Question on settling debt

I have heard of companys sending you an income statement on debt that they have charged off and you have to file it as income on your income tax.

The forgiven debt in the settlement process is treated as an income. The creditor will send you a 1099c form which you need to fill and send it to the IRS for tax filing.

http://www.irs.gov/instructions/i1099ac/ar02.html#d0e189

According to the laws, the amount settled less than $600 apparently does not need to be reported.

There's a topic on 1099c in the link below.

http://www.debtconsolidationcare.com/collection-agencies/about15326.html

I also just read a site found on google as well and i had some more questions. It says that with debt settlement you pay the company while they negotiate. When you've paid the company (essentially have enough in your "trust" with them) that is doing the negotiation enough then they will send it to the credit issuer. It says that during this time you are still responsible for minimum payments to the credit issuer and insurance and late fees still add up. Essentially it said that the they will negotiate your debt down, but will not pay the issuer until you have the settled amount "banked" with them. It also said this takes a long time, and your accounts could go to collections at this time. Is this info true?

that should say interest not insurance!

I am not sure if that is how all debt settlement companies operate but that is what I have heard. It scares me to think of things going to collections and possibly facing court and judgments while in the process of saving enough to settle. My advice is to investigate different companies and find out what the procedures are before making a decision. I am sure someone else will come along soon and be able to give more advice.

I've also heard of people not receiving the 1099-c, and they erroneously fail to report the forgiven debt on their taxes, incurring hundreds if not thousands of dollars in penalties.

I believe some companies will try to drag on your debt during the settlement process by trying to dispute the amount due. Once the balance has been verified, the creditor may sue you...the settlement company is not likely to represent you in the courtroom. Settlement may work, but I suspect that a good number of people still end up with a judgement. JMO

If you do decide to go with a settlement company, do your research. Go to bbb.org and other searchable sites to check out their history. You can see if there were ever any complaints filed against them. You can also come here and post the question to see if anyone has heard of them or not.

Are there any debt settlement sites out there that actually make monthly payments to these accounts? or are they all once the settlement amount is available? I am checking into doing this myself.

Regardless of what anyone tells you, a 3rd party debt company will have a negative effect on your credit reports. Period. My advice is to secure a loan and then settle or enroll in a CCCS program but if securing a loan is not possible with your debt amount, weighing heavily on your scores then you have no other choice unless you can pay your debt down on your own then purchase a home.

The 2 3rd party options are settlement and debt consolidation. Settlement you will need to find a company without set up fees and will have your accounts settled pre-charge off. In most cases, settlements completed before charge off for individuals with high debt amounts, will benefit and actually improve their scores despite the late pays.

debt settlement done correctly is the quickest and most cost efficient way of settling your debts and in your case, will be your only option in order to purchase a home in the near future.

CCCS AKA debt consolidation will report your participation in this type of program and until you have completed this type of program, will remain on your credit report and you will not be given any additional credit including a home loan until your debts are paid.

These types of programs are typically 7-10 years and report the same exact way a ch. 13 is reported but ch. 13 may be able to reduce your principal and are only 5 years in length.

In my opinion as well as the IRS who will no longer issue a 501 3c to CCCS companies since they are nothing short of collection agencies disguised by a "non-profit" tax exemption. Its just a nice way of taking your money and you feeling good about it.

CCCS is also directly funded by the creditors themselves. If you are delinquent, your creditors will offer several options, CCCS is one of them. If the first few offers did not seem like much help, neither is CCCS in most cases. At one time, CCCS was a good service since banks such as Amex and BofA were offering 0% financing until the debt is paid. BofA and Citi from what I understand no longer even participate in a fair share and do not offer any interest reductions for the majority of CCCS programs. Amex is now at 15% also.

I hate to bash on CCCS but having been involved in this industry for many years and watching Oprah and Suze Orman promote these programs I have let the truth be known that they are not working for you. They are working for creditors.

Not all CCCS are the same. The majority are though and debt settlement companies charging their fees on a flat rate such as 15% of your total debt should be shut down and so should any other company charging set up fees in excess of you first months payment.

Settlement companies that charge 100% of their fees up front prior to providing the service are thieves. Logically, this makes no sense since it is crucial to settle your debts prior to charge off or at least those who sue at charge off and there are many who do. Debt settlement companies know this and yet, take all of your money for 6-12 months and leave you facing lawsuits with their pockets full and yours empty. Clients of debt settlement companies who are facing lawsuits are not covered by the DS company. The response you will get from negotiator is to find a local attorney on your own. Read your agreement. If your agreement states that if a creditor chooses to file a lawsuit to collect a debt owed by you the company advises you to find a competent attorney as they are not responsible for providing legal representation.

