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The creditors make up much of it in tax savings as write offs and losses. Creditors know it's a chance they take in order to charge large interest rates on most credit cards. I wouldn't lose sleep worrying about the creditors that hold these cards.
This is the most silly thing I've heard. The creditors take it as a loss but there is no special tax savings. A loss is still a loss. The creditor has most likely planned for potential losses by having a reserve, but that is still a loss of profit to the bottom line.
Unless someone has run up debt due to medical bills or other unforeseen events, I find it frustrating that people, including you, think it's totally acceptable to run up debt that they can't repay and find it acceptable (no loss of sleep) to just file bankruptcy and have no further obligation.
The cost of these write offs are pass along to consumers who continue to plan and live within their means - nothing is free.
As for the OP, I don't know how your brother got into his situation. What did he do with the $50K that he ran up on this credit cards? Are their literally no assets that your brother has that could be sold to make partial repayment? Or did he just gamble or otherwise threw it away? You had mentioned that your brother's income doesn't provide the ability to service the debt, but is there any that could be paid monthly towards partial repayment? If so then reaching out to creditors may be a good option to see what they may agree to. Focus on the principal balance, ask for forgiveness on interest and especially late charges. The creditors may view a partial loaf is better than no loaf. If there is nothing left at the end of each month then it's going to be a waste of time to try and work with creditors as you have nothing to bargain with.
This is the most silly thing I've heard. The creditors take it as a loss but there is no special tax savings. A loss is still a loss. The creditor has most likely planned for potential losses by having a reserve, but that is still a loss of profit to the bottom line.
Unless someone has run up debt due to medical bills or other unforeseen events, I find it frustrating that people, including you, think it's totally acceptable to run up debt that they can't repay and find it acceptable (no loss of sleep) to just file bankruptcy and have no further obligation.
The cost of these write offs are pass along to consumers who continue to plan and live within their means - nothing is free.
As for the OP, I don't know how your brother got into his situation. What did he do with the $50K that he ran up on this credit cards? Are their literally no assets that your brother has that could be sold to make partial repayment? Or did he just gamble or otherwise threw it away? You had mentioned that your brother's income doesn't provide the ability to service the debt, but is there any that could be paid monthly towards partial repayment? If so then reaching out to creditors may be a good option to see what they may agree to. Focus on the principal balance, ask for forgiveness on interest and especially late charges. The creditors may view a partial loaf is better than no loaf. If there is nothing left at the end of each month then it's going to be a waste of time to try and work with creditors as you have nothing to bargain with.
You are wrong on a few things. It is a tax write off. The loss is passed on to all of us. Not just the consumers which really is all of us but it is a write off. Second he may owe more than 50k but he didn't borrow 50k. If anything he might have a principle of 15 to 25k. The rest is fees and interest. At 70 years old he can be forgiven for a situation that he finds himself in. That is why there is a bankruptcy protection law. I don't know if you propose he pay off that debt but I can tell you that he would never be able to afford it. Living on SS with no additional assets puts him at risk for other potential problems. Believe me I would be advocating for your protection under those same laws. If he were in his 30s that would be one thing. He would have time to repay that debt. But in his 70s he don't.
This looks like the plan. But for the life of me I will never understand how anyone can keep their possessions when they file for bankruptcy, that hardly sounds fair to the creditors.
In a very few cases they don't. Sears was famous for their Credit Cards actually being Revolving Lines of Credit years ago, maybe they still are. From what I was told decades ago when taking a Personal Finance class as an Undergrad the difference is that with Sears, until you paid off all debt and reset the account, nothing purchased since the last 'reset' was fully paid for, and all these items could be repossessed.
Houses are sometimes, maybe often, exempted as the goal is not to make people homeless. But the courts know that a person/couple does not need a $700K McMansion to live in and a $1k/month rental will work just fine. Cars within reason (such as a single car of modest value and in driveable condition) are likewise often exempted since the owners will need one vehicle to maintain employment and to access grocery stores.
CAUTION!!!!! Be sure he knows that he will owe taxes on all forgiven debt as it is considered income. My MIL had $9k of credit card debt forgiven, never reported it to her tax preparer (me) or any other family member, and is now on a payment plan with the IRS. Debt discharged via Bankruptcy is not taxable.
