" as you presently know it

[DynamiteMan]

16 hours ago, shifter said:

Having been in that position x10 I will say that it's very stressful, so take a deep breath. 

 

Next step is looking at all your options. Once you lose your good credit, it's a long road back. It can be worth doing everything you can to avoid letting that first loan go bad. 

 

Where is the 150k coming from? If this is a situation of robbing Peter to pay Paul or kicking the bucket down the road, it may end up worse in the end. 

Thank you for the info. The $150K is $55k I received from a family member and the rest is leftover from the loans and some savings. 

[DynamiteMan]

13 hours ago, hdporter said:

I certainly agree that bankruptcy is to be avoided, if feasible.  But are you that much ahead of the game if you end up with a credit report chock full of "charge off" and/or "settled at less than full amount" notations. 

 

The latter may be modestly easier to rebuild from, but you're still going to be locked out of most desired credit options for at least 4 years.  I think the choice between the two should be weighted more carefully, given that you can go the bankruptcy route without your family member committing serious financial resources to the cause.

 

Bankruptcy has some very dark connotations about it.  However, it's worthwhile to discuss the true implications with members of this group who've "survived".  They'll certainly affirm that it's not the "end of life" as you presently know it

Thanks for the reply! I appreciate your insight and train of thought. I know my credit will be trashed, but I am not planning on buying a home for at least 10 years and have a newer card that should last another 8 years. 
 

I have 9 credit cards left with $0 balance and good standing, however I understand they will be cancelled if I default. 

[shifter]

15 minutes ago, DynamiteMan said:

I have 9 credit cards left with $0 balance and good standing, however I understand they will be cancelled if I default. 

Not necessarily. Universal default on personal cards has been outlawed for a long time. You may see CLDs though. 

 

Maybe if they are from the same creditor that you defaulted with on another loan. But not even necessarily in that case. My wife had a business card with Chase that stayed open for years after she defaulted on several other Chase cards. However they did balance chase her eventually. 

[DynamiteMan]

48 minutes ago, shifter said:

Not necessarily. Universal default on personal cards has been outlawed for a long time. You may see CLDs though. 

 

Maybe if they are from the same creditor that you defaulted with on another loan. But not even necessarily in that case. My wife had a business card with Chase that stayed open for years after she defaulted on several other Chase cards. However they did balance chase her eventually. 

Ok sweet, I didn’t know that! What does that last sentence mean “however they did balance chase her eventually”

 

Thanks for the info! 
 

[DynamiteMan]

17 hours ago, shifter said:

Having been in that position x10 I will say that it's very stressful, so take a deep breath. 

 

Next step is looking at all your options. Once you lose your good credit, it's a long road back. It can be worth doing everything you can to avoid letting that first loan go bad. 

 

Where is the 150k coming from? If this is a situation of robbing Peter to pay Paul or kicking the bucket down the road, it may end up worse in the end. 

What did you do when you were in a situation like mine? Did you default and settle or go the BK route? Or pay them all off? 

[hdporter]

1 hour ago, DynamiteMan said:

I have 9 credit cards left with $0 balance and good standing, however I understand they will be cancelled if I default. 

 

1 hour ago, shifter said:

Not necessarily. Universal default on personal cards has been outlawed for a long time. You may see CLDs though. 

 

"Universal default" clauses in credit card agreements pertain only to the terms of credit (i.e. rates).  What was banned was hiking rates because of the adverse condition of another issuer's account.  This doesn't pertain to closure, however.

 

If @DynamiteMan is successful in negotiating settlement of the noted accounts at less than face value, each settlement will be noted on his credit reports.  The creditors with whom he has open, current accounts will evaluate the risk that they might incur future losses vs. the past and projected profitability on the accounts, should they continue in good standing.

 

While you may be correct that some may only CLD, I would anticipate given the large reported balances before settlement that a majority of current issuers will opt to close in what is a relatively risk-averse credit environment right now.  Admittedly (hopefully), my call could be vastly in error here.  At the same time, current issuers might be reassured via discussion that a large percentage of the outstanding balances were settled in cash and that "DM" possesses stable income and liquidity.

