FTC enforcing 3 month payment plans for debt settlement!

Hi indebt2,

As I said on your other thread, that sounds like it could be an internal policy of that particular firm. Settlements are almost always lump sum. Very rarely are they spread out over 3 months, even rarer over 6 months.

So such a ruling would be odd at best. Did this "coach" give you any references to validate this so-called "ruling"?

Can't find anything about this new "rule" from the FTC itself, so I would be interested in learning more.

Thanks,

chrys

Hi;
This "coach", works for a debt settlement company called CRN (Consumer Recovery Network). This guy claims to be in the business for as long as debt settlement has existed. I'm not sure if I believe that but I do believe he has a LOT of experience in dealing with settling debt, especially the bigger creditors like Citibank, Bank of America, AmEx, Discover, Chase, etc. etc.

I'm sure that you have read many posts here where people have gotten settlements spread out over 3-6 payments. I know I have! I have even read a few posts from people saying they got payments spread out for 12 months!!! Of course I find this unusual also but who am I to say that isn't possible?

This guy from CRN originally told me (about 5 months ago) that BofA was allowing 8 payments so that they could close more settlement deals. A few days ago he called me to let me know to be prepared... because BofA has changed their settlement policy and is now only allowing 3 payments for settlement deals. He also said that all of the other banks will be following the same policy. He said that the FTC is really coming down hard on banks that are allowing these long drawn out settlement deals. After speaking to him I contacted BofA since I am in the process of settling with them right now (but we have not yet come to an agreement). They did confirm exactly what the debt coach told me - they use to be able to offer 8 payments, but can now can only offer 3.

So what gives? Why would the banks, especially when they are so desperate right now, make it harder for people to settle? I have other really large accounts so this is a big concern for me. Thanks!

HUMM--This is strange. I've heard in recent months of many banks offering 3-12 months to settle. I would think that either:

1. This will hurt the banks as folks won't have the funds to settle in 3 months, or

2. Might help us in debt. The banks may end up having to lower the % the will take in order to continue to get settlements done.

You never know in these crazy times.

Hi,

Well after some research here is what I have come up with:
This has to do with the bailout package. The banks are required to report their write-offs within 90 days of getting it off the books for them to get their funding, so they are making sure the forgiven amount is sealed on the books so they can report it properly and to avoid the problematic paperworks that may be required to show any "write-offs in progress".

chrys

Thanks CHRYS, but can you break it down a little. So this means, what exactly? That all banks will only take a lump sum now? Or just the banks who get bailout money. Thanks Reny

Consumer counciling is look at the same as a bankruptcy by any bank. It may not affect your credit score as much as settlement but it will affect you getting a mortgage.

At least with settlement you can save 1/2 your money. Try freestar financial, they are good at settling.

Hmmmm,

I don't understand why any creditor *would* do a settlement in more than 3 months, there are probably unique extenuating circumstances in the few cases where they accept it.

I've seen mention of this 90 day period only here, and on another blog where they stated "federal guidelines" without any references. I've looked through the 451 page "Emergency Economic Stabilization Act" (the bailout) and the 258 page "American Recovery and Reinvestment Act" (the stimulus) and I can find no reference to this.

And settlement is a joke. You don't save "half your money", you save half of unreasonable and usurious fees unjustly tacked on to your account (with your permission, of course). That way the bank can write off the rest as a "loss", get the tax break, which the IRS will then stick to you. So MAYBE you save a quarter of "your" money but you rip your credit report to shreds in the bargain. Is it worth it? Well, sometimes it's the only option - but it should be assiduously avoided unless you are backed into that corner and have no choice.

I predict that settlements will get even harder. Either that, or easier and at a higher percentage of "savings". The bank will be able to write it off and get bailout money, and then the IRS will stick you with the whole bill. We'll see. I hope I'm wrong. But I'm sure they'll find a way to stick us with the bill.

chrys

it will most likely be your next door neighbor who will be stuck with your bill ... and if you aren't the one in debt, then it will be YOU paying for your neighbor ... what is wrong with this picture?

ChrysHenderson;
Haven't you heard of being insolvent? Not everyone will have to pay taxes on money forgiven by debt settlement.

Have *you* heard of being insolvent? An insolvent person would file for bankruptcy which is a whole different animal than settlement. They would *have* to be insolvent in order to qualify for Chapter 7 in the first place. You can't just ignore your debt and hope it'll go away.

Still, the only way to avoid the taxes is to have a total taxable income that is less than the minimum yearly amount - or the amount to qualify for a full refund of any taxes already taken. And the last I checked, that was a pretty small amount. Or you can have less than $600 forgiven, then no taxes...

If there are other ways to avoid the taxes, please enlighten me.

Thanks.

chrys

Chrys,
You seem to be knowledgable in most of your posts. On this topic you have shown you need to gather more detail.
What you just posted does not even scratch the surface of the insolvency rule. I am not a tax proffessional so if anyone wants to learn more I suggest speaking to one. Be sure that you connect with one that knows that code section does not just apply to BK (though it is found in the section dealing with BK). You would be surprised how many think that way.

The basic premise of the rule deals with assets/liabilities not necessarily income.



Milage may vary.

Flyingifr is an enrolled IRS agent (I think that's the right title). He recently registered on the forum but I haven't seen him in a few weeks. PM me and I can goet you contact info for him.

ChrysHenderson;
I just posted a new thread on the topic of INSOLVENCY. For those of us who find debt settlement as a good fit for our situation, it is frustrating when others use scare tactics to shy people away from something that may really help them like debt settlement. KNOWLEDGE IS KEY in this game. Insolvency applies to probably the majority of the people here who are "underwater" and buried in debt....and NOT filing bankruptcy.

Excellent, thanks for the wonderful tax lesson. Please see my response to the other post.