Has anyone settled with creditors for 10%....????

[MarieT]

Has anyone settled with their creditors for 10%?

Have three credit card companies ($6K, $22K, $38K) and two line of credits with same bank ($25K)

$22K cc already has agreed to 10% settlement. I have already paid BK attorney 85% of BK fee. All but line of credit has been written off by origianal cc and $22K and $38K cc's are on their 3rd or 4th collection agency. $6K cc has filed lawsuit against me but I answered it and so far they can't come up with any proof that it is my acct. (was WAMU then Chase so maybe they lost documentation).

Also owe IRS about $30K that is set up on monthly payments already and won't go away in BK anyway. I have $10K coming in about 3 weeks (totally unexpected) and another $6K on hand. I understand that I would have to get four separate creditors to all agree at once but I figure they can either settle or if I am ready to file anyway and after IRS they won't get anything or minimal.

I would write up something saying they can settle for 10% or I am filing BK and I can give them my attorneys names/receipts to show I am ready to file.

[AngelinaCatHub]

Be VERY careful. Unless you get a total release, I would not trust one of them. Then if you do settle with one the others find out, and then withdraw their offer. THEN you become a preferential payer and may have ruined your bk. A discharge is permanent and an injunction against all debt owed at filing (except that which we know is not by law).

Your credit is already compromised and settlement would not improve that. One, just one Judgment can make you miserable forever. Get that discharge and start clean. My opinion only. 'Hub

[Peeps]

I did some checking around when I was trying to figure out if I should settle or just bite the bullet with a BK. I didn't see too many 10%s, but that doesn't mean they're not out there. It's really unfortunate that the more you get forgiven through negotiation, the higher your income taxes will be. With settlements, 10% is never just 10%. ::sigh:: I finally decided that 0% was better than a negotiated reduction when it came to my own fresh start. Best of luck in whatever you decide to do.

[lovemybugs10]

Because they sold off you might have a better chance at 10%.

But why not file bk, and give that money to the irs?

[Charlie777]

You're the classic case of someone needing a "fresh start" through BK. You list $91K in unsecured debt, and have a $30K, non-dischargeable (apparently but worth researching) IRS debt.

I guess I don't understand your situation, since you've paid 85% of the attoprney's fee.

Are you able to file Chapter 7? If so I think this is a "slam dunk", you should use the money to pay the attorney, go ahead and file. Whatever funds you have that aren't protected by exemptions go to the IRS.

If you have a "Means Test" problem and are forced to file Chapter 13 it's more problematic.

[bladerunner]

my husband settled $20,000 in business credit card debt for .25 cents on the dollar negotiating with BoA not a debt settlement company or an attorney. We're waiting to see how much of hit , tax wise, is coming our way. (our home is also in foreclosure, but I digress again) He did receive a letter stating the debt was cleared but if any charge, even as low as one penny is used on the account he will be liable for the entire amount again plus fees. So it's important that the accounts are closed, change banks if you have to, and the cards cut up...His credit is shot and I'm still flummoxed as to why he used the last of our $5 grand to settle his business debts, when I'm still in limbo land with my 20 grand in cc debt, especially when a chap 7 could have cleared us both. Moreover, we may still have to file BK after our home is sold at auction and we are stuck with a $100,000+ deficiency balance....
Marie, I think "hub has written your best option...

[MarieT]

Be VERY careful. Unless you get a total release, I would not trust one of them. Then if you do settle with one the others find out, and then withdraw their offer. THEN you become a preferential payer and may have ruined your bk. A discharge is permanent and an injunction against all debt owed at filing (except that which we know is not by law).

Your credit is already compromised and settlement would not improve that. One, just one Judgment can make you miserable forever. Get that discharge and start clean. My opinion only. 'Hub

Thanks Angelina...lots to think about here! I would not settle with one unless they all agreed to settle and then would still not settle unless it comes out to be less than the CH 13 repayment plan.

