One Final try before BK. Plz Critique my final settlement letter (short!) thx

[AngelinaCat]

We tried to settle with one of our two CC companies, and asked that if they dropped all late fees and all interest on the principal, we would work on paying off that. They laughed at us and said "all of it or nothing." We said: "Fine. Nothing is what you will get."

[TheBajan]

...what is the amount that you would offer for it to be taken seriously or as you say a reasonable offer?

The lowest I've heard of was 15%. In your case that means $4500. Usually, 25 or 30% is the lowest they go. Let me be clear that if it were me, I WOULDN'T make any offer. Besides having to come up with that just to settle one debt, you still have to deal with the tax implications of forgiving nearly $26k along with trying to settle your other debts. This is assuming the cc company even plays fair. You could pay them and if you aren't careful, they could still come after you.

Let's just assume they would accept $4500. Even if this were your only debt, BK would still be a cheaper option. Now, granted, if it was me and this was my only debt, I would probably TRY to work something out before filing. However, this isn't your only debt, you don't have the money to settle it much less any others, and your situation is still very dire.

Hope that helps. Separate the emotion from the decision. This needs to simply be a financial decision. What is best for you financially. There is definitely life after BK and it smells sweet!

[kawh]

Everything bcohen said, and all the others who are trying to tell you how creditors think, they are all right.

If you tell these people you have X dollars to pay them, they will pay attention to that, and will believe you actually have X (to the nth power) to pay them. I don't think approaching them like this will be productive, and will be counterproductive. They truly are not interested in your human plight and are used to hearing so much that (probably) isn't true, they have no means or incentive to sift out truth, so they make a habit of not listening or trying.

Telling them you have anything available at all to pay them will not help your case with them, and it sounds like it will hurt your finances very much!

[LadyInTheRed]

The $2,000 you are offering them will probably cover your attorney fees to file a BK and get rid of all of your debt.

[slvnomore]

I want to thank you all so much for your input. I really appreciate it. I am just trying to understand all my options.

1) I wonder what the charge off value of a debt is to the oc below which they will not go.
2) the tax implications as i understand it can be eliminated by qualifying for legal insolvency at the time of settlement, is that correct.
3) If i could come up with the magic number. (15%?) and bank 1 and 2 did agree. to settle I still would have my discover card which is current which would seem to be the best option for rebuilding credit. That is why I was trying to settle . that and it scares me to declare BK and then have the possibility of a future catastrphic medical event.

forgive my non linear rambling....I am trying to take all this in.... but know that all your wise words are appreciated. : )

[TheBajan]

I want to thank you all so much for your input. I really appreciate it. I am just trying to understand all my options.

2) the tax implications as i understand it can be eliminated by qualifying for legal insolvency at the time of settlement, is that correct.

Technically, yes. However, really consider if you want to open up that can of worms with the IRS. As a former tax preparer, I can tell you that the largest group of people to get audited are people who file a schedule C (self-employed). If you manage to come up with $7k to settle both cards, (again assuming they will accept 15%), and you claim insolvency to avoid the tax on forgiven debt, you are inviting an audit.

Best wishes,

The Bajan

[GoingDown]

I want to thank you all so much for all the different opinions, It is really opening my eyes. as I said I have not sent it yet, If ever, as I am still learning. Thanks for answering my questions. If they have offered 30% (9K) and I counter offered 2K, you say they would laugh at me becuase they can make more in a charge off or with a JDB. Then what is the amount that you would offer for it to be taken seriously or as you say a reasonable offer? Also if i have no assets,home,and am self employed, however i do have checking accounts and pay pal, how does that affect the collection proof status please? ; )

Until they actually file a lawsuit, they can't get at your checking account. However, they have methods to find out whether or not you actually do have a checking account, and if they find it, they may be more likely to file a lawsuit against you.

And of course, once anyone files a lawsuit against you, your money is sadly safer stuffed under your mattress than it is in a checking account.

