If a person settles with a CC company for less than what is owed will it negatively effect a persons credit score ?
Whether "Paid In Full" or "Settled For Less" really has little difference as to credit score. The major item is the derogatory effect that it went to "Charge Off" status. The help to your credit sore, for either method above, is that your utilization is improved by ending up with a $0 balance. You will hear discussions that "Paid In Full" looks better to creditors who review your report, but mostly the fact that it is a $0 balance is all that matters. No matter which way you go, make sure to get documentation that debt is satisfied, and that your credit reports reflect the update.
This happened to me recently. Settled with an OC for a lot less than charge off. Before I paid the debt down it was showing at 9K when I paid it down it was showing balance of what I paid less what the charge off was. I had it all in wriitng so contact the CA and it is being rectified. So as you wrote you have to get things pinned down and on hard copy! : ) Woofer
And always negotiate for no forms 1099-c. Also, don't be an idiot and negotiate for a PIF notation when you're settling for less if you still have other creditors out there who you're going to need to settle with. Once a TL is marked PIF, everyone else will want to be PIFed too.
That could be tough with the IRS requirements, but it is a good point to always ask for it. Another good point, once the "sharks" smell blood, the others come circling!
A recitation that the debt is doubtful and disputed in the settlement document would be enough to support the next clause saying that no 1099-c would issue. The IRS isn't going to look deeper ... with this one they're into catching taxpayers by the netful, and if some of the catch wriggles through and falls back in the ocean they don't care.
