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     | Monday, August 21, 2000 - 04:25 pm  I just settled with everybody's favorite creditor, FNANB (aka CIrcuit City) for a collection of 275 dollars instead of 1000. Anyway, they sent me the letter agreeing to the settlement, but threw in the point of issuing a 1099 for the difference. What is this? What am I gonna pay in taxes for a 6-700 dollar 1099? Can I get them to NOT do this? What do I do. I NEED this off my credit. They won't do it even if I settle. They feel they are being MORE than fair (Mr. so and so says he isn't out to "BREAK ME", his words). I tried what everybody here recommends (trying to play hardball on the terms of settlement). So what should I do?
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| | Monday, August 21, 2000 - 04:49 pm The new law requires creditors to issue a 1099 if an amount is forgiven in the amount of (I believe it is) $600 or more. If you look through the threads here you can probably find the link to it. Perhaps for the $275 you can get credit for $874 off the collection? That'll be $599 worth of 'forgiven' debt which should let you avoid the 1099 requirement if you negotiate for that...
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| | Tuesday, October 10, 2000 - 10:53 am Here's what confuses me: A company charges off an account. You now get a 1099-C. What right do they have to sue you for the debt once they've gotten the tax relief from it? Do they pay the taxes back? I'm confused. -Dave
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| | Tuesday, October 10, 2000 - 06:34 pm Dave, I moved your posting over here because this is really an important topic. I don't THINK they can sue after issuing the 1099. Has anyone experienced any collection efforts on debts that were forgiven? Also, I'm wondering whether the creditors issue the 1099 for only the principal amount, or the total owed at the time of chargeoff? Can't the debtor write off all the interest ever paid, on this particular or ALL accounts, as that's what led to the 1099, like a business expense? When you're an independent contracter, you get to write off your tools and truck and all those related expenses .... Does the insolvency tax exemption still exist? I remember when short sales were hot, many tax lawyers stated that if you were insolvent, even if you did NOT file for bankruptcy, no taxes on the amount forgiven were due.
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| | Wednesday, October 11, 2000 - 04:14 am Both of my largest debts, AMEX and a bank loan, are both listed as chargeoffs. AMEX's goes so far as to say "P/L Writeoff" in the notes. From what I'm told, I can expect AMEX to attempt to sue me any day now. I have no clue what the laws are about this. It's being discharged in ch7 anyways. -Dave
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| | Wednesday, October 11, 2000 - 02:06 pm AmEx can NOT sue you, that's why you may have heard the term "being under bankruptcy protection." Just make sure they KNOW about the filing. You also won't have to worry about any 1099s. That's one more reason for discharging instead of just letting lenders charge off the debts.
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| | Wednesday, October 11, 2000 - 06:54 pm Well, no, I understand that they can't sue me now, trust me, of all the things I researched, that was one of the very first ones :-) I'm just saying that had I *not* filed, they would be suing me any day now (now that it's been about a year since the chargeoff). I was just curious as to whether they *could* sue me after charging off the debt and issuing a 1099-C... Just a matter of curiousity, not reality :-) -Dave
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| | Thursday, October 12, 2000 - 03:38 am There seems to be a lot of confusion between a chargeoff and the procedure by which a creditor issues you a 1099C. Just because a company charges you off doesn't mean they're going to send you a 1099C. Most chargeoffs are sold to collection agencies and the collection agency will try to convince you to pay full money for the debt they bought for 30-40 cents on the dollar. Only if the debt is forgiven or cancelled would a 1099C be issued. In that case there is no more debt and your credit profile should really be updated at that time away from chargeoff to something else. Perhaps "Settled for < Owed" or "Paid Chargeoff" but the bottom line is that once the 1099C is issued your credit profile should show $0 owed because the debt has been cancelled.
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| | Thursday, October 12, 2000 - 07:44 am So basically, unless one decides to SETTLE a debt and make a payment, there is no income and no 1099C? Logic at work ... pay on your debts and get taxed on income! I guess that's a good reason NOT to pay your debts at all or to file bankruptcy, if you can't pay in full.
