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I am looking to assist my wife in settling several credit cards in her name most of which have gone to collection. The debts have all been delinquent for a year but we are newly in a position where we can pursue settlement. The details of how this is possible are not relevant to this posting, but I will simply say that I am personally able to step in provided I can successfully negotiate significantly reduced payoff amounts. As for my wife, obviously her credit rating is shot; all but one of the cards are cancelled and only two remain in the hands of the original creditors. Practically speaking, her credit picture is close to rock bottom. However, we feel settlement is preferable to bankruptcy so long as we can find resolutions with the creditors.

Looking through the forums here and elsewhere I have seen that �do it yourself� settlement is not only possible but the smartest way to go. Also, the settlement route seems to work best if you are prepared to pay right away � luckily for me I don't need the services of a company to �set aside� a fund for payouts. So I've got a (modest) kitty of funds. I'm just looking for some guidance on how to spend it prudently. Here are my questions:

Virtually all of the collection agencies are saying (yes, I've called them; I know it's against the rules but I wanted to at least find out where the accounts stood) that they are �partners� or �third parties� to the original creditors and insist that the debt was not sold nor have they bought it. Instead, they talk about how the OCs will not accept settlements below 75-80% of the balances. At first this struck me as hooey, a negotiating ploy. The cards in question are from MBNA, Chase, Citi. Can anyone vouch for the claim that in some cases of Charge Off the OCs still retain veto power on a settlement offer to a collection agency? If so, I suspect the discount range they've so far quoted is nevertheless not quite true. What are other people's experiences?

Getting down to the nitty gritty, what should I realistically expect of myself in negotiating down these debts? As I indicated most of the accounts have been in complete delinquency for 12 months. One � Discover � got a single payment in that time and so they're still barely hanging on to that internally. The last one, with USAA, is in the best shape due to a negotiated payment plan a year ago. Interestingly, the folks at USAA, the ones who hold my wife in the best regard account-wise, seem the most eager to pursue a settlement. So I'm looking to find out if there's a line in the sand or not. I am prepared (thanks to the volumes of info on this site) to follow this process deliberately and patiently. But I don't want to be unrealistically stubborn when it comes to negotiating. Any information would be appreciated.

Posted: Mon Jun 26, 2006 6:30 am Subject:

something to bear in mind while perusing settlements.
They will still have a negative impact on your wife's credit score (if its all ready bottomed out, then that shouldn't be a big deal). What ever YOU DON'T pay( the amount of the balance for given) is taxable as income if that amount exceeds $650 (this would be per creditor. IF so they will send you a 1099C, and you will have to claim it and pay federal and possibly state income tax on it. I think it's taxed at somewhere around 25% to 30%. So your final costs will be somewhat higher by the time its all said and done. Talk to a tax professional and find out the details and how they can affect you before proceeding so you don't get an ugly surprise come April 15.

Clay --

Thank you for the information. We know the position she's in for her scores. With some luck she might perhaps be able to come out of the negotiations with one working card, which will be a start towards repairing the damage. Also, I was intending to address the tax issue towards the end of negotiations. But I assume this is not a negotiable question. Either they will follow the tax rules or they won't. The grey area for me is the reduction amounts I could expect.

Posted: Mon Jun 26, 2006 9:59 am Subject:

I wish you luck. The federal tax codes requires them to report bad debts in which the forgiven amount exceeds $650. Keep this information accessible later, in case they try to send the remainder out for collection to another agency . Once a debt is reported to the IRS, it is legally no longer collectible.

Also for any debts you settle which are less than the threshold and hence non reportable, make sure you have documentation of their acceptance before sending them any money. This will back you up again if they try to send the remainder out for collection by another agency. When making these payment , do not send a check off your accounts. spend the extra couple bucks and get a money order or cashiers check form your bank. Never, never give a collection agency any information or access to information about your accounts ( they could take the routing and account numbers off checks and then try to debit your account without your authorization).

Good luck , and please share your experiences with the community to help others later who may be considering similar options.

Guest · Posted: Mon Jun 26, 2006 10:13 am Subject:

Clay -- I'll keep those points in mind as I go forward. Proper documentation is vital, of course. Have you any perspective on the reduction amounts I should be seeking?

linda · Posted: Mon Jun 26, 2006 11:45 am Subject:

Yes, but IF you can prove your are insolvent at time of settlement, then you will not have to pay taxes on the income forgiven. Basically if you have no assets or resources of any type, then you do not have to pay taxes on the amount forgiven. You can fill out a form by the IRS and claim insolvency.