I am thinking I would have our attorney (who also does settlement) send a letter saying he "has been retained by us in the matter of our pending BK and in a good faith effort we are willing to pay you $x amount in full satisfaction of your claim. This offer is contingent on acceptance of settlement offers from the other three creditors". We would say that we have to have an answer back within 30 days and they will receive lump sum payment in 30 days.

Not sure but we could also say that we have paid our BK attorney and paperwork is ready to be filed.

To me, if we can get a fresh start through settlement rather than having payments go out for 5 years, and have a BK on our record for 10 years, that is a better option as long as it does not cost us more.

So if you pay one of them before the rest it ruins your BK? I thought that the creditor you paid it to had to just pay it back to the trustee if it was within 3 months of filing BK??? So confusing!!

[MarieT]

I did some checking around when I was trying to figure out if I should settle or just bite the bullet with a BK. I didn't see too many 10%s, but that doesn't mean they're not out there. It's really unfortunate that the more you get forgiven through negotiation, the higher your income taxes will be. With settlements, 10% is never just 10%. ::sigh:: I finally decided that 0% was better than a negotiated reduction when it came to my own fresh start. Best of luck in whatever you decide to do.

I think as far as the income tax, we would be insolvent so would not owe any taxes. (We owe more on house than what it is worth and also have the $45K homestead and we owe about $120K unsecured so pretty sure that we would not owe taxes on the forgiven debt.)

[MarieT]

You're the classic case of someone needing a "fresh start" through BK. You list $91K in unsecured debt, and have a $30K, non-dischargeable (apparently but worth researching) IRS debt.

I guess I don't understand your situation, since you've paid 85% of the attoprney's fee.

Are you able to file Chapter 7? If so I think this is a "slam dunk", you should use the money to pay the attorney, go ahead and file. Whatever funds you have that aren't protected by exemptions go to the IRS.

If you have a "Means Test" problem and are forced to file Chapter 13 it's more problematic.

The IRS would possibly be dischargable in a CH 7 but not in a CH 13. Attorney said not too likely for CH 13 with our income. We paid most of the attorney's fee because he does settlement too and we figured we would want an attorney to make sure everything was done correctly whether we did settlement or BK.

[MarieT]

my husband settled $20,000 in business credit card debt for .25 cents on the dollar negotiating with BoA not a debt settlement company or an attorney. We're waiting to see how much of hit , tax wise, is coming our way. (our home is also in foreclosure, but I digress again) He did receive a letter stating the debt was cleared but if any charge, even as low as one penny is used on the account he will be liable for the entire amount again plus fees. So it's important that the accounts are closed, change banks if you have to, and the cards cut up...His credit is shot and I'm still flummoxed as to why he used the last of our $5 grand to settle his business debts, when I'm still in limbo land with my 20 grand in cc debt, especially when a chap 7 could have cleared us both. Moreover, we may still have to file BK after our home is sold at auction and we are stuck with a $100,000+ deficiency balance....
Marie, I think "hub has written your best option...

My understanding is that if you were insolvent at the time he settled, you do not have to pay taxes on the forgiven debt. There is a form on the IRS site to fill out. I have printed it out but have not filled it out yet. We have not used the cc cards for more than 18 months - they were cut up. WIth the line of credit, we had $500 left in the checking account and withdrew that a couple months ago but have not used the LOC for at least nine months. Quit making payments on LOC about 5 months ago. Really wish I had quit making the payments sooner now.

[Peeps]

The forgiven amount is counted as personal income. If you get, say, $18k forgiven, then you will get a 1099 saying you earned $18k. It will be taxed unless you've got the deductions to offset the income. It's a rude little surprise that a lot of people who negotiate settlements encounter.

It's different if you file BK. Generally there's no tax liability on CC debt discharged through a bankruptcy. And you get to wipe the slate clean.

