Credit settlement or bankruptcy?

You have four options for credit card and similar consumer debts like you described:

1) A credit counseling debt management plan (DMP). There are two advantages to a DMP. First, the credit counseling firm will negotiate a lower interest rate with creditors who choose to play along with the DMP. This can help cut your time to debt freedom by allowing you to apply more of your payment to principal and less to interest. Second, a DMP usually, but not always, results in less harm to a consumer's credit score because you are repaying 100% of your debt.

There are downsides to DMPs, too. First, payments are high. You may not see any relief in your monthly payments. Second, some creditors' concession interest rates are *higher* than the rates you are paying today. Third, some creditors will report enrollment in a DMP in the same manner as they do a chapter 13 plan, so people enrolled in a DMP and hoping for no harm to their credit scores may be in for a surprise.

2) Debt settlement. Here, working with a debt settlement company or on your own, you stop paying your creditors. Instead, you make a monthly deposit into a special savings account. After 120 to 180 days, the creditors will shift these accounts from current status into a bad debt status. Once in a bad debt status, creditors are usually open to negotiating a lump-sum settlement for 40 to 60 cents on a dollar.

The advantages to debt settlement are cost and time to debt freedom. The disadvantages are the harm to your credit score, and the possibility that a creditor may file a lawsuit against you for a breach of contract.

3) Bankruptcy, and specifically a chapter 7. Based on the income information you shared, it is likely you qualify for a chapter 7 bankruptcy. Here, a bankruptcy trustee will tally your assets and liabilities, and liquidate your non-exempt assets to pay your creditors. The non-exempt assets would include the silver you mentioned and some of the collectibles. Exempt asset would be your 401(k), IRA accounts, and your home. The advantage to a bankruptcy is low cost and quick time to debt freedom. The disadvantage is the significant harm to your credit score.

4) Continue making minimum payments. The disadvantages here is obvious -- a long time to debt freedom and the very high cost. The advantage is that if you can make your online business take off, you may be able to pay off your debt without harm to your credit score.

Summary

Use a minimum payments calculator (like the one in the Sources below) to see how much making minimum payments costs you. Then, give the Bills.com Debt Coach a try to see the costs of a DMP, debt settlement, and bankruptcy. Finally, consult with a bankruptcy lawyer to learn if you qualify for a chapter 7 (I think you do, but check to see), and to learn more about this option.

There is no one-size-fits-all answer to a question like yours. The best solution for you may not be the best solution for your neighbor, for example. Learn your options, then follow though on your plan.

Good thing you "summarized". Frankly I didn't read this long, long background info. It REALLY makes no difference how many surgeries you had.

If you are current on your credit cards, they are not likely to agree to any settlement for less than the full balance, unless you have some very extreme changes to your finances -- like permanent disability. Even then, the cards would report the settlement to the credit bureaus as charge off/settled -- a serious negative. This would definitely damage your credit/score. The card will also send you a 1099 for the for the forgiven portion which you will have to include in your income tax return.

Chapter 7 bankrutpcy would further damage your credit. The individual accounts would show as discharged in bankruptcy and remain on your credit for 7 years from the default date. The bankruptcy itself would show in the public records section for 10 years.

Further, you may not pass the means test required for chapter 7 and may only be able to file chapter 13 which is the repayment plan.

I suggest you contact a NFCC credit counseling service: http://www.nfcc.org/ These are legit, non-profit companies that offer debt management programs for a nominal fee. They also offer pre-bankruptcy counseling. They can look at your finances and advice you whether it is best for you to file bankruptcy or go into a debt management program.

Disability income can't be garnished for consumer debt, but it will most certainly be taken into consideration as income when the court reviews your bankruptcy. Your IRAs are exempt from bankruptcy.