"settled" on my credit report

[dpreviti]

Hey all,

I got my self way under three different cards, one a MBNA account has offered 4.5K / paid over 6 months on a 14K card. BUT when I asked them if the credit report would be marked paid he said he could not do that, but it would be marked "settled" by the company which is much better then being written off as bad debt and sent to collections.

I Have been going through the forums for a while now and haven't seen any where that explains what "settled" means. Can anyone help? All the FAQS say they should mark it paid but he said that is impossible.

.33 cents on the dollar is low for a first offer isn't it? Any advice would be helpfull.

Thanks

[SleeplessInMI]

They should mark it as "paid as agreed" if I am not mistaken and that looks better than "settled." If they do end up marketing it as "settled" maybe you can dispute it with the agencies?

[SinkingFast]

Are we talking about debts and payments outside of BK?? If so,....

I may be wrong, but,.......... Any difference between what you actually owe and what you actually pay becomes taxable income for you.

If you owe $14000 and you and the CC company agree to "settle" for a payment of $4000, then the $10000 becomes taxable income to you.

That's for debts settled outside of BK.

Have you filed BK and the companies are coming after you to settle, or are you negotiating a private deal??

Re: Inside BK,.......... Another person on the Forum posted that one of his BK creditors offered to settle for $2000 on a $14000 line of charges. The guy's attny passed. The creditor has now come back for $1500.

[dpreviti]

Thanks for the response all,

"outside BK" I'm sorry your talking about bankruptcy? I have not claimed chpt 7 I am hoping to not have to. This was an offer the company came to me with after I am 6 months late making payments.

I wasn't aware of the tax issues, I suppose I will deal with that next year depending on if I take this offer.

This seems like a really low offer, does .33 cents sound right to you all?

[SinkingFast]

Attnys all wanna see a credit report when you are filing BK now. Don't want an old debt you forgot about to come back and bite you later sort of thing.

I noticed that our auto insurance carrier had a hit on ours. So, I asked my girlfriend who's an insurance broker if BK would hurt us as far as premiums go. She said prolly not too bad, considering our previous credit history was very good and we are filing due to hardship. We've done everything we can, spent ever penny, and can't fix the situation. She said "Slow Pays" however, are big "no-no's" as far as clients go. She turns down "slow pays" all the time for insurance. BK's are decided on a case by case basis.

If you can pay yourself out, with settlements, and no BK, worry about taxes later. Go for it!! You got a much better deal than our Credit Counselling agent could do for us. We got full repay at reduced interest rates. Total payment was about $100/mo more than our current minimums.

[dpreviti]

Thanks everyone!

It looks like the sun might be begining to shine on me again I got a good lead on a job and getting half of my debt knocked down is a BIG step in getting these other two out of my hair as well!

To answer questions: The card is MBNA and I have been a member for over ten years plat. for around 8 with no late payments or high balances up till now which could have something to do with it. The company has also been purchased so eliminating old debt is probably a priority. But in the end who knows I'm damn glad they offered.

If I can start this new job I will be paying enough in taxes to take the brunt of an additional 10k of income. I suppose I could cliam one more dependent so I pay that much extra & hopefully not have to pay..

Thanks for all the advice

Dave

[SinkingFast]

Aa is right about the taxes and withholdings from your pay check.

If you are looking at aquiring significant amounts of forgiven debt as taxable income, you will actually wanna claim less exemptions in your paycheck. That way you pay more in taxes thruout the year and owe less when you file. If you are married, you can ask to withhold at the higher single rate.

We had to do that when we were first married with no kids or mortgage. Both Hubby and I claimed ZERO dependents, withholding at the higher single rate and paid higher taxes out of each paycheck thruout the year. Otherwise, we'd OWE at the end of the year, just on what we earned. And married couples aren't taxed as heavily as single people are when it comes time to file income taxes at the end of the year.

[newstart]

That's prompts a question for me. I included a debt in my bk and then they sent me a 1099-C stating cancellation of debt $3,717.12 and interest $755.66. So now I have to include this dang blasted thing in my taxes, right? The form says I have to place it under other income. I wonder if I can include this other income when applying for credit cards, lol.

[SinkingFast]

We haven't filed yet. Still learning.

You're the first one I've seen to say that BK discharged debt became taxable income. It was my understanding that debts discharged within BK would not become taxable income.

Did you make some sort of settlement arrangement with the Creditor prior to filing and then include them in the BK??

[Minnymouth]

I'm curious about this too!!!

Through all mine I never received any 1099's saying it was taxable income.......

Tell us more about this.............

Anybody else have to pay taxes on taxable income from their bankruptcies????

[SleeplessInMI]

You do not have to pay a "forgiveness of debt" tax on debts that were discharged in BK... kind of defeats the whole purpose of BK

http://www.bankrate.com/brm/itax/news/20030303a1.asp

[Danielle1981]

I didn't even think about the insurance thing. I really can't afford to pay more than I pay already.

[baybreeze]

Hey Newstart,

Wow, i never heard of or knew of anything where you have to declare your discharged bankruptcy amounts on your taxes as other income.

I had several credit cards discharged in my bankruptcy in '03..but i never rec'd any 1099-C or any other letters/paperwork/forms from any of my creditors. My attorney never mentioned any of this nor have i ever read about it during my research before filing....so I'm thinking that may be incorrect.

What kind of account was it that send you that form? Was it a credit card or some other type of account?

[StaciMM]

The original poster is talking about settling a credit card debt, that is not in bankruptcy. That could relate to a 1099C. Bankruptcy discharged debts would not.

[edwards2]

I never heard about it being taxable income either. As for the "settled" debt a lender told me the other day that if you settle it reflects on your credit report that way because showing paid in full means you paid the entire debt. We agreed to pay monthly on some monster medical bills and our credit report shows just that. If you think about it how fair would that be to the ones who paid the entire debt if it showed paid in full. Another example would be the debt settlement companies. If they manage to get your debt reduced by lowering your interest rates your credit report will show it as a settled debt. You dont think for one minute the credit card companies are going to do something "nice" like negotiate your debt and then show the entire debt was paid. NOt in this lifetime. Of course it is better than collections or a lot of paid lates but it still is what it is and that is an agreed upon settlement at a reduced rate.