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| | Thursday, November 02, 2000 - 03:45 pm Chargeoff seems to mean anything from "we no longer have this account but someone else does" to "we still have this account and and you are a bad person." A creditor has to cancel all or part of the debt to take a deduction on its income taxes for the amount uncollectible. This means they didn't sell it to someone else to collect because they would have received value (if they sell it for some percentage then the rest may or may not be canceled, if they have an agreement they can get the debt back then they do not issue a 1099. If they have sold the debt lock stock and barrel then they have to issue a 1099 for the difference. This is in an IRS Rev Ruling somewhere.) When the creditor has cancelled or written off the debt completely, the debtor has received relief from the obligation to pay anybody at any point in time. It's over. It's as if they just got $600.00 in their pocket because $600.00 went off their liabilities sheet. The IRS categorizes cancelled debt as "income" because the debtor is now free to spend that money (never mind that the debtor may have many other claims on his money). This is why it is subject to "income tax." You may not agree but they get to make up the rules... ;) Any amount cancelled or forgiven off the whole is "income." I have seen people claim they can have a settlement agreement between creditor and debtor to "recharacterize" the amount owed, to a smaller amount. Ie, there was an "error" in the amount of the account. The problem with this is if IRS finds out it wasn't really an "error" in amount and it was a settlement agreement then they penalize the creditor as well as the debtor, for lying and conspiracy for tax evasion. The rule in taxes is if it walks like a duck and quacks like a duck, it's a duck. You can't say it's not a duck so both sides can avoid paying IRS. If this were legal then everyone would do it and noone would have to pay taxes ;)
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| | Saturday, November 04, 2000 - 05:29 am We've had a posting here about a $200 loan that turned into a $2,000 collection. It's MY opinion that only forgiven principal is taxable income. All other fees such as late/over limit/collection fees and INTEREST are NOT income and often a large part of the total owed. Just because it's a write-off to the bank doesn't mean that it's income to the debtor. If anyone has any actual code sections or rulings I'd appreciate it.
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| | Saturday, November 04, 2000 - 08:13 am I like the new 1099 law. It is one more incentive for people to pay. Just yesterday I sent out a few notices on people that they had to pay me something by Christmas or I'd 1099 then and they'd end up having to pay the IRS. One of them agreed to pay a $1,500 debt to avoid that and sent me a payment of $25. Anything is better than nothing.
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| | Sunday, November 05, 2000 - 12:11 pm Christine- In response to your post of 10 Oct 00, YES Fleet Bank has attempted to collect the balance of a settled debt TWICE. There was no liability on their part under the FDCPA because the FDCPA does not include original creditors in the definition of "debt collectors" pursuant to the statute.
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| | Sunday, November 05, 2000 - 05:36 pm Patrick A debt collector, by definition, is anyone who regularly collects on debts. This would include 1st party debt collectors. If you have documentation regarding the settlement agreement with Fleet, they have no business contacting you. And they are required to prove it's validity.
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| | Monday, November 06, 2000 - 04:11 am The original creditor is not subject to the Fair Debt Collection Practices Act. That doesn't excuse harassment, but Patrick is very right when he mentions his difficulty in keeping them within the bounds of propriety.
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| | Monday, November 06, 2000 - 06:23 am A debt collector, by FDCPA definition, is anyone who regularly collects on debts.
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| | Monday, November 06, 2000 - 05:09 pm From the FTC Website, "A debt collector is any person who regularly collects debts owed to others." In fact a salaried attorney that collects debts on behalf of his employer is EXEMPT from the Fair Debt Collection Practices Act. Also specifically excluded by the FTC Commentary are A credit card issuer that collects its cardholder's account, even when the account is based upon purchases from participating merchants, because the issuer is collecting its own debts, not those "owed or due another."
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| | Monday, January 08, 2001 - 10:25 pm What about an account that was charged off in 1994? Can this come back to haunt me when the 7 years has almost expired? I only have a few more months before 2 charge-off accounts will fall from my report. One creditor was charged off on 04-94, and turned it over to a collection agency on 02-99. The collection agency is reporting on EFX only, and is reporting the correct date of last activity. I would assume even though this account was turned over to a collection agency, that it will still be removed in a few months. They haven't reported since 03-00. I am so close to this account being off of my credit report, and am getting a little nervous because it was a 1700.00 charge off. The original creditor isn't even on my credit anymore.
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| | Tuesday, January 09, 2001 - 05:32 am Those accounts should fall off with no problem. The thing you need to worry about is them selling it to someone else and it getting re-dated. Not legal, but that seldom stops some companies. And it may take years before it resurfaces. Keep you guard up.
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