So, just to be clear, if you have a checking account, then in most cases, you are NOT collection proof. It's as simple as that.

PayPal is another story. The odds of them finding it are low, but if they do find it, they can take all the money in it. So, it is not safe to leave a lot of money in it.

Pre-paid debit cards can be used instead of a checking account, and while they are not 100% safe, they are definitely safer than checking accounts once someone has filed a lawsuit against you.

I think you can transfer money from PayPal to a pre-paid debit reloadable card, or just use the PayPal debit card at an atm to withdraw as much money as possible as soon as you get paid from PayPal, or use it at a store to make purchases and use up the money as quickly as possible, just to be on the safe side so that if judgment creditors ever did find the PayPal account, they wouldn't get much from it.


Read the ENTIRE stickie called "Exempt funds" for more info and ideas... There is a HUGE amount of information in it about checking accounts and pre-paid debit cards.

http://www.bkforum.com/showthread.php?67251-Exempt-funds

[slvnomore]

Thank you so much for all the replys. I really appreciate all your help.

if it helps the banks are chase and FNB,.

I have one other question, When you say if you get a 1009c for the forgiven debt and then declare legal insolvency, (that dismisses the taxes on forgiven debt). you are very likely to be audited expecially if self employed. How often does that happen? That is new to me and seriously something to consider... thank you so much.

[joshuagraham]

I can tell you from personal experience--credit card companies couldn't care less about your personal problems, lack of employment, etc. All they care about is if the payments are flowing in or not. Back in 2009, before I defaulted on all my debts, I attempted to negotiate with my creditors to lower the monthly payments and reduce or waive interest because I had suffered a huge loss of income. The creditors did not care. When I actually quit paying, and let the accounts go 30-days late, 60-days late, etc., I again attempted to negotiate with my creditors to stop charging interest and fees, and allow me to pay a lower amount until I got back on my feet financially. Only Citibank was willing to do this. My other creditors refused to provide any sort of hardship payment plan which would stop the balance from going up. I mentioned the fact that I might have to file for bankruptcy, and the creditors did not care. I decided to stop throwing good money after bad and let all the debts charge off.

My advice is to quit paying, let the debts charge off, and deal with the possibility of a lawsuit by filing for bankruptcy if and when you have any assets or wages that are worth protecting. Right now, you and your "loved one" are having medical problems, which means that you might end up accumulating more debt which you'll need to discharge. Assuming that you do not own a house, or are "underwater" on the mortgage, you are currently "judgment proof" and therefore, it is not in your best interest to settle your debts, or to file for bankruptcy at this time.

Agreed. The banks figure that if there are any assets to get, the bankruptcy trustee will get them, and they'll get their cut, without having to hire a legal team to do it. And if there are no assets, that it would be so much in your self-interest to do Chapter 7, that you would be doing it anyway. And you can best bet that these days, some boutique data mining consultant has been examining the optimal offer to allow for a particular debtor situation - and it probably is much, much higher than the piddling amount you are offering.

[joshuagraham]

First of all thank you so much for all advice. I am new at this. They have already offered to settle for 30%, & 40% this was a counter offer before charge off to the OC. Why would they rather force me into BK and get nothing. rather than $2000? help me understand that? is there a threshold amount they make more in charge off on under which they wont go? I have no assets and qualify for the means test. thank you for your constructive feedback it is appreciated. if i do send the letter have I forgotten anything in the form I have written?

Because $2K is about 5%, and they have figured out that the probabilistic expected value of the eventual return on your defaulted accounts is much higher.

[joshuagraham]

Technically, yes. However, really consider if you want to open up that can of worms with the IRS. As a former tax preparer, I can tell you that the largest group of people to get audited are people who file a schedule C (self-employed). If you manage to come up with $7k to settle both cards, (again assuming they will accept 15%), and you claim insolvency to avoid the tax on forgiven debt, you are inviting an audit.

