Should I allow credit card debt to go to collections

[azoria]

A lot depends on which state you live in. You didn't tell us that. All fifty states have different laws regarding your questions.

I was in a similar situation in Texas years ago with a bankrupt new husband. Texas is a community property state. Creditors began coming after me for his past debts.

I went to an attorney and had our financial affairs divvied up legally, that we as a couple were financially independent and neither could be held liable for each other's financial accounts. It put the kaibash on attempts to collect his past debts from my assets.

Texas also has some of the best Homestead Law protection in the country. Once homesteaded (easy peasy just fill out the papers at the county courthouse) a property cannot be liened against for any reason except back taxes and child support. No one can take your home. Homesteading also reduced our property taxes.

(I currently live in WA state. There is NO homestead protection here. )

You may best get financial legal advice from an attorney in your area who know all the ins and out of local state laws. Some of your issues are probably fixable without defaulting on the debt.

[ddmhughes]

Originally Posted by somo

I posted over a year ago on a thread called "Just found out Husband racked up 34K in CC debt." To make a long story short, after he "confessed" and we laid out a plan he has been paying close to 1200/month to this debt which is now down to around 20K. This was debt that was racked up without my knowledge and amounted to him charging for 3 years. I am staying in my marriage. I live in a community property state so the debt is mine.
We have 2 children and they are active in several activities. I refuse to cut back on what they want/need because of HIS debt. However, it is killing us to put this much toward the debt. I know he could put less toward it in order not to be scrambling each month with bills but I can't stomach the thought of having this debt. I am a fantastic money manager and was under the impression we were debt-free except for our house until I found out about this.
I do not consider this my debt (the state does, I don't.) I am at the point of just letting it go to collections and getting a settlement. I know it would destroy any credit we have left.
With all his charging I don't even have anything to show for it. It was for golf/beer/etc. Yes, 34K and nothing to sell. What would you do?

Tough one but since you have paid so much of it down I would continue paying on it. Just because if you let it go to collections they will leave it on your credit report for 7 years. If an emergency strikes what will you do?

The silver lining in this situation is that you will have awesome credit if you get this debt paid off. The more credit you use the better your score. What a wonderful system we have......

[Nicole111]

Originally Posted by wilson1010

All credit cards will take 70% no questions asked. But, they will report you as "settled" on credit report which is bad. If I represented Carlos Slim I could settle his credit card debt for 70%. So could Benny the pool boy.

Getting a credit card company to take below 50% is difficult if you are dealing with collectors. Best to let it go into litigation and then settle with a collection attorney. They will just sue the husband even though the wife may become liable if the bank proves a community property debt, but unless her name is on the statements she will not get sued. Respond to collection suit with tearful letter to the judge about H's problems and serve the collection lawyer by mail. Collection lawyers hate pro se cases. They will settle for less than the 50% if you show them you have no assets or equity.

Two points for others:

Keep your phone number but send it to voicemail directly. Get another phone number and give it to your friends and family, work, etc. Collectors never catch on.

Put your home in LLC by quit claim deed. Then the judgment will not be in the chain of title and you will still be able to sell or refinance. Form the LLC with Legalzoom or equivalent.

This, I know from experience on the dark (debt-collecting) side, is frighteningly accurate. Whether they can place a lien on your homestead depends on 1.) what was charged (if it was for repairs to the home, the homestead exception does not apply) and; 2.) more importantly, whether your state has a homestead exception. I don't know of any community property states that do. The politics of each issue tend to fly in the face of one another. But if your name is "somo," could this be "southern Missouri"? (Forgive my ignorance about Missouri's laws.)

I feel bad for you that you've been duped, and the people who said you should go to counseling are probably right. I can't imagine that you wouldn't have a lot of pent-up anger at your husband for doing this to you. Bravo for staying with it though. A lot of men spend money and hide it from their wives because they are so embarrassed about investments gone wrong and they think they can fix it. Not making excuses for him, but in this crazy economy, some people do crazy things...

[dragon_fly_12]

You've gotten some great info here, but you need to look at the other side of things. The parts that you are liable to lose.

If you let the debts charge off and the creditor believes you might have the cash to pay up, they won't just charge off. As others have stated, they CAN go after a lien -- On your joint bank account, on your joint tax refunds and your joint assets.