 

 

 

 

 

 

Edited January 21, 2023 by hdporter

[DynamiteMan]

4 minutes ago, hdporter said:

 

 

"Universal default" clauses in credit card agreements pertain only to the terms of credit (i.e. rates).  What was banned was hiking rates because of the adverse condition of another issuer's account.  This doesn't pertain to closure, however.

 

If @DynamiteMan is successful in negotiating settlement of the noted accounts at less than face value, each settlement will be noted on his credit reports.  The creditors with whom he has open, current accounts will evaluate the risk that they might incur future losses against the past and projected profitability on the accounts, should they continue in good standing.

 

While you may be correct that some may only CLD, I would anticipate given the large reported balances before settlement that a majority of current issuers will opt to close in what is a relatively risk-averse credit environment right now.  Admittedly (hopefully), my call could be vastly in error here.  At the same time, current issuers might be reassured via discussion that a large percentage of the outstanding balances were settled in cash and that "DM" possesses stable income and liquidity.

4 minutes ago, hdporter said:

Thanks for the info! Very helpful. 
 

I assume my discover, Wells Fargo, and Amex cards will be closed. 
 

That leaves these cards that I’m not defaulting with these banks (loans or otherwise) all high limits. Maybe I’ll luck out and just be able to keep one with a low limit. Not getting my hopes up and doesn’t really matter. 

1 Bank of America card

1 apple card

2 capital one cards

1 chase card 

4 minutes ago, hdporter said:

 

 

 

[DynamiteMan]

Does anyone have any thoughts if the creditors will not settle and just assume fraud because I only made 6 full payments? 

[MarvBear]

I believe that if you have not committed fraud, then you have naught to worry about.  Bankruptcy and debt settlement are civil matters, whereas fraud is criminal. 

[hdporter]

3 minutes ago, DynamiteMan said:

Does anyone have any thoughts if the creditors will not settle and just assume fraud because I only made 6 full payments? 

 

I steered clear of commenting on the "fraud" angle previously because I have no authentic background from which to comment.  However, shooting from my hip, an accusation of "fraud" must establish facts which support such an intention.   I assume that you were truthful in all statements made, including those re income, in application of the cards and when requesting any balance transfer.  If so, I don't see where an element of fraud comes into the picture.  (It might be worth shelling out $200 for a brief lawyer consultation for an authoritative opinion.)

 

Your creditors are going to be most concerned with recovery of the debt.  I'm not sure of what amount we're actually talking here, but I would imagine if you explain the failure of your business proposition (a measure of self-deprecation here won't hurt) and explain that you can't service the revolving debt that's outstanding (citing your total debt, monthly minimum payments, the amount of your current income and net monthly cash available), they will leap at the prospect of recovering 75% of the outstanding balance on the spot.  They know they are unlikely to recover 100% if they sue and will suffer collection expenses and loss of income if they rely on the courts for a judgement.

 

I certainly might expect them to hold out for a short time to see if they can get you to agree to a higher settlement.  But 75% is as close to "as good as it gets" on settlement (especially with the substantial debt involved as a whole).  I would expect most to reply, "how fast can you get a check to us".

 

 

[DynamiteMan]

10 minutes ago, MarvBear said:

I believe that if you have not committed fraud, then you have naught to worry about.  Bankruptcy and debt settlement are civil matters, whereas fraud is criminal. 

Thank you! Thoughts what I thought! I didn’t lie on any applications. 

[DynamiteMan]

2 minutes ago, hdporter said:

 

I steered clear of commenting on the "fraud" angle previously because I have no authentic background from which to comment.  However, shooting from my hip, an accusation of "fraud" must establish facts which support such an intention.   I assume that you were truthful in all statements made, including those re income, in application of the cards and when requesting any balance transfer.  If so, I don't see where an element of fraud comes into the picture.  (It might be worth shelling out $200 for a brief lawyer consultation for an authoritative opinion.)

 

Your creditors are going to be most concerned with recovery of the debt.  I'm not sure of what amount we're actually talking here, but I would imagine if you explain the failure of your business proposition (a measure of self-deprecation here won't hurt) and explain that you can't service the revolving debt that's outstanding (citing your total debt, monthly minimum payments, the amount of your current income and net monthly cash available), they will leap at the prospect of recovering 75% of the outstanding balance on the spot.  They know they are unlikely to recover 100% if they sue and will suffer collection expenses and loss of income if they rely on the courts for a judgement.