Best wishes,

The Bajan

And something to think about is that the IRS considers insolvency to include retirement and other assets that would be exempt in BK. So unless you really don't have a pot to ..., the IRS would come after you eventually. Only BK truly removes the IRS!

You only have a year or so to go until Obamacare will remove any possibility of getting medical debt. (Yes, we could!)

[TheBajan]

I have one other question, When you say if you get a 1009c for the forgiven debt and then declare legal insolvency, (that dismisses the taxes on forgiven debt). you are very likely to be audited expecially if self employed. How often does that happen? That is new to me and seriously something to consider... thank you so much.

slvnomore,

Audits happen all the time. There are different things that create red flags. People who are self-employed have a higher potential of raising a red flag than people who are not. That's why they get audited the most. Someone who magically comes up with $7,000 to pay off debt and then tries to tell the IRS that they have no money, and no assets, is going to raise a big red flag. Couple that with the fact that you are self-employed and it really raises the risk of being audited. I can't tell you what your chances are in numbers or percentages. I can only tell you that it's a gamble on your part to go this route. Most people don't get in trouble with the IRS for being dishonest. They get into trouble because they don't keep impeccable records and also because the IRS code can be interpreted in a lot of different ways. One auditor will say something is okay while another auditor will not.

As Joshua has already stated, you really have to be completely, totally, insolvent. There are no exemptions and they will scrutinize your life. After all, you are asking them to forgive paying probably $7,000 in taxes (depending on your income bracket). Technically, they are only supposed to audit back for the past three years. However, IF THEY BELIEVE that fraud is involved, (it doesn't have to be true), they can go back as far as they want. That's why a good tax preparer will tell you to keep your returns forever rather than the typical three year period.

I wish you the best,

The Bajan

[HHM]

Let me as succinct as possible...

The endeavor to settle is "pointless" in this situation.

[GoingDown]

I have personally been through the whole 1099-C ordeal and here was my experience...

HSBC Visa charged off my credit card back in 2006, and I fully expected them to sell it to a junk debt buyer like almost every other credit card was doing with my charged off credit cards.

But no, they kept it themselves and tried relentlessly for about a year to collect the debt from me using 5 different collection agencies. I kept sending them cease and desist letters (also telling them I was judgment proof in writing-- I NEVER TALKED TO THEM ON THE PHONE!!!), and then that collection agency would fall silent, and about 2 months later or so, here comes a new collection agency trying to collect the same HSBC debt.

Then for some reason (I think it was because they knew I was judgment proof), HSBC just sat on the debt and didn't sell it to anyone and strangely enough, they didn't even bother trying to collect it. They fell completely silent-- no phone calls, no collection letters, and no sending it to a new collection agency-- for 3 full years.

The 3 year period of inactivity triggered a mandatory 1099-C form. They sent it to me in the mail in January of the following year. The entire amount of the debt (since I didn't pay them anything at all) and all the interest and late fees were canceled debt, and were about to be treated as income to me. OMG!!! Noooooooooo!!!!!

I freaked out and worried about it, and asked a lot of forums about what to do about it and got conflicting answers.

Finally, my Dad called from Oregon and when I talked to him about it, he said go see a tax preparer.

So, I did. She figured it out after just asking me a few questions, printed out the proper form and the proper paperwork, then did my tax return for that year, charged me a fee, and off the form went in the mail to the I.R.S.

No big deal.

I had no assets (no real estate, no 401K, etc.), and lots of debts, including some student loan debt, and the 1099-C fiasco ended up being much ado about nothing.

So, if you have something (assets like a 401K or some other retirement accounts) to protect and worry about then BK might be the best option for you.

Otherwise don't sweat it.

By the way, I am self-employed and I have never been audited.

There was one time when I forgot to report some income from a customer who sent in a form declaring the amount they had paid me, and the I.R.S. was quick to jump down my throat about it, and I had to pay the taxes on that amount plus penalties and interest, but that was my bad. My own fault. And was not technically an audit. Just unreported income that they came after me for.

