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     | Monday, March 06, 2000 - 07:22 am  Hello, I have been writing in the past on my on going battle with the 4 banks to clearing up my credit. Currently, MBNA has accepted my offer of 2,000.00 for a debt of 8,500.00 . Unfortunately, they declined my contingency to delete the trade line and will report the account "settled". They go on to say,"it will not damage my credit report and that they will not report inaccurate information to the National Credit Reporting agencies; however it serves to report accurately that the account balance has been satisfied and I no longer owe it." Does anyone have suggestions as to what approach would be best in countering his counter offer. I have valued the information on this forum for over a year and thank all for this dialogue. Thanks Nick. P.S. Learned something new regarding charge off's to which I now have three, I played lawyer and called each bank to find out what the scoop is. They responded with if its not on the credit report that a collection agency has taken over, its not been sold therefore not "really" charged off.
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| | Monday, March 06, 2000 - 09:13 am Counter with an non-disclosure agreement that states that MBNA will agree NOT TO REPORT ANYTHING FURTHER TO ANY THIRD PARTY ANY INFORMATION REGARDING THIS DEBT. You can then dispute the debt, MBNA will not respond, and it gets deleted in 30 days.
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| | Monday, March 06, 2000 - 02:36 pm Good job, you got a 20% settlement on this debt. First of all, a settled in full rating is a negative listing on your credit report, but the best thing about a settled rating is the ZERO BALANCE. Beware, your creditor will more than likely file a form 1099 claiming the remaining balance ($6,500) as "earned income". That right, you will have to claim this amount as income to the IRS. This settlement could cost you approx. $1,800 in additional taxes. However, if you can prove that you are insolvent, this amount is exempt. You will need a good tax attorney to prove that you are insolvent. After about a year, the creditor may not bother verifying the account (since it is settled, and the item will be deleted. Talking from experience
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| | Tuesday, March 07, 2000 - 05:25 am To nip the 1099 issue in the bud, either 1) include specific language that either the "correct" amount of the debt is $ 2,000 and that you are paying it in full, or 2) you are actually "buying" the debt for $ 2,000, or 3) the $ 6,500 difference is being considered a "gift". I WOULD NOT GIVE THEM A DIME UNTIL ALL THESE ISSUES ARE SETTLED - YOU WANT THE MBNA ENTRY REMOVED FROM YOUR CREDIT REPORT AND NO 1099's ISSUED. IF YOU HAVE TO, MOVE UP A LITTLE ON THE PRICE, BUT THESE 2 ITEMS SHOULD BE NON-NEGOTIABLE.
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| | Tuesday, March 07, 2000 - 07:30 am Hey Anonymous, trying to get a creditor to agree not to report to the IRS or consider any amount of a discounted debt as a gift is wishful thinking. You can play games with the creditor, but I do not know anyone willing to play games with the IRS. If the creditor agrees to your "non-negotiable" terms but files the form 1099, how do you enforce the agreement when the IRS "audits" you? The IRS sharks will simply tell you that a creditor can not consider a canceled debt as a gift. What will you do?
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| | Tuesday, March 07, 2000 - 08:53 am You tell the IRS that it was a gift. As proof, you show them the signed agreement by the creditor stipulating that it was a gift. Not to parse words, but a lot depends on what your definition of "settlement" is. If the settlement says that both parties agree that the debt is "really" $ 2,000 and that the creditor agrees (in return for payment of $ 2000) to "correct" the balance down to $ 2000 before applying your $ 2000 payment, bringing it to zero, then there is nothing to 1099. I suppose there is nothing to stop a creditor from agreeing to something, then blatingly violating the agreement. For that matter, he could agree to settle for $ 2,000, cash your check, then say "ha ha, you still owe me 8,000. Your only remedy in each case is to sue. To repeat my position, you can, via negotiations, agree that 1) the difference is a "gift" from the creditor to you, or 2) the difference was an overcharge which is now going to be "adjusted down", or 3) you are really "buying" the debt (and all rights to it). 1099'ing is usually the last-ditch threat from a collection agency to put pressure to settle. It puts not a dime into the creditor's pocket to 1099 you. If he wants money (and sometimes they don't want your money - I have heard that Sears will not settle a bad debt at any price), he will have no problem agreeing to terms, specifically when those terms do not "cost him" anything (i.e. agreeing NOT to disclose, NOT to 1099, to "call" the difference a gift rather than a forgiven debt, etc.)
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| | Tuesday, March 07, 2000 - 12:53 pm I question whether a creditor even has the power to agree not to 1099 a consumer. Whether we call it a "forgiveness of debt" or a "gift", it may be labelled a something different in strict accounting practice. It's a different language and I do not speak it. If it is imputed income regardless of what we call it in settlement negotiations, then it might not matter that the creditor gets no benefit from 1099s. The benefit might be that the creditor does not have the IRS come down on them. One of my clients has approx $100,000 in debt and he is settling with them. The creditors are obviously motivated to do what it takes to get paid lump sum settlements. And they have agreed on amounts. But EVERY one is refusing to agree not to 1099. They are more afraid of that than they are of not being paid. Maybe their fear is not justified, but it is motivating them nonetheless. Remember what Ernie Hudson said to Tom Berenger in the greatest movie of our generation, The Substitute. "Power perceived is power achieved." So maybe it does not violate the IRC if a creditor fails to 1099 a debt forgiveness. Or maybe it does violate the IRC, but cannot be policed as a practical matter. But the creditors seem to be afraid of something. Whether or not it's ignorant, that may be all that matters. Then again, maybe this is an isolated instance.
