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    #1

    Debt Settlement

    I am starting to get settlement offers from creditors. About 50 cents on the dollar. I owe 12k on this one card and they are willing to settle for $5300.00.
    I know they will send me a 1099C for the forgiven amount which is about $6500. I cannot prove insolvency because I have IRA and 401k that far exceeds the forgiven amount. My question is this: Can I put $5000 into a traditional IRA to offset the 1099C income that I will receive come tax time? Does anyone know the answer to this??? I sold my car recently and have the cash on hand to settle the debt should I forgo chapter 7. Would this be a wise tax move?
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    #2
    Is this your only creditor? If not, debt settlement won't work unless you can pay them all off.

    If it is, you may want to set aside some money for the tax impact of settling the debt.

    As for the $5K to an IRA, that is all going to depend on your total contributions to an IRA/401K from other sources. You are only allowed to set aside so much each year into a retirement account. Any amount over that doesn't get deducted from your income.

    Comment

      #3
      I can afford to settle on this one card and file bk 7 on my other cc. I just can't file for another 6-8 months or even a year from now. This one card is offering me a limited time to settle now and I'd rather pay 5k into the traditional ira to offset the forgiven debt than to continue making the minimum payments up to the time that I can file bk. Does that make any sense? Do you think this is a wise tax move? I don't have enough cash to settle with everybody. I can just file bk on the others down the road. And by that time , enough time have pass to inquire about the preferential payment issue.

      Comment

        #4
        Originally posted by river147 View Post
        I can afford to settle on this one card and file bk 7 on my other cc.
        That's just throwing your money away. If you're going to file, then file on all of them.

        Use this time to plan your bk and stock up on essentials with that extra money.
        All information contained in this post is for informational and amusement purposes only.
        Bankruptcy is a process, not an event.......

        Comment

          #5
          LOL, "limited" time to settle. Don't fall for that.

          And as others have pointed out, don't waste the money if you are going to file.

          Comment

            #6
            Originally posted by HHM View Post
            LOL, "limited" time to settle. Don't fall for that.
            Oh come on HHM........ You know that they mean it!
            All information contained in this post is for informational and amusement purposes only.
            Bankruptcy is a process, not an event.......

            Comment

              #7
              Originally posted by frogger View Post
              Oh come on HHM........ You know that they mean it!


              Yeah, Citi offered me a 'limited time offer of settlement' at 4 months after last payment (60%). Then another 'limited time offer of settlement' at 5 months - 50% of balance. By the time month 6 had rolled around, they received notification of my 0% offer (Chapter 7).
              Filed: 6/30/2010
              341: 7/26/2010
              Discharged: 10/6/2010

              Comment

                #8
                I agree with others here. If you are going to file, then file! Don't pay $5K now to one and file BK on the rest. Let them wait it out and file on them all.

                Don't let these creditors lure you into their games. 50% for a settlement isn't bad. I'm sure they are right, this is a "limited" offer. However, as more time passes between now and them getting payed, there will be more "limited" offers. In two months it might be 40%. In another two months it might be 30%, etc.

                Since you are intending to file I would pay nothing now, and nothing later.
                Chapter 7 filed December 11, 2009, 341 Meeting held on January 7, 2010
                Deadline to File a Complaint: March 8, 2010

                Discharged and Closed March 11, 2010

                Comment

                  #9
                  Originally posted by frogger View Post
                  That's just throwing your money away. If you're going to file, then file on all of them.

                  Use this time to plan your bk and stock up on essentials with that extra money.
                  Also paying off one would be seen as a preferential payment.

                  Comment

                    #10
                    Originally posted by blockhead View Post
                    Also paying off one would be seen as a preferential payment.
                    Excellent point. By paying off the one (by settlement or not) it will be seen as a preferential payment therefore extending the time after you settle until you can file. Since you're looking at anywhere from 6 months to a year now, it will be a year (to be safe) from the time you settle.
                    Chapter 7 filed December 11, 2009, 341 Meeting held on January 7, 2010
                    Deadline to File a Complaint: March 8, 2010

                    Discharged and Closed March 11, 2010

                    Comment

                      #11
                      Originally posted by DebtHater View Post
                      Excellent point. By paying off the one (by settlement or not) it will be seen as a preferential payment therefore extending the time after you settle until you can file. Since you're looking at anywhere from 6 months to a year now, it will be a year (to be safe) from the time you settle.
                      While I agree with everyone that settling with 1 is a poor decision if bk is the end game there is some confusion on the preference issue.

                      The trustee will simply demand/sue the creditor for the return of the money. It won't affect the posters bk plans in the least. It'll be between the trustee and the credit card company.
                      It would be different if this were a property transfer to an insider.

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