BofA just called and offered to settle: Question

[Lajazz947]

The offered to settle $70,000 of debt for .30 cents on the dollar, paying it back in 5 months.

By law they have to issue a 1099.

He was pressuring me pretty hard but I kept on telling him that this is a good deal but with $220,000 of unsecured debt I would have to come up with $44,000 just to settle with everyone at .20 cents on the dollar and then deal with a huge 1099 issue.

He did not really bat an eye at .20 cents on the dollar since the alternative is a write-off on a Bk and it does make me think that .10 cents on the dollar is possible.

I am probably filing in October so I have some thinking to do.

My issue is whether or not settling like this is as bad or worse than BK.

Thoughts?

[treehugger1]

Here is my take for what is is worth. If you know you will eventually file for BK, then you will probably not gain anything long term by paying on a negotiation short term. If you think you can handle all your debts via negotiation, then you have a chance at avoiding BK.

The other issue is that you might negotiate $.20 or $.10 on the dollar and once you have paid this amount, you can expect to receive a 1099. You might still be ahead at such a point, but what happens if you wind up filing for BK and now owe the IRS taxes on forgiven debt?

I have also received 20% offers from BOA but decided against it, as I don't wish to make a potential future BK worse by pulling the IRS into the fray.

If you are at the 20% offer stage, then you are probably only a few months away from the debt being sold to a JDB. Imagine what they sell the debt for if they are willing to settle with you for 20%. Something to think about.

You could wait it out and see if you could get $.05 - $.10 on the dollar. The issue is whether the JDB can issue a 1099. There is some debate on this issue, particularly if the JDB is the owner of the debt. (They probably did not buy the debt at 100%), so how can they send a 1099 for 80% - 95% of debt owed to original creditor.

The last issue is one of whether or not you are insolvent at the time the 1099 is issued. Under IRS guidelines, you may not be accountable for the 1099 debt forgiveness. You might speak with a CPA and get their sense.

Tough call.

[Keebler]

They made a $0.10 offer to me and they sounded dead serious and somewhat desperate for me to settle. If I had the cash at the time it would have made the question more difficult but I really didn't have a choice. Part of me felt like it could have been a trap to see if I was really broke like I claimed.

It was my biggest single debt and I had a somewhat large balance transfer on that account in the not too distant past that I was kind of worried about.

Needless to say, they were one of the few that sold my account to a third party and it happened right after the $0.10 offer so I figure it must have been legitimate.

For me, it was a releif to have the account sold because the JDB is far less likely to file an objection on the basis of any transactions.

Strangeley enough I had another (much smaller) account with them that they never sold. It looks like the big balances get treated this way and the smaller ones don't.

[Lajazz947]

Here is my take for what is is worth. If you know you will eventually file for BK, then you will probably not gain anything long term by paying on a negotiation short term. If you think you can handle all your debts via negotiation, then you have a chance at avoiding BK.

The other issue is that you might negotiate $.20 or $.10 on the dollar and once you have paid this amount, you can expect to receive a 1099. You might still be ahead at such a point, but what happens if you wind up filing for BK and now owe the IRS taxes on forgiven debt?

I have also received 20% offers from BOA but decided against it, as I don't wish to make a potential future BK worse by pulling the IRS into the fray.

If you are at the 20% offer stage, then you are probably only a few months away from the debt being sold to a JDB. Imagine what they sell the debt for if they are willing to settle with you for 20%. Something to think about.

You could wait it out and see if you could get $.05 - $.10 on the dollar. The issue is whether the JDB can issue a 1099. There is some debate on this issue, particularly if the JDB is the owner of the debt. (They probably did not buy the debt at 100%), so how can they send a 1099 for 80% - 95% of debt owed to original creditor.

The last issue is one of whether or not you are insolvent at the time the 1099 is issued. Under IRS guidelines, you may not be accountable for the 1099 debt forgiveness. You might speak with a CPA and get their sense.

Tough call.

Thanks. I was actually thinking the same thing about asking my CPA since I have about a 0 net worth after taking my house's worth and mortgage into account.

another question is about credit. Does a BK look any worse than these negotiated debts especially after a charge-off?

[13bound]

I Have Read Alot Of Your Post.................

The offered to settle $70,000 of debt for .30 cents on the dollar, paying it back in 5 months.

By law they have to issue a 1099.

He was pressuring me pretty hard but I kept on telling him that this is a good deal but with $220,000 of unsecured debt I would have to come up with $44,000 just to settle with everyone at .20 cents on the dollar and then deal with a huge 1099 issue.

He did not really bat an eye at .20 cents on the dollar since the alternative is a write-off on a Bk and it does make me think that .10 cents on the dollar is possible.

