Settling with Credit Agencies

[rockyroad]

What happens when you decide to settle with a CA? I think I read a thread on here once saying they can still re-sell the remaining debt off to another CA or that they will issue a 1099 that you must pay taxes on. Or is this something only the OC can do and not a CA?

Just wondering because I may decide to settle and not waste a BK right now. I own a biz and if this economy is going to get worse before it gets better, I may try not to file not knowing what the future holds.

Also, if you do settle and end up deciding to file down the road, can you include that in the BK, assuming you are making payments to the CA?

[rockyroad]

Oooops....sorry I meant to write Settling with COLLECTION agencies not CREDIT agencies, but I'm sure yall know what I meant!

[JRScott]

Most CA's pay cents on the dollar for the debt.

If you settle with them for part of the amount, then yes they would issue you a 1099 and you'd owe taxes on it the next year. I think there is a certain minimum level before they'll issue the 1099 but not sure what it is.

[rockyroad]

Why does the CA get to issue a 1099? They aren't losing anything if they collect from me since they paid pennies on the dollar to obtain the account from the OC. What do they have to write off? They are actually making a profit and not losing anything.
Seems like the only one who has anything to write off is the OC

[ready2puke]

I believe is anything over $600.00 then you have a 1099 and pay the taxes. It could work out for some if all the cc's would settle and not just a few. Otherwise you'd be up a creek. Your paying some and get stuck with others. But if you get them all to go for it and have the money for taxes..I say good for you.. Cheaper than paying the entire amount. And your credit will still stuck..

[trying2makeit]

Good question

I was wondering the same thing, just settling with creditors. My total debt is almost $90,000 so assuming everyone settled for 50% that would put me at $45,000 which is still overwhelming but even more devastating on my taxes considering the 1099 in all.

[AngelinaCatHub]

Rockyroad: Only my opinion, but if you wait till later, you may be in a long line. Also depending how soon you are going to bk, it may look preferenctial if you pay some but not all equally.

I think you are throwing good money after bad. Now this is only my opinion. 'Hub

[rockyroad]

I only have one creditor that I am not current on. It was my Biz LOC with AMEX. Everything else is current, but that one is a HUGE amount. I read another thread that AMEX offered a $40k settlement on a $180k balance.
I have 40k but not 180K...that's why I asked about settling.

[Mary Irene]

I think they're so desparate now that no one is paying their credit cards that they will seriously consider a settlement. Just make sure you get it in writing from them that they will not sell the remainder of the debt to anyone.

[allavdj]

I only have one creditor that I am not current on. It was my Biz LOC with AMEX. Everything else is current, but that one is a HUGE amount. I read another thread that AMEX offered a $40k settlement on a $180k balance.
I have 40k but not 180K...that's why I asked about settling.

In that situation you would essentially being paying income tax on approximately $140,000. If I am not mistaken, you would be taxed at the -highest- income tax rate due to the nature of the income (no different really than if you won the lottery), which would place a massive tax bill on you (I'm gussing somewhere around $30,000). So unless you can come up with a loss on your taxes to make up for an extra $140,000 in income I would think twice before settling.

I think settling is the CA's way of getting something out of you and screwing you all at the same time because they know you are gonna get slapped with an unexpected tax bill come April 15th

[keepmine]

If you're insolvent at the time of the settlement, there is no tax liability. Do a search on the IRS site using the term form 982 for some very lengthy details.

[rockyroad]

I did read that form on the IRS website..it's kinda difficult to understand!!
So if my total liabilities outweigh my assets, then I'm insolvent, correct?
It will be close with my home, but I owe almost near as much on my Lines of credit.

[keepmine]

I did read that form on the IRS website..it's kinda difficult to understand!!
So if my total liabilities outweigh my assets, then I'm insolvent, correct?
It will be close with my home, but I owe almost near as much on my Lines of credit.

Yep, if your liailities exceed your assets there should be no tax liability.

[ssdsco]

I did read that form on the IRS website..it's kinda difficult to understand!!
So if my total liabilities outweigh my assets, then I'm insolvent, correct?
It will be close with my home, but I owe almost near as much on my Lines of credit.

Don't forget to include the value of any retiremement accounts. That's what got me. According to the IRS I have lot's of assets. According to BK I'm no-asset.

[rockyroad]

nope, no retirement funds. Only a home with two mortgages and 2 leased vehicles which I guess leased means they are not assets.
My liabilities are around $250k, but I think my home is valued right around the same...it will be close.