Any Advise?
Date: Sat, 09/17/2011 - 22:29
I settled a Discover card for roughly 60% in February because they attempted to sue me and I wanted to avoid a possible garnishment. I now have one law firm with 3 of my credit cards one is from Commerce bank which is local and 2 are from Midland Credit Management for purchased my debt from 2 Chase accounts. They have served me on two of the three so I assume the last will be here shortly.
I consulted an attorney in hopes to file a bankruptcy and move on with my life, but unfortunately that doesn’t seem like a viable option either. I am married yet these cards are strictly in my name. The bankruptcy court however wants to consider household income so the only way I will qualify for is a chapter 13 with 100% payback over 5 years…at $1800 a month with may seem possible on paper but no way that I could maintain that for 60 months.
So here is what I have outstanding:
Creditor
Balance
Last Payment
American Express
$ 9,332.00
Sep-08
American Express
$13,208.00
Sep-08
American Express
$ 366.00
Oct-08
Midland Credit
$11,337.00
Dec-08
Midland Credit
$ 7,172.00
Nov-08
Commerce Bank
$14,675.00
Dec-08
Bank of America
$17,262.00
Feb-09
Capital One
$11,039.00
Jan-09
$84,391.00
If I could somehow swing a settlement the 3 with pending court dates, I fear the rest will follow suit too quickly. I also have read that I will have to pay income tax on the amount of the debt they forgive. So any advice, should I bite the bullet and go for Bankruptcy or try to keep plugging along? Does anyone know how the tax situation is handled; do you only get the 1099 after the settlement is complete? Would I be able to do a 3 month payment to get the release in 2012 and avoid the hit this year? Any insight is greatly appreciated.
It is quite obvious that you won't be able to carry on with Chap
It is quite obvious that you won't be able to carry on with Chapter 13 bankruptcy. You can try for Chapter 7 bankruptcy and get rid of the debts within 3-4 months. You'll have to pass the Means Test of course.
If you don't want to go for bankruptcy, then you can try to settle the 2 debts out of court. As far as the other debts are concerned, you can go for debt settlement program. Yes, you'll have to pay tax on the forgiven amount. You are most likely to get a 1099 C form after the debts are settled.
You can also try to work out a payment plan with the creditors on your own.
1099 timing
Regarding settlement and taxes, I believe that you will only receive a 1099 when the settlement is complete. I'm working with an attorney for one of my debts and we worked out a 12 month payoff. He said I'll receive the 1099 in 2012.
The other thing is that if you can show that you are insolvent when the settlement was completed, you do NOT owe taxes. As I understand it, the fact that you were insolvent is reported to IRS on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Insolvency simply means that liabilities (bills) are more than assets. The maximum reduction is the amount by which you are insolvent. So if your financial situation is $10k upside down (owe more than you own) after you get a $17k reduction from a creditor, you would break up $17k in reported 1099 income: pay taxes on $7k and not pay on $10k.
If you 1099 forms for 2011 and 2012, you might be insolvent both years, depending on your situation.
I am NOT an accountant, though! This is just my best understanding of the rules I've been researching, including the IRS site.
[LEFT]
[/LEFT]