GOOD LUCK.

Posted: Mon Jun 26, 2006 12:38 pm Subject:

The total debt can be reduced by 40& - 60% in a debt settlement program. It depends upon the negotiations held with your settlement company and the creditors. The counselor will work keeping your interests in mind.

http://www.debtconsolidationcare.com/debt-settlement.html

While these negotiations take long time to get finalized, you should be regular with your payments to the new account. Once the deal is struck, the settlement company needs to send the full amount to your creditors.

Posted: Mon Jun 26, 2006 1:13 pm Subject:

I am planning on settling with some credit cards in a few months. I was not aware of the 1099-C issue. I went onto http://www.irs.gov/ and found out information about this. The forgiven debt has to actually exceed $600 before a creditor can issue a 1009-C. I found this site very interesting concerning this topic. It is definately something that everyone should be aware of, but unfortunately I don't believe they are.

linda · Posted: Mon Jun 26, 2006 1:27 pm Subject:

My settlement company told me about the form to file when I do my IRS tax return. They told me to attach the insolvency form with my taxes and verification proving I was insolvent at time of settlement and I would not be held responsible for paying taxes on the forgivin figure. I checked with H&R block and they said the same thing.

GunsNRoses -- thanks for the added info on the IRS issue, which is secondary to my foremost concern: effective reduction of the outstanding balances. As I indicated in my original posting, I am going to negotiate myself rather than hire a representative such as a debt settlement firm. If you've any insights into that process bring 'em on!

lenderwithhelp · Posted: Mon Jun 26, 2006 8:18 pm Subject: settlement percentages

I work with collection agencies and debt settlement companies in my line of work every day. What you are seeing is not uncommon. When the account is still with the original creditor- they can sometimes offer a more agressive settlement before they place it with teh agencies because they save the 30% they have to pay the agencies to make the same thing. I've seen MBNA accounts settle out at 10% while they were still at MBNA and before charge off. However those same accounts when they get placed with the agency will hardly ever settle below 60%. The creditors are tightening up on settlements in general. Be careful playing the waiting game with some of these people, most of them do have legal recourse to collect on their account and I've seen numerous clients of mine who had garnishments placed and it really put them in a bind. Good luck on your situation.

linda · Posted: Tue Jun 27, 2006 7:49 am Subject:

I read in an article in CNN money that since the cc companies all raised their minimum payments the end of 2005/ that they will write off thousands and are prepared for this placing people in a jam. They said that the people that go ahead and pay the increased minimum payment will benefit from paying off the acct and more or less it stated the companies would not come out about even. Right now is the best time to be in a settlement program I think, due to the fact the law changed in the credit card business.

I thought about doing it myself negotiation, however I looked at it from several point of views and settlement companies can go to original creditors and offer them say: 10 people at 1,000.00 settlement totaling= 10,000.00 compared to the companies settling with just one on an individual basis at 1,000.00 per settlement. What do you the company sees? 10,000 or 1,000 They are more apt to cut the deal with the settlement companies because they can get most their money back from an individual.

Know what I mean?

Also, I have talked with many attorneys in the area and they advised me NOT to settle myself. You have no documentation proving you are trying to settle should they take you to court. They told me that should I get taken to court then the Judge more than likely would favor me since they respect the fact I am trying to do something.

Just some tips to think about.

GOOD LUCK.

Rudy · Posted: Tue Jun 27, 2006 8:40 am Subject:

Hi,

I was wondering if one's credit report reflects that he/she have consolidated their debts and are making timely payment with the settlement company? Will there be an improvement on one's credit score?

Linda · Posted: Tue Jun 27, 2006 12:29 pm Subject:

Rudy,
With a settlement company, you payments are not timely to your creditors. They go into an account and accumulates until there is enough money saved to settle an account. Your credit score will decrease while in the program, however once completed your credit report will increase as you reestablish your credit.

Guest

Here is a follow up question for this thread. Am I right in understanding that once a company has "charged off" an account BUT THEY HAVE NOT SOLD IT, MEANING THEY RETAIN OWNERSHIP OF THE DEBT, then they are no longer allowed to continue charging interest on the delinquent debt. Yes, they can still seek payment, but can they continue adding interest charges? Thanks!

Posted: Tue Jun 27, 2006 4:40 pm Subject:

Possible! I have actually dealt with some creditors who charged on charged off accounts. Charged off accounts is posted in their books as bad debt, but they will still try to collect the money through other means. The best way is to sell off the account to a collection agency. If they retain the file, their contract will mention this term.

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