Robert says his wife chose the worst possible time to ask for a divorce. "It was right at the beginning of the recession," he says and the couple was already saddled with debt as well as an underwater home. "I just wanted to bury my head in the sand," he says. "I didn't want to look at bills."

But with multiple credit card companies and two mortgage lenders clamoring for payment, Robert (who asked that we not use his full name since his divorce case is not yet final) knew he had no choice but to find a way out. He decided to "hit this head on" and has since made remarkable progress paying off his debt.

When Robert and his wife split up, their liabilities included:

$84,000 in negative equity on a first mortgage.

$70,000 in negative equity on a home equity line of credit

$8,800 on one credit card

$15,000 on another credit card

$9,700 on a credit union credit card

$18,000 in IRS debt

$17,000 to a flooring company

The grand total? $222,500.

By next year, he will be debt-free without filing for bankruptcy. Here's how he did it.

Consider All Options

Robert talked with an attorney about filing for bankruptcy. But because of his income, he would have to file for Chapter 13 bankruptcy and make payments for several years. The attorney recommended he keep that option open in case he really needed it (if he became ill and had very high medical bills, for example).

Robert did, however, hire the attorney to advise him and assist him with some of the trickier negotiations. He points out that consumers who decide to go that route need to understand that once the creditor is told the debtor is represented by an attorney, the creditor won't be able to negotiate directly with the debtor. Attorney's fees can add up quickly. Robert handled most of the back-and-forth with creditors himself.

Staying Out of Court

There is a common misconception that as long as a consumer is paying "something" on a debt they can't be sued, but that isn't the case. Still, even though he was served with lawsuits from a couple of lenders, Robert was able to head them off by agreeing to make payments, and eventually settlements.

In fact, he was able to settle most of his debts for less than the full balance, except for the credit union debt which he chose to pay in full, a balance with one card issuer who wouldn't negotiate which he also paid in full, and the flooring account which remains unpaid due to an unresolved dispute (and is beyond the statute of limitations at this point).

It was very important to him to avoid a judgment on his credit reports, so he tried to remain pleasant with the creditors he was negotiating with, and he found most wanted to avoid going to court as well. "But they will," he notes, adding, "I saw many, many, many people there for debt settlement."

He attributes much of his success to timing. He would make smaller payments on some debts while paying off others, which in turn freed up more money to pay toward remaining balances. "I basically negotiated with all of these people so that when one was paid off I could pay off another," he says.

Don't Forget About Taxes

Robert knew that canceled debt can result in a big tax bill when a lender files a 1099-C reporting the unpaid amount as "income." He talked with a tax professional to see if he could avoid those taxes by claiming the insolvency or Mortgage Forgiveness Debt Relief Act exclusions, but he didn't qualify. So when the lender for the home equity line of credit offered him a settlement he could live with, he asked them to postpone it until the following year so he could spread out the tax liability. (He made small payments in the meantime.) Still, the taxes he had to pay on canceled debt were steep and pushed him into another tax bracket. He wound up raiding part of his 401(k) savings to pay off the IRS.

Focus on the Debt

During this time, Robert remained frugal. If he went out to eat, it was likely with a coupon or for a lower-cost happy hour, for example. He didn't buy new clothes, and "Christmas was a lot smaller," he says.

While all this was going on, another driver caused an accident that totaled his car. He received $8,000 from the settlement and he used it to buy a used Kia Rio for cash. "I didn't have a car payment for six years," he says, and the Rio was a gas miser as well. That freed up money he could use to whittle away at his balances.

At one point, Robert says he was working three jobs to help pay his debts. Eventually, he says he burnt out on that, but it did help.

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