pay-off consequences

[samruba]

Wife just talked to a couple of the credit card companies we have debt with. In chatting with them and agreeing on a lowered "settled" amount, the agent mentioned something to her that she wasn't sure about and not comfortable with;

1. they mentioned the difference in outstanding principle and the settled amount it taxable income

and

2. Agreeing with the amount, once reported to the credit bureau, i.e. Equifax, etc., it will decrease your credit score instead of, in my understanding, increasing your credit score because of overall lowered debt.

Any of this make sense or is it a scare-tactic?

[chane]

Yea, it is taxable as it is looked as earnings by the IRS. It will also make the account negative, if it's not already.

[debtexecutioner]

SamRuba,

Chane is right that you can be taxed on a settlement, UNLESS as part of your settlement agreement you demand that the credit card company not issue the 1099-C.

A "settlement agreement" is not a charge off or "debt forgiveness." Don't let the credit card bank pull that one. Because then they "double dip" - settle and take it as a tax write off.

I actually teach my members how to avoid the 1099-C trap when settling with a credit card bank. Also tell them up front that you want correct notations on your account when reported "paid as agreed" or something similar. And then SamRuba, get it all in writing! If they don't want to send you a letter, you take the initiative and lay it all out. If they breach the agreement, they can be held legally liable.

Sara Goodman
DebtExecutioner:cool: