My husband settled with NCOfinancial we had them send the letter to us before we send any money. in the letter it has a paragraph that states. If 600 or more in principal of your debt is canceled by this settlement, please be advised that the creditor may be required by federal law (Internal Revenue Section 6050P) to report this amount. If such report is mad, you may receive a 1099c from the creditor no later than next January 31st. If you have any other questions concerning your personal taxes, we recommend that you consult a board certified public accountant or other tax professional. So does this mean that they are going to come after the rest of it anyways. we settled for 400 and it was a 1085 collection? any help is appreciated. thanks
It sounds like they might be telling you to expect a 1099c for the "forgiven" amount of the debt. Once you have a settlement offer in writing, and you fully satisfy that settlement offer, it's legally binding. Google "accord and satisfaction". Long story short, in the eyes of the legal system, any "remaining balance" no longer exists. What they appear to be saying is that you will receive a 1099c for $685. If so, this means they are reporting that $685 as income to the IRS, and you will be responsible for taxes on that amount. This gets into a delicate area that I'm not familiar with. In your case it might be valid, but when CAs start sending out 1099s on debts that were in dispute, it seems like a sneaky way to get someone to acknowledge a debt that may not even exist (after all, if you pay income tax on it, then you've just acknowledged that you had that money / credit).
Thats what I was thinking because I googled it. I don't really like the sound of it but what would your opinion be? would you call the NCO and try to get them to write a letter that doesn't state that?
It's a tough area. I think there are two ways to go: If you want to acknowledge that the debt is valid, that you owe the full amount claimed, and that you are settling for less, then accept the 1099c. This is the simplest approach, and if you really do owe the full amount claimed, then even after paying the settlement plus income tax on the "remaining balance", you're still coming out ahead. If you dispute the debt, or don't believe the amount to be valid, or don't believe the CA is authorized to collect the debt, then fight the 1099c. This requires looking into the tax laws to find out what to do when an organization improperly reports you to the IRS. You'd also want to look into how this plays under the FDCPA (is submitting a 1099c for a disputed amount a permissible collection activity?). You'd also want to look into whether the debt is outside the SOL, whether they're authorized to collect the debt, whether the amount is accurate, and so on. As far as I know, there really isn't much solid caselaw regarding the 1099c, so you're going to be treading through murky waters here. You'll need to decide if the time and effort -- rewarding as it may be -- to fight the 1099c is worth more than the cost of simply paying it. Did you DV the CA? How long ago was the debt incurred? When was your last payment?
We didn't DV this collection. I had sent out 4 debt validation letters and is all they did was send me the collection bill. We are trying to improve my husbands credit so that we can buy a house this year and so my husband is impatient and wanted to just see if they would settle so he called all of his collectors and offered amounts this was the only one that would go 30% of debt owed. Everything he has in collections is pass the SOL we are just trying to get the stuff with a balance payed off or corrected. This debt is pass the SOL and The last payment was in 9/1/2005.
That's good news, because it might give you some more bargaining power -- maybe. Yours is one of those rare cases where a cease & desist letter might be useful, but only if you are absolutely, positively, 100% certain that the debt is past the SOL in your state. If I were in your shoes, I would just let a debt from 2005 rot -- especially if it was past the SOL. It will be off his credit report in just under two years (maybe one if you can convince the CRA to delete it in early 2012). By paying now, you run the chance of extending the DOLA and keeping it on your credit report for seven years from the date of payment. I have not gotten a clear, solid answer on this, and people far smarter than myself have debated this topic to no end. But if you want to proceed, I would consider pressing them even harder. Don't let them know that you're desperate. All they know right now is that they're about to get $400 for a debt that they probably paid $120 or less for, and that's a pretty sweet deal ... for them. Consider writing back a very brief, straight-forward letter and sending it CRMM. In this letter include the following points: * Thanks for their correspondence. * The alleged debt is invalid, and you are disputing it. * If they proceed with their reckless threat to submit false and/or misleading documentation to the IRS, you will aggressively enforce your rights through the civil and criminal justice systems. * Although the debt is invalid, you are generously willing to consider making a $100 one-time payment as settlement in full, provided that they acknowledge that no further debt exists and that no reporting to the IRS is necessary or will occur. * If they are unwilling to accept this offer, do not contact you again. Keep your letter brief and on-topic. Make it no more than five or six sentences. I rarely suggest C&D, and normally I advocate against adding any wordiness to letters, but in this case, you seem to have the upper hand. If you don't pay anything, you deal with another 12-21 months of this on your credit report, and they lose whatever they paid for the debt. If you make a tiny payment (in this case, $100), they cut their losses and get something. If they are agreeing to a $100 settlement of this matter, then any remaining debt immediately vanishes. Thus, there's nothing to report a 1099c on. But this is way, way past my comfort level. So if I were in your shoes, I would wait it out and force them down into the mud. But that's just me. Look at it this way -- you've waited this long, what's another year or two?
This really isn't rocket science. If an otherwise valid debt is forgiven or settled for less than the full amount owed, and the amount of debt "erased" equals $600 or more, a 1099C will be issued. However, if the creditor (or their collection agency) is willing to settle for significantly less than the full balance, you are most likely insolvent, and therefore would not end up paying any tax on the forgiven amount. The bottom line is that I would take the offer and not worry about it. Most likely, you are insolvent (i.e. owe more than you earn in a year) and can fill out a tax form to offset any potential liability for taxes on the forgiven amount. If for some reason you are not insolvent, then paying taxes on $685 of forgiven debt is still far cheaper than paying the full amount of the debt. So any way you cut it, you still come out ahead!
Thank you for everyones help I really appreciate it. I think we are just going to pay it so we can continue clearing his credit up.
My issue with 1099-Cs is that they frequently get issued before a debt has been properly validated or researched, or when the amount of a debt is in dispute. How do I know the amount they're saying is correct? Always, always DV before settlement. It's a $5 process that might save you a fortune, especially on older debts like this.
They have to include that clause on every letter to legally cover themselves. If you settle and the amount you are being forgiven is more than $599, the Federal Government requires you report it as income and the CA is require to report it. Unfortunately, that is just the law.