I am probably filing in October so I have some thinking to do.

My issue is whether or not settling like this is as bad or worse than BK.

Thoughts?

don't take this wrong, but sometimes it sounds like you are playing a game with your creditors. if you are at this point, it's not a game. your credit is crap whether you file or not. if you wanna play the settlement route then at least use it to your advantage as far as the 1099 goes, meaning don't settle all in one year, try to spread it out if possible on different tax years so it doesn't kill your azz in taxes.

[epiphany]

Thanks. I was actually thinking the same thing about asking my CPA since I have about a 0 net worth after taking my house's worth and mortgage into account.

another question is about credit. Does a BK look any worse than these negotiated debts especially after a charge-off?

Not wanting to sound harsh, but why are you worried about credit at this point? It's already hosed and you can't change that. Your focus should be getting yourself out of this mess right now. Worry about cleaning up your credit later.

I have yet to hear anyone say they made all these settlements, they got 1099'd and now life is grand.

Honestly, I don't think settling will make much difference if any at all. However, BK could make a difference years later, when you have this behind you sooner than you would have if you hadn't spent so much time exploring "other" options.

Just my thoughts. Good luck.

ep

[chloe0724]

Just out of curiosity, how would you be able to pay them a settlement if you are preparing to file for BK in Oct? I wouldn't think you would have that much money on hand.

[Lajazz947]

don't take this wrong, but sometimes it sounds like you are playing a game with your creditors. if you are at this point, it's not a game. your credit is crap whether you file or not. if you wanna play the settlement route then at least use it to your advantage as far as the 1099 goes, meaning don't settle all in one year, try to spread it out if possible on different tax years so it doesn't kill your azz in taxes.

No offense taken whatsoever. I actually had not thought about the 1099 issue being spread out over years.

As one reply wrote I am not about to drag in the IRS as a creditor to avoid paying others.

THAT is smart thinking and I did not think about that either.

I am not playing games with the creditors and if I had the money I would pay them but at the same time if paying them has the same effect as a BK at this stage in the game I would just as well keep my kids in private school and playing organized sports (which costs money) with their friends rather than pay creditors.

If you have kids I am sure you understand.

[HHM]

No offense taken whatsoever. I actually had not thought about the 1099 issue being spread out over years.

As one reply wrote I am not about to drag in the IRS as a creditor to avoid paying others.

THAT is smart thinking and I did not think about that either.

I am not playing games with the creditors and if I had the money I would pay them but at the same time if paying them has the same effect as a BK at this stage in the game I would just as well keep my kids in private school and playing organized sports (which costs money) with their friends rather than pay creditors.

If you have kids I am sure you understand.

Yeah, but at the same time, think about what you are teaching your kids about financial management. Ends justifies the means, when you DONT have the means. Try reading the Millionaire Next Door. Are you going to bail out your kids when they file BK. This may sound harsh, but its the truth, if you can't teach your kids to go without and learn the value of the dollar, they are going to end up at this forum in the future.

[Lajazz947]

Just out of curiosity, how would you be able to pay them a settlement if you are preparing to file for BK in Oct? I wouldn't think you would have that much money on hand.

I would have to borrow money from family. Not what I want to do.

I guess I am just trying to avoid BK as much as possible.

[Lajazz947]

Yeah, but at the same time, think about what you are teaching your kids about financial management. Ends justifies the means, when you DONT have the means. Try reading the Millionaire Next Door. Are you going to bail out your kids when they file BK. This may sound harsh, but its the truth, if you can't teach your kids to go without and learn the value of the dollar, they are going to end up at this forum in the future.

I don't agree. My BK is all about a lesson learned at a very high price.

If you remember I was defrauded of about $275,000 for which I am litigation for now.

I was very financially responsible before then and I lent money to a former friend who screwed me and about 20 other people, many in my church.

I will teach my kids to be wary, to check things out, to save money and to NEVER use credit the wrong way.

I don't think that my 5 year old should skip out on little league because I screwed up.

Like any 5 year old he asks for the world every time out and we say no. He needs to earn it.

My 22 year old has two jobs, just bought his own car, moved out and is in school so he learned from my lessons a long time ago.

I just screwed up and trusted a friend, went without income for four months, had large medical bills due to a newborn (5 months) and now find myself in this predicament.

Just the same I do see your point. it just doesn't apply directly to me.

[HHM]

But the wider point is, that type of thinking is the slippery slope (my kids shouldn't go without, just this once, I deserve a vacation, etc etc). Perhaps you have (or had) the income to support it, but most people who end up in BK didn't. If you can budget to afford it fine, if not...