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| | Tuesday, March 07, 2000 - 01:11 pm Check out this link from the nolo press: http://www.nolo.com/encyclopedia/articles/dc/beware_irs.html. They are saying this is legal.
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| | Tuesday, March 07, 2000 - 01:13 pm I've been fortunate, perhaps, in that I have negotiated settlements and NEVER been 1099'ed. I've never even raised the issue. If 1099'ing was as big a "hot issue" as reporting wages to the IRS, then EVERYONE would ALWAYS 1099 - indeed, asking someone NOT to 1099 would be the same as asking an employer NOT to report wages to the IRS (you can still find a few, but not many). I don't think that is the case. Very few people 1099. If an employer insists on 1099'ing, then you are forced to add the tax liability (between 15 and 28% perhaps) of the "forgiven" amount as a "cost of settlement", and reduce the offer by that much -(i.e. orig debt of 5250, you want to settle for 1000 total and are in the 15% tax bracket - you would need to offer 1000 with no 1099, or only 250 if they are going to 1099 - that way the tax on the 1099 of 5000 would be 750, which would total 1000 out-of-pocket to you.) Voig - who are the creditors that are refusing NOT to 1099? Have your clients simply proposed buying the debts outright?
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| | Tuesday, March 07, 2000 - 01:32 pm Just to throw a monkey wrench in it, what happens if, let's say, my Uncle Joe settles a 5000 debt of mine for 1000 (without my knowledge or approval) because he "wants to help out his favorite nephew...can I still get 1099 even though I was not involved in the deal at all?
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| | Tuesday, March 07, 2000 - 02:22 pm A recent change in the law has mandated that all lenders must now issue 1099C's for all debts settled for less than amount owed if the amount forgiven exceeds $500.00 in value. This law took effect on 1/1/2000. We have a little over two month's worth of experience with it, so we're all a little in the dark. As Voigtkampff has pointed out just getting a 1099C does not necessarily make you liable for taxes on the forgiven debt. If the debt is a gift, you have filed bankruptcy or you are insolvent no taxes would be due. If the person wishes to avoid the tax liability they need to make one of those three defenses. They must either claim it is a gift, claim they filed bankruptcy or claim they were insolvent. I recommend that if anyone needs tax advice that they should consult with a CPA or tax attorney. I am neither of those.
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| | Tuesday, March 07, 2000 - 02:26 pm Thanks for researching this, Sean!
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| | Tuesday, March 07, 2000 - 03:21 pm I am consulting with a tax attorney about my 1099 ($800). Trust me, I am insolvent ! I will let you all know what happens.
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| | Tuesday, March 07, 2000 - 06:06 pm If you are insolvent you should include IRS Form 982. Please see Kristy Welsh's link above.
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| | Tuesday, March 07, 2000 - 07:13 pm Hey thanks everyone for your comments, I will let you all know what happens next as the saga continues. Nick.
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| | Friday, March 10, 2000 - 01:28 am HEY PEOPLE I HAVE BEEN CHECKING OUT,WHAT I HOPE IS SOME GOOD ADVICE ON CREDIT MATTERS WITH YOU GUYS. I HAVE TWO CHARGE OFFS ONE I PAID FOR IN FULL A MEASLEY 595.OO THAT I TRIED TO PLEAD TO GET OFF BUT THEY WON'T THE OTHER I JUST GOT THIS YEAR BECAUSE OF MY WIFE'S FINANCIAL SITUATION SHE WAS DISLOCATED WITH HER JOB,LIKE ALL GOOD HUSBANDS I TRIED TO PAY BILLS THAT REALLY MATTERED FIRST HOME,CAR,ETC.I EVEN TOLD THEM OF MY SITUATION STILL THEY HAVE A COLLECTION AGENCY,NOW TRYING TO TAKE ME TO COURT AND THE CHARGE OFF,CAN ANYONE HELP WITH SOME KIND OF ADVICE
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| | Friday, March 10, 2000 - 12:26 pm First and formost: PLEASE avoid typing in all caps, and use an occasional period. Commas are also nice, but don't use them too much. Second, offer the collection agency a payment schedule, and negotiate with them to either remove the reference from your credit report, or to agree to not disclose any information to a third party. If they agree to this, then you dispute the debt after you have paid it off, and it will drop off your credit report when they don't verify with the CRA. If they DO verify with the CRA, then you take what ever you got from them in writing, and you sue them for breach of contract. Make sure you get stuff on company letterhead. Make sure also if they are just representing another company (like who ever held the debt in the first place) that you get the same assurance from them in writing that they will not discuss the matter with any third party either.
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