Anyone facing a decision of working with a 3rd party to handle their debts, do not make a decision out of impulsiveness. Take your time, do your homework and choose the right company before signing that dotted line because know that 9 out of 10 companies you are looking at will get you sued, possibly garnish your wages, lien bank accounts and property.

Be very careful. No set up fees is crucial. If you do not hear "we settle as many accounts as possible "pre-charge off" then run.
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In addition to the above post, I will help clarify some of the other questions posted on this thread since a) there are not many posters who have actual first hand knowledge on this site meaning, only hearsay as a client of one of these companies or in a sales pitch which are hardly ever near the truth and b) there are some very important concerns that will make or break you once a decision is made.

The OP mentioned contacting Superior. Superior charges their entire fee up front and on a flat rate basis. I mentioned earlier how companies have set up fees or charge a flat rate fee. Superior has both. I don't doubt that some people have had success with Superior but the main problem is this: When your accounts fall delinquent immediately, a decision is made to take action by suspending or closing the account. Once you have come near the 180 day point, a decision is then made on what method would be best to collect the full balance. The 2 decisions are a) sue b) use collections before filing suit in hopes you just give up the money easily. B is typical with lower debts. A is more common amongst debtors having high balances usually over 10k and owning property. However; A is inevitable.

The only way to prevent a judgment resulting in garnishments and bank/property liens is MONEY. But guess what? After shelling out your last 6 months of payments you have $0.00 to prevent a judgment and when you are served, you are left to deal with a lawsuit on your own meaning, finding an attorney, retaining the attorney and appearing in court. Superior will do nothing to help you. If I were in this position, I would not be pleased having paid them $1000s to have nothing done including sending the letters to cease and desist and change your address. A client with 30k in debt is charged $4500.00 or more for the "service" however; does nothing for 6 months.

In regards to tax implications, all banks who do not sell the debt to debt buyers will not send you a 1099. Some accounts settled in collections also will not get a 1099 . If you make it to actually settling, you will get a 1099 most of the time. You are required to pay taxes only if your liabilities exceed your assets. If this is the case you are considered insolvent and would file a form 982 (you can find at your local library) to prove insolvent and you will not be required to pay taxes on your forgiven debts. If you read your card member agreement, it clearly states that the only time a debt will be forgiven or a portion of the debt is if you could prove insolvent. Therefore, if you settled a debt you are considered insolvent. Of course, the credit card companies do not tell you this as they file a write off for your charged off account and get a tax break themselves.

In re: to paying your monthly minimums while also paying into a client trust account, this is not true. What this company is doing is covering themselves legally. No company can tell you to stop making your monthly minimums since it is advising a consumer to not pay their bills in other words, advising you to breach your contract. In fact, no bank will settle with you unless you are delinquent so this is not only not true but in my opinion deceptive advertising.

Companies who offer credit repair or credit dispute are regulated in such a way that it is nearly impossible to operate since the C.R.O.A. has been in effect. Credit Repair Organizations Act regulated the industry since ridiculous amounts of fees were being charged by companies to do the same thing you could do on your own and only take about 15 minutes. All companies who advertise this service claim to have the magic letters or work differently than other companies but they all use the same letters word for word disputing the accounts as "no knowledge of account" in hopes the bureaus do not get a response to you within 30 days or now 45 days and are forced to delete the item.

You could easily find the template online and copy and paste the creditor name and account number yourself and mail the letters yourself all in about 15 minutes depending on how many disputes you have. 10 disputes, 3 credit bureaus = 3 stamps at $1.11 and no more than a few minutes and the cost of a free credit report at annual credit report dot com. You could save yourself a good $500.00 doing on your own.

Offering credit repair is a wise selling point to some but I question how many actually make it to that point.

In addition to finding a company with no set up fees you also want to know that your highest dollar debt is settled first before the smaller debts are paid since the higher dollar debts are more likely to sue you and also charge more interest and penalties then your little $500.00 Capital one or gas card. Settlement companies will wait on the larger accounts for last so that they build fees and interest inflating the accounts and inflating their fees as well for those who charge a percentage of the amount saved once an account is settled.

My intention is not to single out one company to bash them. I used the name purely as an example. Everything in the 2 posts under guest in this thread is 100% the truth and what to expect working with this type of fee schedule and process of negotiation.

Someone knows what they are talking about.

Yes someone does know what they are talking about. I'm getting ready to settle my own debt. After consulting with an attorney I was advised that creditors do not want to talk to a third party, they want to talk to me and in many cases, they will accelerate collections if they are contacted by a third party.

debt settlement will be stressful, but so isn't being in debt up to my eyeballs.

I've done the math and I'm insolvent because my debts exceed my assets, therefore, if I receive the 1099C for cancelled debt as published in IRS publication 908, I will file the form 982.

