First warning a lawsuit is coming ?

[ssdsco]

Due to some transfers I'm waiting a couple years to file BK7. Waiting also allows me to use my current states exemptions which are more favorable. Fortunately except for some equity in a car I'm judgment execution proof.

My pension check and IRA withdrawals are deposited in our checking account. I know in NY my first indication of legal action is a summons delivered to my house. I made sure everyone has my correct address. So when a summons is delivered I know I have a month or two to clean out the bank account and go the money order route.

Here's my question. What's the first indication for small

[jp2861]

Even if they did settle for 50 cents on the dollar you'd end up paying tax on the portion they let slide. Add the late fees and outrageous interest they've been charging and you may be right back to what the original amount was, had you not defaulted. Not such a great deal when you do the math. Good deal for the OC, but you still end up with a crappy credit score.

[HHM]

A summons is a summons is a summons. Small Claims court's really don't work differently than other courts in that regard. Some jurisdictions allow small claims complaint to be served by registered mail, but aside from that, they still have to serve you in some manner.

[HHM]

On a side note, I am not sure what these "transfers" were (you may have mentioned them in another post), but given you are talking about waiting "years" to file...AN FYI, the BK code does allow for a 10 year-look-back period in certain circumstances.

[ssdsco]

On a side note, I am not sure what these "transfers" were (you may have mentioned them in another post), but given you are talking about waiting "years" to file...AN FYI, the BK code does allow for a 10 year-look-back period in certain circumstances.

Thanks for the info. The transfers were support for adult children going to school and elderly parents. My attorney, also a trustee said if I wait long enough so I don't have to list them on the Statement of Financial affairs I should be OK but he did mention the ten years. I'm also waiting in order to use the more favorable NY exemptions and to convert non-exempt assets into exempt assets. I don't have to be in any rush so I'm taking my time to get max the benefits from BK.

[ssdsco]

Even if they did settle for 50 cents on the dollar you'd end up paying tax on the portion they let slide. Add the late fees and outrageous interest they've been charging and you may be right back to what the original amount was, had you not defaulted. Not such a great deal when you do the math. Good deal for the OC, but you still end up with a crappy credit score.

Good point on the tax. Three or four of the offers to settle for less also said they would instruct all major credit bureaus to reflect "Account paid in full for less than the full balance".

Got an offer today for 30%. The balance when I stopped paying was $25k. Today it's $27K. They'll settle for $8K.

[treehugger1]

It is unfortunate that so many creditors will not work with folks when you call them and say you can no longer pay the current bills at the current interest rate, etc.

Interestingly, the fact that the payment address is still the OC probably indicates that the OC has yet to "officially" sell your debt to a CA. Eventually, this could be packaged with other debts for bid to a junk debt buyer.

I'm beginnign to wonder how long the big CC's will be able to "sell" reasonable packages of uncollectable debt. Some of the current junk debt corporations appear to be suffering losses.

Imagine what a few more months of billions of dollars of payments not being collected will do.

[jp2861]

It is unfortunate that so many creditors will not work with folks when you call them and say you can no longer pay the current bills at the current interest rate, etc.

Interestingly, the fact that the payment address is still the OC probably indicates that the OC has yet to "officially" sell your debt to a CA. Eventually, this could be packaged with other debts for bid to a junk debt buyer.

I'm beginnign to wonder how long the big CC's will be able to "sell" reasonable packages of uncollectable debt. Some of the current junk debt corporations appear to be suffering losses.

Imagine what a few more months of billions of dollars of payments not being collected will do.

As long as there are debtors that have garnishable wages the debt will always be profitable for the buyers. What makes it even more profitable for the buyers is the fact that the big players give credit away like it's candy. That results in higher credit card balances when folks default. Higher balances make it more worthwhile for the buyers to pursue legal action. Add to that the number of folks the buyers scare into payments and it becomes a gold mine for them.

[no_it_all]

Even if they did settle for 50 cents on the dollar you'd end up paying tax on the portion they let slide.

This is widely reported but not accurate. The truth is that it depends. Most of the time there is no tax liability. The IRS code should be consulted, a portion of which is posted below. As one who has had 120K of CC debt discharged I can attest to this. Never even received a 1099c.

However, a discharge of indebtedness doesn’t give rise to gross income if it: (1) occurs in a Title 11 bankruptcy case, (2) occurs when the taxpayer is insolvent, (3) is a discharge of qualified farm indebtedness, or (4) is a discharge of qualified real property business indebtedness.

Clearly, item number 2 would apply to the vast majority of Chapter 7 and most Chapter 13 petitioners. That would would result in the discharged debt NOT being reported as income, and thus no tax liability

[no_it_all]

Here's my question. What's the first indication for small claims court legal action in NY ? Can't seem to find the answer via google.

Are you convinced that it would be a <small claims> action? I am not familiar with Civil Procedure in NY, but many states do not allow small claim cases over 5K and will not allow counsel. If the creditor is seeking more or you suspect counsel would be involved I would check out the limitations of any venue...good luck.

[MomIcantFindmy]

Clearly, item number 2 would apply to the vast majority of Chapter 7 and most Chapter 13 petitioners. That would would result in the discharged debt NOT being reported as income, and thus no tax liability

I also noticed this in the tax code and thought it might apply.

[ssdsco]

This is widely reported but not accurate. The truth is that it depends. Most of the time there is no tax liability. The IRS code should be consulted, a portion of which is posted below. As one who has had 120K of CC debt discharged I can attest to this. Never even received a 1099c.


Clearly, item number 2 would apply to the vast majority of Chapter 7 and most Chapter 13 petitioners. That would would result in the discharged debt NOT being reported as income, and thus no tax liability

Sounds like the key to #2 is reviewing the IRS solvency test and confirming you're insolvent when accepting a reduced payoff deal.

I'm assuming the creditor is suppose to issue a 1099 for the reduced amount and the burden is then on the taxpayer to do the solvency test showing he's insolvent and no tax is owed when the taxes are filed.

[no_it_all]

Not familiar with a <solvency> test or even if one exists..I would hazard a guess that there isn't one. Like just about everything relating to the IRS, this area of the code is somewhat murky. As of 2007 this area is awaiting <review> and no penalties are imposed to creditors that do not issue 1099 forms. Typically, debts discharged in a Bankruptcy proceeding are never added to gross income since by definition, the debtor is <insolvent>...

The <murkiness> comes from implementation of the Mortgage Debt Relief Act of 2007, brought about by the subprime lending fiasco..

[HHM]

There is a form and publication related to this, I believe it is Publication 908

Just go to the IRS website and do a search for Publication 908

In the end, the point is, you "could" be taxed if you settle a debt. You probably will get a 1099C regardless because it is the debtor that must file for insolvency with the IRS, the company forgiving the debt merely reports the forgiven debt.

[no_it_all]

In the end, the point is, you "could" be taxed if you settle a debt.

Unless of course you went bankrupt and are insolvent..then the point would be you "can't" be taxed for settling the debt