Friends frozen account, how to proceed?

[sarakay5]

I have a friend who chose a different route than us in debt issues. They choose to work with the collection company and make an offer to settle or to make monthly payments. The collection company would not take $5000.00 on a $6900.00 debt. They desided to send $80 per month which the collections agreed on and sent monthly statements for this amount.

Just before tax time they recieved a 1099 for this debt. They never recieved another statement from the collection company.

Yesterday they recieved a court paper stating that a judgement was filed. Today their bank account was frozen.

My question is how can this happen? If they have paid taxes on the debt, is it not cancelled? I thought that once a 1099 is issued they are done with the collection company.

Any insight would be helpful. They really thought they were going the right route in paying off everything and now they can't touch any of their money.

Thanks

[momof2boys]

OMG this is horrible, i have no advice but i hope they figure this out soon, is this legal? I hope someone will be along shortly to help.

[sarakay5]

Thanks for the reply. I just talked to her and found out more info. The 1099 was from B of A. They were the original creditor. They sold the debt to the collection company but still sent the 1099.

They are talking to the collection lawyer and they found out they are empting their account and put a lein on their house.

Needless to say, with four children and a house payment due they are scared to death.

[treehugger1]

Something is definitely not right here. If they sent a 1099 then the reflection is "income" for your friend. Did they sign some agreement somewhere that allowed a settlement (taxable on the difference between the debt and what the settlement was) to be established? If not, they might want to contact BoA and request documentation showing a portion of the debt was forgiven and became taxable income. Sounds as if there is some bad communication between your friend, BoA, and the collection agency.

My understanding is that the debtor has to agree to a reduction in amount owed before it can become "taxable" income. If this was not the case, everytime a creditor charged off an account, couldn't they send out a 1099? Perhaps BoA had only assigned the debt to the collection agency. They need to look into this. Pretty Strange.

[jp2861]

Do they have anything in writing saying what they were supposed to pay...total?

If the agreed total was lower than $6900 is that what the 1099 reflected? The 1099 doesn't cancel the debt, it just shows how much of the debt was forgiven and an amount which is considered taxable income. The agreed upon balance still needs to be paid.

Did they ever get served, or is this a default judgement?

It seems strange that all this happened without them knowing. Is there more to this story than you're being told?

[JollyGG]

They should have gotten the 1099 after everything was paid, since the debt is not actually forgiven until the terms of the agreement are met, usually by payment in the full agreed upon amount.

It sounds like there is a major miscommunication somewhere. I'm glad they got a lawyer and have someone working to straighten it out.

[sarakay5]

Unfortunately the lawyer I spoke about is the lead lawyer for the collection agency, not theirs. It seems that they failed to follow through with things and never questioned anything. The collection agency now wants everything in their account and $200 per month. They are saying the debt is now $15,000.00.



I have told them to contact a lawyer today, now. I hope they listen. Is it possable to stop the collection agency from removing the money in their account if they were to file immediately?

[lrprn]

I have told them to contact a lawyer today, now. I hope they listen. Is it possable to stop the collection agency from removing the money in their account if they were to file immediately?

A bk lawyer can file an emergency filing very quickly with 15 days to file the rest of the forms.

Your friends are in serious trouble here. I hope they take your advice to do what they probably should have done in the first place - file bankruptcy. And they need to hire a good bk lawyer asap - this is already way beyond a pro se filing.