I've been researching for six months and have been trying to find a quick way to settle this matter by looking at assets to sell, retirements to borrow against, and how I can save additional cash while I'm negotiating. I plan on waiting at least 120 days before I even start talking about settlement because you get the best offer from there to 180 days, after that you are in danger of being charged off and sold.

I was reading the post by "Guest" on Dec01, 2007, and I was needing help with finding templates to send to by credit card companies to reduce my interest rates. I have succeeded in reduming my apr on one card from 29% to 12% just by calling and agreeing not to have anylate payments, but ither companies are not so willing to work with me.

I was able to pay off 3 high interest cards by getting a personal loan by a local finance company. I paid off $10,000 for about a total of $10,500 over two years. I am in the process of doing this again. I found this to be the best way, but it's hard when you have poor credit.

"Yes someone does know what they are talking about. I'm getting ready to settle my own debt. After consulting with an attorney I was advised that creditors do not want to talk to a third party, they want to talk to me and in many cases, they will accelerate collections if they are contacted by a third party. "

This statement is not true by any means. A seasoned professional "3rd party" knows how to get around appearing as a "3rd party" debt company or has inside connections with the few creditors who will use more aggressive collections procedures if contacted by a 3rd party and the accounts charge off.

You stated "accelerated collection" which is wrong. No creditor accelerates the collection process meaning "sue upon confirming your involvement in a 3rd party program". With the exception of Chase and Citi no creditor will sue or make any other adjustment to their standard collection process pre-charge off. Only after the accounts charge off do the creditors have available options to pursue you for the debt. Citi and Chase have been known to sue sooner than charge off but this is rare.

This is why I stated having to settle the majority if not all of your accounts pre-charge off. If you consult a company that sells a program offering a "flexible payment plan" or from 36-50 months, you will get sued. Guaranteed unless you are capable of wiping out the most problematic creditors first and settle by priority not from the lowest debt first to the highest as most companies allow the higher dollar debts to settle last as they build the most interest and penalties which adds to fees paid to your debt company.

If you speak to a company who quotes you settlement percentages and a time line of when you will need to have a specific amount of money for settlements which is called a settlement schedule then you are dealing with a pro because they know when the best time to settle is going to be and how much they can settle for. If you are not given detailed information on how your accounts will be handled with individual settlement amounts per account, then you are not dealing with a pro.

The information you were given about working with a 3rd party is generic and I think everyone here knows that. The bottom line is that the majority of debt companies will get you sued. They either do not care about you other than getting paid or they are just overwhelmed with the process and do not know each creditors policies as far as what to send and who to send it to or those you only contact when you are ready to settle. This is the majority of the industry but there are some who do know the inside information on creditors policies who will provide a successful program.

That said, your attorneys advice was not good advice at all. The fact that he did not offer this service is a sign he does not know much about the industry therefore, advice from him is the same as anyone else. If you are lucky enough to have funds to settle pre-charge off and find a company that stresses settlements are made pre-charge off then you are guaranteed success since again, no action is taken regardless of working with a 3rd party or not as long as the accounts are settled pre-charge off. Keep in mind, even if you can not settle all pre-charge off but the company settles the majority of your accounts pre-charge off, then chances are, your most aggressive accounts will be settled first and the charge off accounts will be harmless to you.

Unfortunately, finding a company that settles pre-charge off and actually having the money to settle pre-charge off are 2 very difficult things.

lostindebt stated settlement on your own. In my opinion, you are more likely to be sued working on your own over hiring a company because you do not know how to press the right buttons with your creditors in order to make things go smoothly. Yes, creditors may take a different route if they find out you are involved with a 3rd party but what he didn't tell you is that one wrong move on your own will have an adverse effect on the settlement outcome and without the knowledge of a professional in the arena of debt settlement where will you turn then to fix what mistakes you have made? Besides, 3rd party companies are aware of the fact that some creditors take a different approach to collect knowing a 3rd party is involved therefore, with even little experience, proper precautions are made to avoid those pitfalls with select creditors. When you speak to a company they will provide instructions on how to handle calls, what to say, change phone numbers or if they have the calls sent to them and your mail forwarded then you have nothing to worry about. If your attorney did not offer to settle your accounts for you then he knows nothing about working with creditors to settle accounts. Most do not. Your creditors want to speak to anyone who is going to pay them. They can care less who is on the phone as long as a settlement is being arranged. Not to mention the fact that someone who settles debts every day will be able to negotiate a much lower settlement than what you could do on your own and you must also consider the fact that you have one account or two accounts with each creditor where a company settles many at one time. The more debt you settle at once, the lower offers you will get from your creditors. What may be your biggest problem is that some creditors will not settle with you at all since a charge off is a tax write off and if they feel they have a chance at collecting the full balance they will rather get the write off and sue after the account charges off to increase their profits. A negotiator knows who and when to call to secure settlements. Seems to me that your attorney was talking you out of hiring a debt company and counting on you folding once you are faced with dealing with the creditors on your own which will be a rude awakening and he knows that. He also knows that the esq. on the end of his name also has people putting too much stock in their word.