When I recognized that the company I was working at was downsizing when the recession began I started paying down my credit cards. What did me in was being laid off at 55 and not being able to find a new job.
My cc debt was very low but my mortgage was high. I finally couldn't pay it & filed bankruptcy. It saved me.
I tried hard to work with the mortgage company but they wouldn't do it. I was/am so proud of our Lieutenant Governor for taking them to court & winning. Sure, we didn't get much but they at least were put on alert.
This ^ - I called the credit card companies BEFORE I reached the trouble point to OFFER PAYMENT plans and tried to get them to at least stop the interest for 6 months to allow me to catch up more and then resume the interest. They all refused and said they could not do that, nor could they accept payment plans unless I was terribly delinquent. So I filed. Now they get NO interest.
If the individual has minimal income, there will be little or no tax liability. Also, how many credit card companies issue 1099s for bad debt? That is more of a mortgage phenomenon.
Junk debt buyers are notorious for threatening and/or issuing 1099-C's on so-called "forgiven" debts. My late BIL went through this years ago on an unvalidated and out-of-statute debt one of them had purchased for pennies on the dollar from Ford Motor Credit. When the IRS sent him a tax bill, he immediately disputed it--and the junk debt buyer ended up defaulting because they never responded to the IRS's requests for documentation supporting the 1099-C
Most of that $50k is interest and late charges. The credit card companies will forgive that if you offer to settle for the principle. Quit making payments right now, then get the agreement in writing before sending them any money. Social Security and retirement accounts cannot be garnished, so they are SOL for getting their money through the courts.
This is just what I was going to say. Talk to each creditor individually and offer to pay the principal and ask if they can accept that as payment in full, and get it in writing. If you explain to them that bankruptcy is the alternative and is seriously being considered, it gives them an incentive to make a deal for something rather than nothing.
You are wrong on a few things. It is a tax write off.
Sorry, you are wrong. More than likely they have already set aside a reserve and would offset against that - no reduction of income or tax benefit. Do your research, look for "loan loss provision" for financial institutions.
Location: In a rural place where people can't bother me ;)
516 posts, read 429,334 times
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Quote:
Originally Posted by DaveinMtAiry
This looks like the plan. But for the life of me I will never understand how anyone can keep their possessions when they file for bankruptcy, that hardly sounds fair to the creditors.
My dad met a man in his line of work that was slowly dying of lung cancer (truck driver smoked his entire life). He used credit cards and other loans to buy a boat and diesel pickup for his family. Quads, dirt bikes, all kinds of other toys and he said when their all maxed out he's filing for bankruptcy, said it was his way of giving uncle sam the "middle finger". Whatever that means....
Well, I was going to suggest that he try to go back to work. Even doing odd jobs for cash around his neighborhood would help. Plus sell everything that he does not need. And, maybe getting money from relatives to help out.
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But, I suppose that if he is in his middle 70s, a bankruptcy on his record would not hurt too much.
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I know someone who would go on extravagant vacations, buy designer clothes, eat at expensive restaurants, go to expensive concerts, and run up huge, huge credit card bills (well over $100,000) and then just file for bankruptcy. I believe that she did this twice, maybe even three times, in her 20s & 30s.
She said that people who just spent their own money were stupid and planned her extravagant expenses so that they could be erased by bankruptcy. She would call people who actually repaid their debts "chumps". It did not seem to hurt her career wise or when she bought a house or when she married a wealthy man.
I had some relatives (by marriage) who used to do this. They were in their 20's and 30's too. They would get credit cards and run them up. Then a few months before the bankruptcy they would get furniture from a store that gave them X months or years without payment or interest, new electronics the same way, etc. etc. etc. Then they'd file and get all that stuff for free.
They did this every 6 or 7 years, so always had new furniture and stuff.
I'm no longer in touch with them but wonder how they're doing now that the bankruptcy laws have tightened.
I agree a 70+ guy should probably file bankruptcy in his situation. He should find a GOOD bankruptcy attorney first. One who specializes. I know most states only allow your homestead to be worth a certain amount. And your car. If it's worth more than allowed, you're expected to sell it or take out a second mortgage and use the money to pay your debts. So he needs a specialized attorney to help him through that if he lives in a state that has a limit.
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