What would you do?

[BKman]

I really need help with this. My BK should be filed next week. Chapter 13. I have 3 jobs in December/January that will pay me $11,000. Should I....


1) Stop the BK and see if I can work out a deal with my CC's?

2) Stay with the BK and see what happens with my future income?

CC debt is $107,000

[justbroke]

No one can answer that question given the details. You need to really sit down and figure out if $11K is going to be enough to settle $100K in debt. Remember, if the debt has already been bought by JDBs (Junk Debt Buyers), they probably already have their minds set on something higher than 10%. You need to also realize that there are those who will not settle with you.

To make matters worse, if you do settle with a bunch, and then file Bankruptcy this will cause issues for the creditors. While it won't hurt you, those JDBs will have the payments taken back since they are preferences.

The bottom line is, can you actually be out of debt in 3-5 years by negotiating... or are you just going to cause more issues? That requires a lot more information (and financial data) than having several jobs that will gross (net?) you $11K over 2 months.

[BKman]

I think I'm just going over all of the "what ifs" in my head to much. I don't want to loose the income I just got. My case is not filed yet so I don't have my 341 meeting set. I have heard nighmares about trying to work out a deal with debt re-payments, chapter 13 & 7. My first income check in 2009 didn't come until May. I just hope to make things better but the unknow is killing me.

Thank you for you answer.

[HHM]

Stay with BK, the debt is too large to resolve with just income.

[JohnnyO]

Stay with BK, the debt is too large to resolve with just income.

That's what I was gonna say too, very few will settle for 10%, and some wont settle at all. And I was told by my lawyer (I think it was him) that when you settle a debt for less than the amount owed, they will still send you a tax form in Jan. that says you still owe tax on the unpaid part of the settlement....can anyone verify this? I settled a BOA credit card before I declared chap.7 earlier this year, balance was 11K, they took 3200 bucks. But Im told I will pay a penalty on the rest of it. True?

[StartingOver08]

1099 will be issued by the creditor for forgiven amount. If you file BK you don't have that issue.

[JustFileSuit]

[QUOTE=StartingOver08;363260]

1099 will be issued by the creditor for forgiven amount. If you file BK you don't have that issue.[

/QUOTE]

I would suggest and posit for discussion that this may not be universally true.

Suppose that, as JustBroke suggests, the debt has been purchased by the junk-buyer crowd. Now "those guys" only paid say 20 cents on the dollar. If you settle for 10 cents then they cannot issue you a 1099 on the 90 cents; even though the debt is the 90 cents, their purchase component unpaid is only 20 - 10 = 10 cents. [Just as, if the JDB makes a gain by collecting more than the 20 cents they paid, they have to pay income tax on their gain.]

Now you would attract a tax on the imputed income, assuming they actually issue a 1099. What would that do to your tax bracket? If you have an old car that you give away for the tax break, you probably come out even.

I invite others to analyze this thought.

Personally, with over 100K in cc debt, I would have filed for liquidation a long time ago. Looks like too many problems and too many players to try to sort out with, and too many things that will go wrong. But hey, that's just me.

[helpmeout]

Suppose that, as JustBroke suggests, the debt has been purchased by the junk-buyer crowd. Now "those guys" only paid say 20 cents on the dollar. If you settle for 10 cents then they cannot issue you a 1099 on the 90 cents; even though the debt is the 90 cents, their purchase component unpaid is only 20 - 10 = 10 cents. [Just as, if the JDB makes a gain by collecting more than the 20 cents they paid, they have to pay income tax on their gain.]

Yes, they most definitely can issue a 1099 for the remainder of the balance. And it would be accurate.

Regardless of what the JDB bought the debt for, the debtor still owes the entire amount that s/he borrowed. And if any of that amount is forgiven, then it is income to the debtor in its entirety.

If anyone wants to confirm this, just ask a CPA or call the IRS.

As for coming out even by donating a car, it doesn't exactly work that way. Having $50K of debt forgiven and having to pay taxes on that isn't going to be offset by donating a car that is listed, for donation purposes, as a $2K donation (once donated a junker and this is what the amount was on the receipt). And donating a $50K car is going to raise all kinds of red flags with the IRS.

[JustFileSuit]

[QUOTE=helpmeout;363301]

Yes, they most definitely can issue a 1099 for the remainder of the balance. And it would be accurate.