If your home needed to be re-wired or your car needed a new transmission installed, would you consult a doctor and plumber or would you go to the source or just handle it on your own? I know what I would do.

To give you an idea, there are some companies like freedom debt relief who do not accept Citibank and B of A accounts. They at least admit their inability to settle these accounts. There are many who take on these difficult creditors and have no business doing so since they too cannot settle these accounts. Then you have some who not only accept these accounts but offer guarantees to settle for amounts as low as 20-25% or there are no fees. I called this company to question them on such a bold guarantee and requested copies of settlement letters reflecting these amounts and to my surprise, I received 10 copies within the hour and each contained the fax confirm receipt from a number I verified as a B of A fax number. Point I am getting at is that there are many levels of expertise for negotiators. You will know within the first 5 minutes if you have a fly by night outfit or one with the most difficult bank in the US wrapped around their finger.

Handling accounts on your own may be the way to go for some if they have a minimal amount of debt and have it in them to negotiate with the element found in collection departments. If you have 30-50k in unsecured debt to negotiate, you have your work cut out for you but it is possible with guidance from a professional. Anything more than 75k its a safe bet you will not get through your entire debt list or by chance you do settle all accounts, you will end up paying far more than necessary. Someone with substantial debt knows the risks they face and 99% of the time hire a company to handle. Its just not worth the risk of failing especially half way through your list of creditors and wasting all the money you had and still ending up in Bankruptcy court. People with under 25k in debt should try all alternative routes on their own to manage their debts.

i would love to know what company guaranteed 20-25% of the outstanding balance. i think every single company i talked to wanted their percentage up front or paid over an 11 month period.

WOAH! i'm glad i used the SEARCH BUTTON! this needs a BUMP! for us noobies!

i almost picked a "Fly-by-Night" company that has been "Settling Debt" for over 3 YEARS NOW!
-instead i went with one that has been helping others for over 20 YEARS! with tons of good stuff at the BBB.com!
-i dont want to say who, because it may get deleted!
SO DO SOME SEARCHING and Pick THE BEST Company you can find if you want to Go the debt consolidation way (like me!) :wink:

I am not interested in navigating these waters without some help from a settlement company and would like some first-hand referrals to the kind of company that the Guest post on 12/7 referenced. Any help would be greatly appreciated! Thx.

Reading through the posts I find myself wondering how anyone reading this can determine what is true and what is false. Just because someone types a multitude of information does not necessarily mean it is the truth. To keep it short, there is no guarantee to be sued or not to be sued. If your accounts are delinquent there is a possibility. As a debt collector, and now working in the consolidation industry, the balance on an account, whether or not you are employed, and whether or not you own property is supposed to be a factor in suits on debts. BUT IT IS NOT! You read that correctly. Consumers with $500 in debt are sued while consumers with $100,000 credit card accounts are not sued. There is no rhyme or reason and there is no statistical evidence to show that one consumer will be sued and one consumer will not be sued. You have unscrupulous banks and collection attorneys who will sue at will, no matter how insolvent a consumer is. I've seen consumers sued with SSI, no property, no means to pay the account, and no future means to pay the account. Then i've seen business owners with multiple properties not be sued. Again, there is no rhyme or reason. Remember, if you are delinquent, whether it's one day late or 5 years late, you run the risk of possibly being sued. A good credit counselor or debt settlement company will work out an arrangement with the collection attorney.

Any reputable debt settlement company will be a member of USOBA or TASC (The Association of debt settlement companies). Both of these are industry trade groups for the debt settlement / debt negotiation industry and both groups are working with the various state agencies to have the debt settlement world regulated so that these fly-by-night companies do not get away scott free.

A side not, not all debt settlement companies charge their fees upfront. There are companies out there that actually will charge an enrollment fee but the bulk of the fees are paid when each account is settled, and the fee is based on how much you save on the account. With this fee structure, the consumer is actually paying for the services they receive (the actual savings on the account), instead of paying a flat fee all upfront. The problem with the flat fee all upfront is that the company has no reason to work on settling the accounts for as little as possible. They have already received all of their fee so they don't care whether you settle at 80% or 20%. They have been paid.

well if you did talk to a consultant who knows alot about debt settlement they would have mentioned that if you did get taxed we can send an 982 form which makes it harder for them to go after you.. if you want more info feel free to contact me..rico@alreadydebtfree.com or visit our site

sifxpert guarantees 25% on some accounts. BofA I know for sure. Overall though, he has a 55% max settlement amount and also does not charge fees up front.