Do it yourself settlement: shared experiences?

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.

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.

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?

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.

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.

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.

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!

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.

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.

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?

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.

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!

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.

Some background..
Orig creditor:MBNA
Sold twice finally to Credigy..
My first notification of this was through A attorney in mt state. I asked for verification and did not get it. They said they did not have my address, even though I recieved more than one letter from them. I call the Credigy to ask that they handle account. (I was told they do not do often take accounts back from attorneys) **by the was the account is being handled by Credigy legal arm Stewart and Associates. The oveall debt is $3000.00 (with interst) original debt from MBNA is $2000.00. I am aware of the $600.00 tax rule.. I hope to settle for about $1400.00. Any feedback... Also and suggestions if I have to go back and settle with the attorney rather then the current owners. I really don't know how to handle them. Thanks!

HelpingHope

I opened this thread with the interest in allowing people to share their experiences. I am very much IN PROCESS but based on what I'm finding already, I suspect the law firm you're dealing with is much more of a collection company than a Perry-Mason-If-It-Pleases-The-Court style outfit. I have found this to be the case with the "law firm" handling one of my accounts. Within the first moments of the conversation they were offering a settlement. My guess is that you can negotiate with the attorney just as you could with a straight-up collection agency or the original creditor. As for your dollar amount, I think that's a good target to shoot for. Personally, I think reports of 10% - 25% settlements are greatly exaggerated. Based on what you've posted I'd reckon your owed amount at the time of ORIGINAL default to be in the $2,000 ballpark Try offering 50% of that. Good luck!

Ok, if you are interested to settle the debt, you must talk to some debt settlement company and see what your options are. They are more trained in their negotiations with the companies. Do you have the copies of your correspondences with the companies? This can prove that you were always willing to pay the debt but failed to get the required information. Talk to a counselor and maybe he can put things straight.

Anthony -- Don't know if your posting was directed to me or HelpingHope, but by no means MUST someone contact a company to handle negotiations for them. The purpose of this thread is to discuss the route of "Do It Yourself" settlement. And my (limited) experience with this has so far demonstrated it's very much possible to handle it.

OPIONION:

Is there a certain way I should approach a CA once I agree with the settlement number to advise them I will mail a agreement and need it sign and return back to me b4 I mail out a payment?

Can you get a creditor to take account back from a law office they referred my info to? I would like to work with the creditor to make sure all docs are official after i settle.

Yes, your file can be pulled back from the collection agency if the creditor accepts your payment proposals. Explain your problems while dealing with the law office and assure direct payments to them. They might help you out in this regard. You just have to push hard because you defaulted with your creditor in the first place.