Sorry, not so. Here's why: let us assume that the Junk buyer bought it in for 20 cents. The junk-buyer "creditor" now settles with you for 50 cents. But you "owe" 100 cents on the original amount. SO: can the junk-buyer issue you a 1099 for the remaining 50 cents, thus taking a tax benefit for the write-off of the remainder (50 cents not collected) AND simultaneously make a cash profit of the 30 cents (the difference between what the debt was purchased at, and the recovery)? NOPE.

Regardless of what the JDB bought the debt for, the debtor still owes the entire amount that s/he borrowed.

That is true (unless dumpted by a BK action , of course).

And if any of that amount is forgiven, then it is income to the debtor in its entirety.

Nope. That is only the case in some theorectical discussion. The reason you do not get the 1099 for the entirety, ever, is that the original vendor in selling the debt to the JDB is not issuing a 1099 for the discounted sale. Who would it bve issued to? It cannot be issued to the JDB; that is a purchase "for value." And it cannot be issued to the debtor, as there is no write-off; the JDB still has the legal ability to go collect 100 cents (in theory). So that increment ends up in never-never land.

As for coming out even by donating a car, it doesn't exactly work that way. Having $50K of debt forgiven and having to pay taxes on that isn't going to be offset by donating a car that is listed, for donation purposes, as a $2K donation (once donated a junker and this is what the amount was on the receipt). And donating a $50K car is going to raise all kinds of red flags with the IRS.[

All true as far as it goes, but that is not what I was suggesting. IF a 1099 is ever issued (and that is doubtful), THEN it is going to be for the amount between the purchase price of the debt by the JDB and what you paid to settle. And that incremental amount could again be offset by a charitable credit, e.g. by donation of an auto to a charity that refurbishes them and gives them to a struggling family for transport, such as Lutheran Charities. (Worthwhile in any event, but helpful if you get hit by the 1099 in these circumstances).

[helpmeout]

Sorry, not so.

Uh, are you an accountant? I seriously doubt it.

Because you really don't know what you are talking about. I AM an accountant. And a form 1099 WILL be issued for the ENTIRETY of the forgiven debt. Regardless of what JDB buyer bought it for, the JDB has the authority to either collect the ENTIRE amount of the debt or FORGIVE part of the debt. Just like the original creditor does.

What the JDB can't do is write off as bad debt any amount over what they actually paid the original creditor.

I sincerely hope that before anybody follows your advice or suggestions that they actually run it by someone who knows what they are talking about. When it comes to taxes, forgiven debt and a form 1099, a CPA or the IRS are better sources of information.

[JustFileSuit]

Because you really don't know what you are talking about

. I regret that you take such a harsh tone.

I AM an accountant.

Fine. And accountants disagree all the time. Look at the Arthur Anderson accountants and their ideas on Enron "earnings" being taken in the year of contract signing, before accrual.

And a form 1099 WILL be issued for the ENTIRETY of the forgiven debt.

No it won't. The reason is purely practical. If you pay nothing, and the JDB writes it off, and they issue a 1099 for the original amount, then they cannot account on the ledger for the phantom funds between what they paid and what the 1099 is now for. And, of course, the debtor challenges the 1099, leading to more headaches. (Sure, in theory they can do anything; doesn't mean it will stick.)

Regardless of what JDB buyer bought it for, the JDB has the authority to either collect the ENTIRE amount of the debt or FORGIVE part of the debt. Just like the original creditor does.

All true. The Holder stands in the shoes of the Issuer.

What the JDB can't do is write off as bad debt any amount over what they actually paid the original creditor.

All true. But it goes further than that; the JDB cannot write off as bad debt the amount that they actually end up collecting from you; all they can write off (without objections from the IRS) is the difference between what they paid in the wholesale market for the debt, and what they end up collecting from the debtor. And it is exactly what they write off, that they can issue a 1099 for. That increment. Nothing more.

As a practical matter, they probably do not even issue the 1099. But that is a practical matter, not a legal one.

I sincerely hope that before anybody follows your advice or suggestions that they actually run it by someone who knows what they are talking about. When it comes to taxes, forgiven debt and a form 1099, a CPA or the IRS are better sources of information.[

Sure. All issues are personal-specific, and there is nothing to substitute for personal, professional advice.