Yes, creditors will settle. Once upon a time I was in the settlement business and personally have seen creditors settle for 40-50% of the debt. But, a couple important factors: 1). This was pre-recession, and pre-credit card & bankruptcy reform, and 2). each person receiving the settlement had to be facing bankruptcy to get a settlement lower than 70% - like, this was last resort and buck did stop there. It will show up on his credit as a settlement and who knows if that will help or hurt .. Too many unknown factors on how that could help or hurt, and what might help one would hurt another. If you go this route, you must absolutely get the settlement deal in writing AND pay the full settlement up front. No payment plan on settlements, sorry.

Honestly, if you've gotten this much paid off, why stop? This is a very valuable lesson for the kiddies in money management, smart decision making, good communication and taking responsibility for actions. Definitely make sure you and hubby get some counseling thrown in.

[WannaliveinGreenville]

This is all well and good that the debt was paid 1/2 off by now but....

But some things to consider : It was YOU that discovered the racked up credit cards , right ?

If you do not address the DEEP reason he did this , then he is likely going to do it again.

One compulsion will be replaced with another. Usually people who rack up their credit cards feel empty for some reason and the short term fix of shopping , golfing ( in your h's case ) beer ( h's again ) or whatever he is doing will be replaced by another bad habit.

The point being : You have excellent money management skills and you have handled the money well.

Your husband has some internal issue and he deals with stress by racking up $ 34,000 dollars.

The fact that he suffers no consequence for his actions ( other than a big hit pay back monthly ) leads me to believe he is not out of the woods.

He knows you won't leave him if he does it again so what is his motivation to NOT do it again or/ pick up a NEW bad ugly habit ? Keep an eye on this . Could smell trouble...

Did you say he was in counseling ?

As an example , guy had a girl 20 years younger than him and she racked up $ 35,000 and 3 times he bailed her out ( 3 times ) and she continues to do this and refused to appear on the show saying " I have no problem , and I manage money better than my husband "

Best of luck to you on this one.

[piyf]

Originally Posted by Mircea

If you own a home, there will be no settlement. If you don't own a home, there will be no settlement.

Debt collectors do not "settle" a debt. Their definition of "settled" is paid in full.

If you own a home, you have ZERO leverage, because all they have to do is file suit, obtain judgment, and slap a lien on the home. That means you cannot sell the home until the lien is satisfied.

If the credit card is solely in your name, it is your debt. If the credit card is jointly in your names, then it is jointly your debt. However, he could file bankruptcy and discharge the debt without harming your credit.

If you stop making payments, what will happen is you will receive lots of nasty-grams in the mail from the creditor, who will also bombard you at home and at work with telephone calls asking when you intended to pay up.

After 6 months worth of nasty-grams and telephone calls and your co-workers laughing at you behind your back and your boss/supervisor aggravated to death by the constant telephone calls, the credit card bank will, in accordance with federal banking regulations, close the account after 180 days and charge the debt off (the credit card bank has no choice in this matter, just as a bank or mortgage company has no choice and must foreclose after 120 days or violate federal laws).

At that time, the debt will be assigned to a collection agency. You can then negotiate a payment plan with the collection agency, but not the amount of the debt, because they will insist that you pay the full amount. If you own a home, you should expect to be sued so they can legitimize and guarantee their claim against you.

It is possible to negotiate directly with the creditor for a settlement, but that would require that you make a lump sum payment for a good portion of the debt. If that would happen (and it's very rare with credit cards) they can still assign the unsettled portion of the debt to a collection agency for collection (which would leave you in the same position), or they can forgive the unsettled portion, but then you must report the unsettled portion on your income taxes as unearned income and pay taxes on it. I would suggest, urge and insist, that you consult a tax attorney, because in doing that, you could seriously s-c-r-e-w yourself if the amount of unearned income put you in the tax bracket that activated the Alternative Minimum Tax. The end result would be that you could end up paying more in taxes than the amount of the unsettled portion of the debt you're required to claim as unearned income. The IRS won't play games with you, they'll immediately attach a lien to your home and seize your bank accounts if you get uppity with them.

Don't know if you heard or are still living in the 80's but there's laws now on creditors calling you over and over once you tell them to stop. Nice scare tactic though.

[dragon_fly_12]

Originally Posted by danieloneil01

Don't know if you heard or are still living in the 80's but there's laws now on creditors calling you over and over once you tell them to stop. Nice scare tactic though.

Yes and no. The law states you have to submit the request in writing.