Settling credit card debt - any advice/info?

[carisal]

LONG story short, I have a credit card through Bank of America that has not been paid on for awhile, the balance is over $12,000.

I got a letter in the mail offering settlement for the account. they are offering 70% savings ($8551.00)

sounds too good to be true ........ so has anyone here done this before?? you can PM me if you don't want to post it on the forums.

I do see it says the settlement will be reported for my taxes(form 1099c). what will the effect of that be? :shrug7:

[jonjaktez]

I've never done a settlement but if the bank is willing to offer you one then I'd take it if you have the money.

How it will affect your taxes is you will have to pay income taxes on the "savings" amount (what is reported on a 1099c).

On your credit report it will show that this debt was settlement, not paid off or paid in full.

[carisal]

It says I need to make all payments on time as agreed upon or the entire amount will be charged off......... do they normally ask for one lump payment (3-4000$) or spread it out in smaller payments? I don't have $3,000 + to pay it all off right now - but if they spread it over a year or more I could handle it ($350/month or less)

[CW&M Mom]

This is what I found

CHARGED OFF (CANCELED) DEBTS AND THE IRS | 1099C
If your debt has been written off by a creditor then you may receive a 1099-c form from the source. You must claims this amount as income on your taxes because you never paid it back- thus making it income. However if you "settle" this debt as "paid in full" with the creditor make sure you ask that they agree to the settled in full arrangement and not send the remainder as a loss to the IRS. If the creditor willingly accepts "less than" as "full payment" then make sure they agree not to report remainder. The creditor can refuse but usually does not. See exceptions below for more information on excluded debts.

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold. If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. If it is a business debt, report the amount on Schedule C or Schedule C-EZ (Form 1040) (or on Schedule F, Profit or Loss From Farming (Form 1040), if you are a farmer).
Form 1099-C. If a federal government agency, financial institution, or [COLOR=orange ! important][COLOR=orange ! important]credit [COLOR=orange ! important]union[/COLOR][/COLOR][/COLOR] cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is shown in box 2.
Interest included in canceled debt
If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest will also be shown in box 3. Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible if you paid it. See Deductible debt, under Exceptions, later. If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from box 2 of Form 1099-C. If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3).





Also is it Bank of America who sent the notice...or is it a collection agency??

[carisal]

Letter is from BOA, and says if I fail to contact them by Dec14 they may send to a collection agency or attorney

[meggers]

Yep, you will most likely have to pay taxes on it. I had some unsolicited forgiven debt & this would be considered the same. I remember I had to put the amount under "forgiven debt" on the tax return. I had to pay taxes on every bit of it after the standard deductible. Now, from what they told me at the IRS...if you can prove you have more debt than assets, they will not make you pay taxes. I think the term they used is insolvent.

[meggers]

I'm not positive Carisal, but I'm willing to venture that they'll want the entire amount cause they're most likely looking to balance their books for the upcoming tax season, so they'll probably want it all by Dec. 31st.

I would advise you to have it in writing that they'll take such & such amount if they have the payment prior to Dec. 31st, or I wouldn't do it. I would be paranoid that they would say it expired since they didn't get it by the 14th since they use that date as the cut off point in your letter, kwim? Then I would send it certified. But that's just me.

[carisal]

thanks -- I will go talk to our accountant this week and see what he has to say about it - so the taxes on it would be about the same amount as if I had earned that amount by working? Thats not too terrible - I just wanted to make sure they wouldnt be taking a huge chunk.... I will ask about what you said meggers, I don't think we have much assets(dont own a house and our vehicles arent worth a whole lot either) but I'd have to get the accountant to help me with what would be considered assets and debt for that. obviously not too worried about my credit right now but I'd love to get started on building it back up. I'd say my credit is already completely ruined

...Is it 7 years that it takes things to fall off a credit report?

[meggers]

Is that right? 1 - 5 measley cents? So, BOA is obviously willing to get her 30% before they sell it for 5% & take the loss on the books, huh?

Interestin...'

[carisal]

good info to have....... 5 cent on the dollar on my debt would be under $625. should I counter offer them $750?? LOL....... I may be able to do that and get it over with.