Settlement Offers from Creditors

[GoingDown]

I know that creditors offer to settle for far less than what is owed on the debt, and the offer gets better and better as time goes by, but what about when a creditor gets a judgment against you? Do they still offer to settle for an amount less than what is owed on the judgment? Or do they demand the full amount of the judgment?

The reason I say this is that settlement offers are usually made to avoid going to court-- hence the phrase, "settled out of court". Once they have gone to court and won a judgment, are they as likely to settle for less than the amount owed anymore?

[suprdav2]

Most of the time.........they want full payment.

[FilingOnMyOwn]

Once they have gone to court and won a judgment, are they as likely to settle for less than the amount owed anymore?

Probably not. Now they have spend money on legal fees from the attorney and court costs to do this, so at this point they are most likely looking for every penny.

[GoingDown]

That's certainly not good news, but there's not much else I can do about it. They will get their judgment, but I have no intention of voluntarily paying them anything, unless they would be willing to settle for about 3% of what I owe them. They're charging me about 29% interest, plus $39 per month late fees, and $35 per month over the limit fees. There is no way in hell that I will ever voluntarily pay that. Over my dead body.

[newstart]

That is unfortunate but if you are working a job that you receive a pay check and taxes come out (not being paid under the table) the next thing they will do is put in a motion to garnish your wages. They can take up to 25% each pay period until you are paid in full.

[fellowpoorman]

Another thing to consider is that even though you settle for less than the full debt, let's say you owe $10,000 and settle for $7,000, then you must pay fed taxes on the difference, or $3,000, the credit card comps will report this to the IRS. So be prepared. It is considered income.

[fellowpoorman]

By the way , I may be on the wrong thread, but what states allow creditors to attatch to yor wages? specifically Connecticut and what %, any hlp??

[keepmine]

Tx, Both Carolina's and Pa. are the only states that don't allow wage garnishment. Fl. does not allow it if you're HH .

[no_it_all]

Another thing to consider is that even though you settle for less than the full debt, let's say you owe $10,000 and settle for $7,000, then you must pay fed taxes on the difference, or $3,000, the credit card comps will report this to the IRS. So be prepared. It is considered income.

Interesting, does that mean that everyone that does a Chapter 13 less than 100 percent pay back get a huge honking tax bill for the difference?

What about Chapter 7 ??? They must get really wacked with taxes if this is true. I have a <feeling> that this just may be an urban legend...Anybody know the tax code on this???

[SinkingFast]

All debts discharged inside of BK are not considered tax liable income.

Debts discharged outside of BK are considered tax liable income.

There is a way to file for insolvency to circumvent the taxes on the discharged debt income. But so far, no one on the Forum has reported successfully pursuing the insolvency course of action. One person has commented that they filed the paperwork, but the IRS has not yet ruled.

[no_it_all]

Yes, I found it:
When a creditor sends you form 1099-C, the IRS treats the unpaid debt as income to you, even though you didn't actually receive the money.

Exceptions:
1. The debt was discharged in bankruptcy BEFORE it was charged off by the creditor.
2. You were insolvent at the time the creditor charged off the debt.

The above is from the tax code. So, what does "insolvent" mean? More from the tax code:
In general "insolvent" means your total debts are/were more than the value of your assests (all your assests including money). If your debts are more than your assets, you are insolvent.

That is the code, it appears that most potential Chapter 7 filers will have nothing to worry about. Chapter 13 filers will have to make sure the debt wasn't charged off before the bankruptcy, which sounds incredibly likely to me. So, just because you had your debt discharged in BK, you can still be liable for taxes IF the creditor charged off the debt prior to the BK. Interesting. BTW, the form you need is IRS form 982 or even a letter outlining your insolvency.

It seems to me that most BK case could slide under by using the insolvency defense, thus avoiding taxes on the charged-off debts and not worry about if they were charged off prior to the BK or not.

[no_it_all]

<snip>let's say you owe $10,000 and settle for $7,000, then you must pay fed taxes on the difference, <snip>

In light of the facts, clearly not true.

[no_it_all]

<snip>All debts discharged inside of BK are not considered tax liable income. <snip>

In light of the tax code discussed, also not true.

[no_it_all]

Just to add a note:
While researching the above, there was ample evidence that creditors seldom even send a 1099-C form to the creditor (correction, should be debtor) or the IRS...take that for what it is worth.....

[no_it_all]

Thread has wandered over to tax responsibility of charged off debts..to get back on track here is something regarding wage garnishements:

The 25 percent wage garnishment is usually on your Net , not Gross. If wage garnishment is in your future, it might be a good idea to increase the amount of taxes taken out of your check....