Hey guys, I owe around $12,000 to three creditors and am trying to decide whether to file for bankruptcy or try to settle and pay off the debts. I’m a recent college graduate who lost my job about nine months ago and stopped paying altogether. The largest debt is with PayPal Credit/Synchrony (around $8,500), which has been sent to collections and recently offered payment plans. The second-largest debt is with Discover (about $2,300), and I received a letter warning that my case will be referred to an attorney if I don’t make a payment soon. The third debt is a small credit line app (about $1,100) that has offered a one-time settlement of $700.
For context, I’ve recently started a new job with a salary of $60,000 per year, and I live with my parents, so my expenses are very low. I’ll be getting paid for the first time next Friday. I’m sharing this to highlight that 1) I can now afford settlement payments and 2) I’m unsure if having a job with low expenses might impact my ability to file for Chapter 7 bankruptcy.
Here are my questions:
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What would have a lower impact on my credit score or allow me to rebuild my credit more quickly: settling with payment plans or filing for Chapter 7 bankruptcy?
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If I make a small payment to Discover to avoid referral to an attorney while I figure out my next steps, will that affect my ability to file for bankruptcy or negotiate settlements in the near future?
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Is it worth negotiating with the collections agency to reduce the amount I pay if I go that route?
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How strict are these companies with their deadlines? How serious are they if you respond a day or two late?
Any general suggestions or advice on what you would do? I’m in NJ. Thanks for your helpI really appreciate any insights!
A few years ago, credit card debt forced me to declare for bankruptcy. However, if I were in your shoes, I would try to pay off as much of your debt as I could. Make contact with each of these businesses and arrange a payment schedule. You’ll quickly pay off the debt if your costs are kept to a minimal.
As a debt collector (without specifying the bank), here’s my advice:
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Credit Impact and Rebuilding Both settling through payment plans and filing for Chapter 7 bankruptcy will negatively impact your credit score, and it will take years to recover from either. Given your situation, it’s better to pay off the debt. Any amount you settle should go towards reducing the principal balance to cut down on the overall interest. Make bi-weekly payments that are 2-3 times the minimum due. Paying off the card in full looks better on your credit report.
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Making Small Payments: Sending a small payment to Discover to avoid an attorney referral won’t affect your ability to file for bankruptcy or negotiate settlements later. You should call to find out the current minimum payment or the amount past due and make that payment.
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Negotiating with Collections: If you care about your credit and want to repair it quickly, it’s best to pay off your cards in full rather than settling for less.
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Deadlines and Seriousness: Creditors are serious about deadlines. Once a deadline passes, you might not get another chance or the same offer.
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General Advice: Given your minimal expenses and decent salary, you should focus on paying off your cards as quickly as possible. Since you’re still living with your parents, you could pay off the debt within a year with high bi-weekly payments or even in about 6 months if you use most of your income towards the balance.
If you prefer not to pay the full amount, you can opt for settlements, but it will take a long time to rebuild your credit. Bankruptcy is another option, but it will significantly impact your credit for several years. The best approach for a quicker recovery is to pay off the debt in full, which will also help in building a good payment history and improving your credit by lowering your utilization.
Try to avoid charge-offs and third-party collection agencies whenever possible.
You can request a hardship program, in which case your accounts are closed and your interest rate is temporarily lowered. Your score will decrease, but by how much is unclear. Debt settlements may be treated as income for the upcoming tax year.
Thanks so much; I have a question.
Thank you very much 
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