I'm filing BK, wife isnt - Should we pay her charged-off cc in full or settle?

[phoenyx]

I'm filing Chapter 7 bankruptcy. I am married, however none of my debt is in my wife's name whatsoever. She is not filing bankruptcy.

My wife had a credit card in her name only, which was charged off and sold to a collection agency with a balance of $750.47.

We just got enough money to actually pay off her credit card balance. The collection agency is offering a 70% settlement on the balance.

My question is: my primary concern is her credit rating in the future, since I'll have a bankruptcy on my record forever. Should I take the 70% settlement and save us $200, or am I better off paying the account in full - so her credit report says something like "charged off, paid in full" - rather than "charged off, settled"? Is this difference worth $200?

I've heard of people negotiating with to have an account reported better than the truth. Should I offer to pay in full if they mark the account "nicer" than they would otherwise? If so, what kind of mark would I be hoping for them to report?

[magyar123]

"Charged off/paid on full" and "charged off/settled" are one and the same. The balance will be 0 - zero.

[jennyn]

Since you have the cash. See if you can get them to remove the charge off from her record and you will pay immediately. Whatever you do, get it in writing though. Even the 70% settlement, or they could back after you.

[lrprn]

Also keep in mind that the $200 less that your wife pays this creditor than she owes will trigger an IRS 1099 - she'll have to pay taxes on that $200 like she earned it as income. Won't be a huge amount - just wanted you to be aware.

[chpxiii]

Also keep in mind that the $200 less that your wife pays this creditor than she owes will trigger an IRS 1099 - she'll have to pay taxes on that $200 like she earned it as income. Won't be a huge amount - just wanted you to be aware.

I thought that was only if the forgiven amount was greater than or equal to $600? Or am I incorrect? I'd like to know myself.

[lrprn]

I thought that was only if the forgiven amount was greater than or equal to $600? Or am I incorrect? I'd like to know myself.

Good catch, chp! According to http://www.franklindebtrelief.com/1099-c-faqs.html, when debt renegotiation and forgiveness is involved: "For settled debts less than $600, you will not be liable to report the forgiven portion on your taxes."

So in this case, looks like the forgiven $200 will NOT require paying taxes. Thanks, chp!