[helpmeout]

[QUOTE=JustFileSuit;363418][QUOTE=helpmeout;363414
. I regret that you take such a harsh tone.

[/QUOTE]

And I regret that you are giving out misinformation.

Accountants do disagree. That's why we have GAAP. Which Arthur Anderson twisted. And got caught doing.

And the IRS is the one wih the final say. And the 1099 will be for the entire amount of the forgiven debt, not just what the JDB paid for it.

It is clear that you don't understand the concept or why the IRS does that and that nothing I say is going to change that.

I just hope that someone doesn't find out the hard way that you are wrong.

[HHM]

I agree with helpmeout, how the JDB accounts for the debt internally and what counts as forgiven debt are different things. The debtor/taxpayer is responsible for the entire amount of the difference between the TOTAL balance and the amount paid to settle.

Keep in mind the underlying transaction, the JDB is buying the original lenders "contract rights" to the debt (the JDB is buying a receivable). The JDB is not creating a new obligation against the debtor. The contract right is the right to collect $xx debt (plus contract rate of interest, fees, late charges, cost of collection etc etc). Thus, when the JDB settles the debt for less than the entire balance due, that is forgiven debt. Howe the JDB accounts for the profit (difference between what they paid and what they received, the capital purchase, etc) are entirely irrelevant to the issue of forgiven debt.

[JustFileSuit]

[QUOTE=HHM;363446]

Howe the JDB accounts for the profit (difference between what they paid and what they received, the capital purchase, etc) are entirely irrelevant to the issue of forgiven debt.[

All true. No quibble that the debtor is liable (usually) for the original debt. But that is not the issue in controversy. What we are having the hassle about is the feature of the amount of a 1099, assuming one is issued. the position taken by some is that the last creditor in the chain could issue a 1099 for the difference between the original debt and the recovered amount.

Let us postulate that that is so. Then, the question arises: you look at all the commercial paper floating around out there, the stuff that is uncollectible, i.e. paper from CIT Group or GM Bonds or Chrysler Financial commercial note, whatever. If there is a residual tax value, presumably of 37%, then there would (or you would expect) a healthy market of arbitragers working for those Greenwich (CT) hedge funds actively buying and selling that commercial paper (and bonds). Yet there is no market; the stuff can be bought for the wallpaper design value. -- Think about it. The sale drops to 25 cents. It has a presumptive 1099 tax write-off value of 37 cents. Where is the arb?

[HHM]

[QUOTE=JustFileSuit;363483]

All true. No quibble that the debtor is liable (usually) for the original debt. But that is not the issue in controversy. What we are having the hassle about is the feature of the amount of a 1099, assuming one is issued. the position taken by some is that the last creditor in the chain could issue a 1099 for the difference between the original debt and the recovered amount.

Let us postulate that that is so. Then, the question arises: you look at all the commercial paper floating around out there, the stuff that is uncollectible, i.e. paper from CIT Group or GM Bonds or Chrysler Financial commercial note, whatever. If there is a residual tax value, presumably of 37%, then there would (or you would expect) a healthy market of arbitragers working for those Greenwich (CT) hedge funds actively buying and selling that commercial paper (and bonds). Yet there is no market; the stuff can be bought for the wallpaper design value. -- Think about it. The sale drops to 25 cents. It has a presumptive 1099 tax write-off value of 37 cents. Where is the arb?

No dispute; it simply doesn't work that way. You are ASSUMING a 1099 creates a taxable loss event for the entity issuing it, but it doesn't. A 1099 is merely a reporting event for a taxable event of the Debtor/taxpayer, not the issuing entity. Either you are over thinking this or simply creating phantom issues (which, based on your posting history, I lean toward the later). Also, you seem to be overlooking the issue of "basis". When you purchase any investment asset, the purchase price becomes your tax basis. So, if a JDB buys a $25,000 A/R for $2,500, its tax basis is $2,500. If it settles the debt for $6,000, then the JDB has a taxable event on that profit ($3,500). But it DOES NOT get to assume the loss of the entire receivable (or $19,000), but the JDB is STILL OBLIGATED to issue a 1099 to the debtor under IRS regulations.

The issuance of a 1099 DOES NOT create a correlative taxable event for the issuer. The 1099 is merely an information document that records a taxable event of the receiver of the 1099.