On the positive side, the debt canceled by HSBC has never been paid and I will never have to pay it. As it turns out, once they send you one of those things, contrary to what I have heard on other websites, they do seem to give up on it.

And as a note of interest.... only original creditors seem to issue them for 3 years of dormancy. Junk debt buyers have gone dormant for more than 3 years on many of my credit cards, but for some reason, none of them have issued 1099-C forms to me or the I.R.S.

[GoingDown]

Agreed. The banks figure that if there are any assets to get, the bankruptcy trustee will get them, and they'll get their cut, without having to hire a legal team to do it. And if there are no assets, that it would be so much in your self-interest to do Chapter 7, that you would be doing it anyway. And you can best bet that these days, some boutique data mining consultant has been examining the optimal offer to allow for a particular debtor situation - and it probably is much, much higher than the piddling amount you are offering.

I still disagree with this.

Everyone is different and faces different situations.

But I am speaking from my own personal experience.

Look at my join date for this forum: November 2005

I had a lot of credit cards (Visa, MasterCard, Discover) and store credit cards (Target, Sears, Chevron, Shell, etc.), and a new car loan, and all of them went south. I stopped paying all of them in 2005 and early 2006.

Only one of them ever filed a lawsuit against me: Capital One. And they did it about 4 months after I stopped paying them. They were one of the first I stopped paying.

All of the rest of them are now beyond my state's 6 year Statute of Limitations for filing a lawsuit and winning. In other words, none of the rest of them filed a lawsuit against me, and now their debts are time-barred by the Arizona statute of limitations. They could in theory still file a lawsuit against me-- very unlikely-- but even if they did, I would simply file an answer and use the fact that their lawsuit is time-barred by the Arizona statute of limitations, and they would lose the lawsuit and have to pay my court filing fees and legal costs.

So, my experience has been that if you truly are judgment proof and you tell them in writing (the phone jockeys at collection agencies don't care what you say on the phone about your judgment proof status) that you are judgment proof, 99% of them will not file a lawsuit against you.

And yes, I really do know they check out whether or not you are worthy of a lawsuit in most cases. Wells Fargo was coming after me for a $12,000 Visa card account that I stopped paying. They sent the account to a local collection agency which called several of my previous employers which were listed on my credit report and asked them all sorts of questions about me. Fortunately, I was still friends with those ex-employers and I had already told them what to say when the debt collectors called them, and they told them (I won't go into the details here) that in so many words, I wasn't worth suing. They even called my landlord (who was also a friend) and the things he told them also helped convince them that it was a losing battle to come after me. Add to that, at that point I had become completely self-employed (plus the temp work I did), so there was no current employer to call about me. That seems to be a key to all of this. If they can call you at work, you are very likely to get sued.

So, here is what they knew about me...

1. I sent them a letter telling to cease and desist any communication with me and that I was judgment proof. So now I had just taken away their main method of getting paid-- calling me on the phone. I had also let them know that I knew even if they sued me and got a judgment, they would still never get a penny from me, since I was judgment proof, and I told them that I did not have a checking account, so there would be nothing for them to seize-- another big method of them collecting their money.

2. They were unable to find a current employer for me. And what they heard in terms of misinformation from previous employers was not what they wanted to hear about a debtor.

3. They knew that I lived a rented house, and that I had no real estate. And the misinformation from the landlord was also some stuff they didn't want to hear.

So, let's break that down into their main methods of getting paid:
A. Calling me on the phone and scaring me into voluntarily paying them.
B. Filing a lawsuit and seizing my checking account.
C. Using a judgment to garnish my wages
D. Puting a lien on my real estate.

Oops! They knew they couldn't do any of those things to me. Why waste money, time, and effort on someone who is never going to pay you anything and who you can't force to pay you anything? Might as well go on to lower hanging fruit.