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I finally did it!!! Is this settlement offer legit?

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Hi there,

Spoke with Discover yesterday. I had a 5K balance that turned into a 7K balance (thanks, James) with fees, etc. that I think I have managed to settle for $3200. Thing is, I have never done this before (James screwed me and stole thousands, having done nothing to earn it while wasting months and months doing jack) so I am a bit skeptical that I will be in the clear once I pay it.

If they provide me a letter that states that my obligation to Discover will be settled-in-full upon receipt of the funds, does this mean that they will not attempt to collect the rest of the debt? Or sell it to a third-party? Originally the rep tried to get my bank account information BEFORE agreeing to fax the letter, which I vehemently opposed (as my trust is now non-existent, after the Lombardo fiasco.) I finally convinced her that in light of what I had been through with James, I needed something official in writing. She agreed.

I then asked the (very nice) manager if they could add something to their settlement letter detailing that Discover will not sell the remaining debt, and she said that all letters are standardized and that while it will state that my debt to Discover is satisfied, it will NOT specifically state that the debt will not be sold, etc. She said I will be 1099 on the forgiven amount, which makes me feel a bit better for some reason (since maybe they can't collect on a legitimately forgiven amount).

She did say that Discover is a reputable company and they "don't work that way," meaning that I have nothing to worry about regarding further collections activity.

For those of you who have settled successfully, can you shed some light on this? The reps also stated that the account was going to be turned over to an attorney at the end of the month if it is not settled before then, and obviously I want to make sure that this does not happen.

I wish I had tried to do this on my own before hiring James. The companies seem much more willing to negotiate with me than I had thought they would be, which is probably why I feel so suspicious that once settled-in-full, my accounts will actually be satisfied.

I hope James gets what he deserves--but in the meantime, he lost out on another $5K in fees that he could have earned from me if he had just done his GD job.

Thanks for any advice.


Layla, that's good news for you! I don't have any experience with settling, but I would think that if they say your debt to them is satisfied, that should prohibit them from selling it. It also seems to me that if they were in the habit of doing that, we would be reading posts to that effect on these boards, since I know that other people have also settled with them.

Sub: #1 posted on Sat, 08/09/2008 - 12:58

alias1958 alias1958

(Posts: 1230 | Credits: )

Unfortunately, unless it specifically states that they will not sell the remainder, then I would expect the letters from the CA's for the JDB who purchases it to start arriving w/in 90 days of your settlement. Also, expect the 1099C that Discover will be required by law to send you.

Sub: #2 posted on Sat, 08/09/2008 - 13:04

Moderators Cum Industry Expert
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If I have a letter stating that the obligation is settled, wouldn't that be enough to prove to the CA that they don't have a right to collect on the debt? Or do they?

How can Discover 1099 me on an amount and then collect $ on that same amount from someone else (CA)?

Why would anyone bother settling a debt if the debt can then be sold to a third party?

I feel like I am missing something here.

Sub: #3 posted on Sat, 08/09/2008 - 13:13


Here's the link to the IRS web page concerning the events that trigger a 1099-C:


nowhere in the IRS instruction does it specify that reporting the debt as forgiven means that it cannot still be collected or sold to someone else and collected. The General Counsel of the IRS has pretty explicitly stated that the issuance of the 1099c does not prohibit subsequent collection of the debt. Unsaid, but I think, logical, is the notion that a subsequent collection would trigger an amended or corrected 1099c to reflect the subsequent event.

Sub: #4 posted on Sat, 08/09/2008 - 13:21

Moderators Cum Industry Expert
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OK, thanks again for the reply. But now I am confused...I thought that a letter from the OC stating that the debt was settled and that I had no further obligation to them meant that the debt was satisfied?

Do standard settlement letters actually stipulate that the bank wont sell the debt to a third party?

Can someone who has settled a debt tell me what the "appropriate" course of action is with regard to a settlement offer, payment, etc.?

Thanks so much.

Sub: #5 posted on Sat, 08/09/2008 - 13:50


Long as the letter states the debt is settled in full,the debt is paid.If a ca comes after you for balance show letter & tell them to take a flying leap. You will receive a 1099 for any debt forgiven over $600.00.This must be claimed as income on your taxes unless you meet the irs's standard of being insolvent.

Sub: #6 posted on Sun, 08/10/2008 - 06:45

cajunbulldog cajunbulldog
(Posts: 4859 | Credits: )

The IRS has a ( form 982 ) available for certain hardship situations that may exempt you from this tax.

Sub: #7 posted on Mon, 08/11/2008 - 07:32

mobile0311 mobile0311
(Posts: 1817 | Credits: )

You guys are a great wealth of information--thanks again for all the advice.

Sub: #8 posted on Mon, 08/11/2008 - 08:15


As long as the letter says Settled in Full on company letterhead and is signed then you are set. I can't promise that someone may not eventually come along and try to collect on a paid debt but at that point you just send them a copy of the letter and the check. Make sure you keep a copy of both of those forever by the way just in case someone comes along. You will need proof that you paid. If you settle a bunch of debts then I guarantee someone will eventually come along for some of them. I know I have had it happen.

The 1099 is tax related just in case you didn't understand it. You will be taxed on the amount of debt the CC says was forgiven. This means you will be taxed on 7K - 3200 = $3800 at your tax rate which is probably around 15%. You will have to pay the IRS an additional $570 on this debt. That is not bad though. You settled a 5k debt for $3770 or 75%. The CC lost $850 on the deal after the tax benefit but that does not include any money they made while you were actually using the account.

Sub: #9 posted on Mon, 08/11/2008 - 09:01

Moderators Cum Industry Expert
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The tax implications do not seem so bad after all....

Can you explain to me what it means to be insolvent? Right now, I have about 60K in cc debt, 25K in student loans...assets are probably around 66K with car, house, jewelry, savings.

Would the IRS consider that insolvent? Do they look at mortgage and student loan debt with respect to insolvency, or just savings vs. unsecured debt?

Thanks again for all the help!

Sub: #10 posted on Mon, 08/11/2008 - 12:08


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