Question written off: what on earth does this mean?

[dealingsdone]

I recieved a letter from BofA today. They have stated if I don't give them a payment or contact by April 15, then they will write off my debt as bad and give it to a collection agency.
My questions are: What are the ramifications of this? Assuming they do this, does that mean I will get hit on my tax return this year? Does this mean they are not going to sue me? Can the collection agency sue me? I have been very concerned about a lawsuit all along because I do owe about 25k. I have still not yet filed for BK, because I wanted to let things play out a little further. This is the biggest debter that I have.

Thanks,
Dealingsdone.

[keepmine]

FDIC reg 5000 requres lenders to writeoff revolving debt {cc's} within 180 days of default. It means, they believe the debt is uncollectable and that'll be part of the quarterly P&L. It does not mean they must stop collection activity. They can keep trying to collect internally, assign it to a 3rd party collector or sue. They're options are wide open but given the sixe of the debt, they'll likely sue sooner rather than later.
They'll issue a 1099C. What it does to your taxes depends on your circumstances {are you insolvent} though a bk filing is one way to negate the tax ramifications of a 1099C.
Go to the IRS site and enter form 982 in the searcg function for a detailed explanation.

[dealingsdone]

FDIC reg 5000 requres lenders to writeoff revolving debt {cc's} within 180 days of default. It means, they believe the debt is uncollectable and that'll be part of the quarterly P&L. It does not mean they must stop collection activity. They can keep trying to collect internally, assign it to a 3rd party collector or sue. They're options are wide open but given the sixe of the debt, they'll likely sue sooner rather than later.
They'll issue a 1099C. What it does to your taxes depends on your circumstances {are you insolvent} though a bk filing is one way to negate the tax ramifications of a 1099C.
Go to the IRS site and enter form 982 in the searcg function for a detailed explanation.

Thank you for that info.

My question is, if they give it to a 3rd party (like they claim they are going to do) does this third party have the ability to sue me? I assume that once BofA gives the loan to the third party, they (BofA) is done with me. Am I correct in my assumption?
Thanks,
Dealingsdone

[dealingsdone]

I went to pub 4681 which contained the relevant information for me.

Essentially if the IRS hits you with income at the end of the year based on the 'forgiven debt', you still are NOT on the hook for this IF your total personal property is less than what you owe at the time of default. It is not quite that simple though. For example if a person owed 50k and had possesions of value worth 12K...then 38k could be written off and not taxable, but the remaining 12k would be taxable . That is how I read the document, does anybody else know anything about this?

Thanks,
Dealingsdone

[freckleface]

I went to pub 4681 which contained the relevant information for me.

Essentially if the IRS hits you with income at the end of the year based on the 'forgiven debt', you still are NOT on the hook for this IF your total personal property is less than what you owe at the time of default. It is not quite that simple though. For example if a person owed 50k and had possesions of value worth 12K...then 38k could be written off and not taxable, but the remaining 12k would be taxable . That is how I read the document, does anybody else know anything about this?

Thanks,
Dealingsdone

I am not an expert or a lawyer, so maybe someone else can weigh in. When your debt is written off by the creditor, it doesn't mean it's forgiven. For instance, I owe Chase $5,000 but they agree to take $2,500 and consider the account paid. They forgave $2,500 of the debt and after I pay the other $2,500, they will report the account as paid and collection proceedings will stop. The IRS will look at the forgiven amount as income. Chase will send a 1099 at tax time and I will have to declare the $2500 on my taxes. When a bank writes off or charges off an account, they haven't forgiven the debt. They have just taken it off their balance sheet, but you still owe the money and someone can still come after you for it.
I hope this makes sense and like I said I am not an expert, this is just how I understood it.

[momxx5]

The collection company could either be working with BoA or have purchased the debt from BoA, either way the amount is still considered as unpaid debt and you can be sued. Given the amount it is quite likely that you would be sued.

There are some options to work with a collection agency as far as setting up payments or like you mentioned, agree upon a settlement for lesser money.

Any settlement or acceptance of payment for less than the full debt due will be considered "forgiven debt" which is considered income in the eyes of the IRS. It sucks and is a huge peeve of mine, but unfortunately it is the way it is.

A charge off or "written off" does in no way mean that the debt is gone, actually it brings it more attention.

Only BK will erase the debt, but of course it has BK has its own ramifications.

[HHM]

3rd parties can sue you.


As has already been pointed out, Written Off (or Charge Off) simply means the lender is accounting for the loan as a loss for accounting and tax purposes. Written Off, by itself, does not mean the debt has been "forgiven". Generally, at Charge Off, the lender will sell or assign the debt to a collection agency. The collection agency inherits whatever rights the lender had, meaning, if the lender can sue you, so can the collection agency etc etc.

[dealingsdone]

3rd parties can sue you.


As has already been pointed out, Written Off (or Charge Off) simply means the lender is accounting for the loan as a loss for accounting and tax purposes. Written Off, by itself, does not mean the debt has been "forgiven". Generally, at Charge Off, the lender will sell or assign the debt to a collection agency. The collection agency inherits whatever rights the lender had, meaning, if the lender can sue you, so can the collection agency etc etc.

Thanks for the info.

On one of my earlier threads somebody told me that after being sued a bank can seize your bank account. I spoke with a friend of mine that is a lawyer, she told me that it is very difficult for a credit company to seize a bank account. I am wondering if ANYBODY has had a bank account seized here by a credit card or collection agency?

Dealingsdone