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Help with approaching CAs

Date: Wed, 01/25/2006 - 22:06

Submitted by imkimssister
on Wed, 01/25/2006 - 22:06

Posts: 1301 Credits: [Donate]

Total Replies: 16


Hi. I was doing some thinking tonight and going over my 'game plan strategy' of paying my debts off and thought of something. I remember a couple of months ago, I was on the phone with a collection agency whom I have been making payments to every month, and she asked if I was interested in making a deal. I thanked her but told her that at the time I was in no shape to do it. But now that I am dead serious about getting out from under all of this---(husband has even started working on saturdays now to help bring in some extra bill money), I am thinking of all options.

Right now I have tightened up the purse strings big time--cutting here and there--and doing without things..not need things, but want things--in order to save up more money to pay things off. wow, I'm actually excited about this! My husband listens to Dave Ramsey and he says you won't get out of debt until you GET MAD. That you get mad cause you have these debts and never have any money cause you have to put all of your money towards them, they get it all. But with me, thats not the case at all. I'm excited about it. Before, it seemed boring. Husband would get excited about wanting to pay bills off, I wouldn't. I was happy paying bare minimum cause that meant we had more money to blow 'NOW'. I was thinking, wow, you want to work more so you can give all of our money to bills, thats no fun. But now I'm on fire about this! I can see it happening.

anyways, is there a correct approach in asking collection agencies for a deal/settlement? we're getting some income tax money back this year and I'm thinking of asking CAs for deals and try to pay off what I can with income tax money. we probably won't get our tax money back until early april, so should I explain to CAs what I'm thinking of trying to do and give them the time frame? or should I wait and see what I'm getting back and THEN ask them from that point?

thanks, shirley


hum?? I've never heard of that before, but would be interested in finding out. how would the IRS find out about it though? its not like you have to list all of your debts and what you owe---the only debt I file on my taxes is our mortgage. If they could tax you on money left after a settlement, then whats to stop them from taxing you on a 'charge off', you still owe the money? I'm sure creditors have to file a list of people who have charge offs, for their tax purposes. shirley


lrhall41

Submitted by imkimssister on Thu, 01/26/2006 - 06:40

( Posts: 1301 | Credits: )


It is hard to have the creditor/collector report a settled account as "paid".

The forgiven portion of a debt is considered "taxable income" for a debtor. Usually the creditor/collector sends a 1099 form to you and IRS. If you can prove to IRS that you are insolvent (e.g. bankrupt), you can get away with it.


lrhall41

Submitted by AZ Payday Loan Avenger on Thu, 01/26/2006 - 09:58

( Posts: 56 | Credits: )


Good question! Maybe a congressman can explain this to us!? There are also other things that IRS considers as taxable income. For example, if you exercise your employee stock options and buy the shares instead of doing a "same-day-sale", the difference between your strike price and the closing price of the stock on the day of transaction is considered "taxable income" as opposed to "capital gain". So if you sell the stock later on with a loss, you cannot use the capital loss to offset the "taxable income". This is a very similar situation where the so-called "taxable income" was never realized because you did not sell the shares on the day you bought your employee stock options.

I am pretty good at the above stuff because the scenario I mentioned above is the root of my financial ruin: owing money I never made!!! It's a long story! God bless Uncle Sam! :?


lrhall41

Submitted by AZ Payday Loan Avenger on Thu, 01/26/2006 - 10:36

( Posts: 56 | Credits: )


Brat

Quote:

How can they consider this income? We never see the money.


You are right that you don't see the income. But the fact is that you are paying the reduction amount instead of the owed amount through settlement. Your CR is showing the difference of amount. So, a lower amount than the owed balance is considered to be an income in the law books and there are taxes on the income.

Kam, just adding a note here, though it is hard to find a creditor/collector updating the CR as ???paid' when they are settling the account, but actually, have a look at it from the other way. These agencies were not getting any money from the person and there is always a risk of him filing bankruptcy. At such a situation, they will always like to place various offers on the people so that they can ultimately get the money. The person's credit is already tarnished with the bad credit. It can't get worse than that. The ball is at the other party's court to take the risk of getting money from you. For such reasons, you can convince them to make such updates that you want. Though, it is not necessary for all the agencies to accept what you want, but you can always give a try to it.


lrhall41

Submitted by david on Thu, 01/26/2006 - 11:47

( Posts: 1229 | Credits: )


Shirley

Quote:

If they could tax you on money left after a settlement, then whats to stop them from taxing you on a 'charge off', you still owe the money?


The charged off amount is not paid till now. If there is a settlement offer on this debt and it gets paid, it will become taxable from that point.


lrhall41

Submitted by david on Thu, 01/26/2006 - 11:52

( Posts: 1229 | Credits: )


One strategy that can work is to have the amount owed reduced instead of settlement.. in other words agreements to waive finance charges can reduce the amount, that would still be paid in full. Also even if you have to claim some additional dollars you may still come out ahead... lets say for example you settle a $1,000 debt for $500 and thus have to pay tax on $500 additional income. Assume that at the most the additional tax the $500 would cost you would be $175 (35% taxrate). given this your total repayment cost would be $675. Still a savings of $325. considering most people with lots of collections are not going to be in a higher tax bracket, the additional tax would be less. In otherwords even if it is considered taxable, you may still save money. As others have said, and I agree if you can afford the settlement, do it, especially if you can get the CA or creditor to report it as paid as agreed.


lrhall41

Submitted by jj on Thu, 01/26/2006 - 16:05

( Posts: 1057 | Credits: )


Thanks shirley not one of my best ones, but only one i could find.


lrhall41

Submitted by jj on Fri, 01/27/2006 - 14:10

( Posts: 1057 | Credits: )