 

I certainly might expect them to hold out for a short time to see if they can get you to agree to a higher settlement.  But 75% is as close to "as good as it gets" on settlement (especially with the substantial debt involved as a whole).  I would expect most to reply, "how fast can you get a check to us".

 

 

Thanks for the reply! Not as worried about fraud. I can prove everything to say it wasn’t fraud. I’m hoping for settlements closer to 50% that’s the goal. Top end would hopefully be 65%

[hdporter]

27 minutes ago, DynamiteMan said:

Thanks for the reply! Not as worried about fraud. I can prove everything to say it wasn’t fraud. I’m hoping for settlements closer to 50% that’s the goal. Top end would hopefully be 65%

 

Just my opinion speaking here; nothing else: 

 

You might want to tackle the SoFi loan first ... a proposed 60% settlement leaves almost $30k unpaid ... that's considerable incentive for them to see if they might come out better through a judgement.  SoFi is reportedly very quick to proceed to court after default.  It seems to me that SoFi is the lynch pin on which your top-end target of 65% across the board hinges.

 

I recommend the following article from Forbes as a bit of a tutorial and reality check:

https://www.forbes.com/advisor/debt-relief/debt-settlement-negotiations-diy/

 

This article brings up a salient point that I overlooked:  IRS guidance to debt issuers is that they report any settlement of debt for less than the face value, the amount of which is potentially taxable to you.  Note, in most cases if you can show that your net solvency after discharge of the debt is less than "0" (total assets - total liabilities), the debt forgiveness isn't taxable.

[shifter]

1 hour ago, DynamiteMan said:

Does anyone have any thoughts if the creditors will not settle and just assume fraud because I only made 6 full payments? 

They can't claim fraud unless they actually have proof you had no intention of paying them back or that you had no means to pay them back, which is very hard to prove. The BK definition of "presumed fraud" is 90 days.

 

Typically they make you wait until you miss your first payment. Then they will talk to you about payment arrangements. Each creditor is different. 

[DynamiteMan]

3 minutes ago, hdporter said:

 

Just my opinion speaking here; nothing else: 

 

You might want to tackle the SoFi loan first ... a proposed 60% settlement leaves almost $30k unpaid ... that's considerable incentive for them to see if they might come out better through a judgement.  SoFi is reportedly very quick to proceed to court after default.  It seems to me that SoFi is the lynch pin on which your top-end target of 65% across the board hinges.

 

I recommend the following article from Forbes as a bit of a tutorial and reality check:

https://www.forbes.com/advisor/debt-relief/debt-settlement-negotiations-diy/

 

This article brings up a salient point that I overlooked:  IRS guidance to debt issuers is that they report any settlement of debt for less than the face value, the amount of which is potentially taxable to you.  Note, in most cases if you can show that your net solvency after discharge of the debt is less than "0" (total assets - total liabilities), the debt forgiveness isn't taxable.

Yes thank you! So-fi is the one I’m most concerned about…I think that one is going to be a battle and if I can get even 70% I might just take it. 
 

What I don’t understand is that that So-fi doesn’t settle in house correct? They sell it to one of the big guys, so wouldn’t I be able to cut a better deal with those guys even if they sue? I feel like worse comes to worse I’m still going to end up paying less that the full amount owed. 

 

Zipdebt has a good article with settling with sofi that I’ve read through multiple times. 
 

Yes I have read about the tax issues, but I should be able to claim insolvency since my Liabilities outweigh my total assets. No home and owe on my car (it’s not underwater by any means). 
 

I’m loving all the comments and suggestions y’all! Keep ‘em coming! 
 

 

[DynamiteMan]

8 minutes ago, shifter said:

They can't claim fraud unless they actually have proof you had no intention of paying them back or that you had no means to pay them back, which is very hard to prove. The BK definition of "presumed fraud" is 90 days.

 

Typically they make you wait until you miss your first payment. Then they will talk to you about payment arrangements. Each creditor is different. 

Ok thanks! I was wondering about the day limit on presumed fraud. That’s super helpful! 

[Tbenford]

Hello 

 

What is the status of this debt now?