I have decided that I might want to settle with my credit card company because I just am so tired of their bullcrap. It is too much to pay off at once. I do realize the consequences of a charge off. Should I offer 30% of the debt? 40%? Half?
Re: my experience I helped my father in law with a similar problem. We settled about $75,000 in credit card debt for about 25% on the dollar. Sears was the hardest, they got 80%. Penneys the easiest, they wrote it off the first time I called and never bothered me. Most of the credit card companies took from 10% to 40%, with 30% being typical. But, he was elderly and had almost no assets. A lot depends on how much they think they can get from you. I would start at 10% and not go above 30%.
Re: my experience Or pull a lizardking, and ask to have everything verified, and then sue to not pay if they cannot provide the data...
Re: my experience Lizardking... please come out and tell me what to do.. I'm unclear the verify trick... I mean, what are they suppose to verify? I charged on the card, I got over my head, I owe money, and that is it, right? I mean this bank is pretty crafty. There have been MANY posts about them...
Re: my experience but that won't deal with the underlying debt that's still owed and could still be rereported and/or passed onto a collection agency. better to settle if the money is still owed... but make sure to get a full removal of all derog info included in the settlement. Your percent settlement should also reflect whether or not they could still sue you. If it's past the sol, then the only thing they can do is screw your credit rating which is pretty weak. If they can still sue you, then it's likely you'll pay more just because they can always sue you and eventually, likely, get the full amount plus costs. How old is the debt? and what state are you in?
Re: my experience Karen: Did they give you any trouble in removing derogs? Or did they put a lesser derog?
Re: my experience Please keep in mind that anything you have written off or settle off has to be claimed as income or profits on your TAX RETURN next year. I remember reading that on several sites. Do a search or maybe someone here will have the exact details. I am curious though. If you are going to just let the debts go and offer 50%, why pay at all? It seems like they are both going to have the same effect on your credit rating. Just asking. judy
Re: tax consequences When I helped my father in law settle his credit card debts, some of the creditors filed forms with the IRS showing the write off as income. Most did not. But, his income was so low, there were no taxes.
Re: my experience Not always Judy. You are talking about a 1099-C. There are a couple of exceptions. If you file for bankruptcy the IRS won't cosider it as income. Also, if you can prove a negative net worth prior to the chageoff or settlemment, no taxes are owed.
Re: my experience That's good to know. I had read it several places and wasn't sure. Hopefully it's not worth it to them to send the paperwork into the IRS.
Re: my experience Wouln't they also not send a 1099 if there's a dispute regarding the balance. If it's a settlement of a disputed debt, I don't believe you get hit with the taxes either.
Re: my experience (1) If you are not delinquent, you will not get them to settle. (2) if you are seriously delinquent, they may will settle only after they are satisfied that you do not have assets to garnish. (3) It will affect your credit for 7 years about the same as a Chapter 13 bk. Your credit is pretty much trashed. (4) They will report all of the waived amount as income to the IRS the year the settlement occurs. For some people, that can be a huge tax hit in one year. (5) You are only responsible for the taxes on this "income" up to your net worth. Retirement accounts do factor into this net worth calculation. State and local income taxes may be different. No matter what, spend the money to have a good tax attorney review the numbers before reaching a settlement. If you make a mistake, you could be exchanging unsecured debt with a credit card company with back-taxes. I'd rather owe deliquent unsecured debts that have the IRS and FTB after me for taxes owed. They don't need a lawsuit and judgement before putting leins & garnishments on your assets and income. (6) As someone else noted, you must be sure to have a written and signed settlement agreement with the creditor. Reaching a settlement with a collection agency does not relieve you of your liability.
Re: my experience Just want to add that the 1099 only comes into effect when the settled amounts is at least half the prinipal amount. so if your originally owed $2000 on furniture you bought and over the years it ran up with interest to 5,435. and you never made a payment, then if you gave them $1000 it would qualify as income. Actually the accounting change/charge was to ding corporations for write-off's that were not taxed and the IRS found a way to screw us too.