[Peeps]

Oh - sorry, I should add that the IRS does have a way to request the settled amounts NOT be taxed (there's a form, of course) and I'm guessing you've found this in your research. Sometimes, though, the IRS still levies taxes. There's the rub, really... it appears they're not always predictable (imagine that) in what they allow and what they don't. Best of luck in whatever you decide to do.

[keepsmiling]

Marie, thanks for starting this thread, which is something I had been thinking about doing and never got around to. For some of us, settling would be better than BK-- my ds is headed to college and if scholarships don't come thru, we may have to get a loan and understand that won't happen with an active BK. From all my reading here on the forum, I expect that our case could remain open a LONG time because:

1) dh is self employed
2)he has a guy who owes us 40K who fled to Canada
3) our house could become an issue if tt debates the current appraisal

here is the info I posted recently about the 1099:

From ehow:
Compile your 1099-Cs if you received more than one and add up the entire amount. For example, if you owe $10,000 on a credit card and you settle the debt for $5,000, the credit card company would write off $5,000 and report this to the IRS on a 1099-C. The IRS would technically treat the $5,000 as income. Creditors are required to report debt cancellation or settlement that is $600 or higher to the IRS.
2
Make a list of and account for your assets. Your assets would include all the valuable things you own that could be sold for cash. These include your home, car, jewelry, art work and other valuables. When making this list you need to determine their fair market value. It will help if you have documentation that shows current market value and, for things like art work, current appraisals.
3
Make a list of and account for your liabilities. Your liabilities will include any debts, including debts owed on some of the articles listed as part of your assets.
4
Create a financial statement and determine your insolvency. Using the two sets of numbers, create a financial statement, which is a table of your assets compared with your liabilities. If the total amount of your liabilities in dollars exceeds the fair market value of your assets at the time you received any form of debt cancellation or settlement, you are deemed by the IRS as insolvent. If you are insolvent, you are not required to report the amount on the 1099-C as income. However it is advisable to file for insolvency because your creditors would have sent copies of your 1099-Cs to the IRS.
5
File for insolvency along with your tax return. You can do so by filing IRS Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness." You may also send the IRS a detailed letter with a financial statement showing your insolvency. Bear in mind that the IRS forgives treating canceled debt as income only to the extent of insolvency. For example, if the total value of your assets is $80,000 and your total debt it $100,000, you are insolvent by $20,000 and only that amount of canceled debt can be excused from being taxed. So if you receive a 1099-C reflecting a debt cancellation of $25,000, $5,000 will be taxable.

[bladerunner]

thank you keepsmiling for the very timely knowledge involving 1099's...the sincere(all) members on this blog are always so generous with helpful information...

[MarieT]

Keepsmiling...now that's a positive name!

I appreciate hearing from someone who is looking at other options too.

From what I have read that is kind of what I have figured out too and thanks for the response. The IRS is difficult to work with...amazing how they do not use email and can never get your payment records right. That said, if they have published rules, they have to abide by them and given everything I have read, I believe we would be able to claim that we are insolvent and avoid paying taxes on the forgiven debt.

What are you using for your appraisal? do you know if the IRS sends someone out to appraise it if you claim insolvency?

The $10K we are getting in about 3 weeks is from someone who owed it to us as well and he actually made a $16K payment to us about a month ago (which we have about $6K left - we had to do some big car and house repairs which ate up $10K rather quickly) but because it will show that we received $26K in the 3 to 6 months before filing I am not sure how that would work.

When I am employed, which I am not right now, I work in an industry where I may lose my license if I file BK. No one can give me a clear answer so I have to think worse case.

I am thinking that if we use our BK attorney and got everything settled for $10K to $15K, and all the paperwork was done so they can't resell the debt, wouldn't that make more sense than stretching out payments and maybe being on a 100% payback for the next 5 years? The attorney had suggested a 3rd option which was just wait until each one sues and handle that as it comes up but just having had the one serve me with going to court is driving me crazy so that one is not an option!