How much information do I give?

[jb4lcm]

I am trying to reach a settlement. I own my business and the debt collector has asked me for a copy of my P & L (tax returns) for the last 3 years to better understand my situation. Is this a smart thing to do?

JB

[justbroke]

They are trying to figure out just what they should offer or allow. I'm not sure that I would personally give P&L statements for 3 years, but that's up to you. If you are actually profitable, don't expect a settlement that is grossly in your favor.

I'm assuming that this a business debt that you personally guaranteed debt. If it was just a personal debt, I would certainly not open my books to them. Since this is for business debt (as guarantor), you'll have to decide on what makes sense. Remember, a settlement is a negotiation and it appears that they want to figure out just what the business is generating so as not to settle for too little. If the business is really not making money, why continue operate it in the red?

Are you considering filing bankruptcy? What is the organization of the business (C Corp, S Corp, LLC, Partnership, Sole Prop)?

[jb4lcm]

We are sole proprietor.. business debt.. biz is struggling as it is seasonal and we just ended our season. Not making much, but enough to get by.

[AZNoName]

We refused to give that info, knowing we were filing BK. They requested it for the purposes of coming up with a settlement amount and plan payment. Our feeling was, they're not looking out for us, they're looking to see what they can get and if they push too hard, if you will file BK.

Thats just my opinion though!!

[jb4lcm]

At this time, we do not want to file BK. We want to try to settle - but if we cannot reach a settlement then we are prepared to go BK. It is a bitter pill to swallow, but it is what it is. It is my understanding that once the creditor understands that we have little room to move and have resigned ourselves to the fact BK is a real possibility - or perhaps stronger probability, they may be more willing to negotiate ??

[AZNoName]

jb4clm,
That would make sense to me! Still not sure why they need 3 years of financials though. Seems excessive. Best of luck to you!

[justbroke]

I would also use caution with settlement. If you have, in this example, $100K in debt that you settle for $10K, you now have a $90K taxable event. What's worse, is that it's taxed as ordinary income! That means, you'll probably need $30K (based on marginal tax rate of 30%), just to pay the taxes on the settlement.

Always, always, always consider tax implications. A bankruptcy is a much better tool than most Debt Settlements reached, when the total amount of the debt starts to get large. I'd probably say it become important when you start getting to $40K and up in total debt.

Also, debt settlement requires very careful planning (tax consequences) and, usually, the need for an attorney to fashion the settlement agreement! You have to KNOW and it has to BE IN WRITING that they won't sell the deficiency and that they will only issue a 1099-C (Forgiveness of Debt) on the forgiven balance. Otherwise, they can sell the forgiven balance (making money on it!) to another Junk Debt Buyer, and then THEY will hound you for a settlement.

I'm not anti-settlement... I'm just anti anti-planning. If you are a business and have near $100K of debt, you have a lot more to consider with the tax consequences and other potential issues with settlement.

[GoingDown]

My policy is to never give information to debt collectors because they are not your friends, they are not trying to help you, and any information you give them will probably be turned around and used against you later on.

Like other posters on this forum have said, settlement is usually the worst option because if not done correctly, it could come back to haunt you with junk debt buyers buying the remaining balance of the debt and then coming after you for the rest of it, and even if everything goes smoothly, you will be hit with a huge tax bill for the amount forgiven.

Try to step back and look at your whole situation. Be honest with yourself. Is bankruptcy a better solution for your situation? If the answer is yes, then don't bother settling any debts, just proceed to filing bankruptcy.

If you insist on settling with them, I would not voluntarily give them any information. I will sit down and try to figure out how much I could realistically afford to settle the debt for and then tell them this is your final offer and if they won't settle for that amount, then you will just have to file bankruptcy. In this economy, I'll bet they would take it. They probably know that they will be lucky to get anything at all from you.

[catleg]

My policy is to never give information to debt collectors because they are not your friends, they are not trying to help you, and any information you give them will probably be turned around and used against you later on.

Like other posters on this forum have said, settlement is usually the worst option because if not done correctly, it could come back to haunt you with junk debt buyers buying the remaining balance of the debt and then coming after you for the rest of it, and even if everything goes smoothly, you will be hit with a huge tax bill for the amount forgiven.

Try to step back and look at your whole situation. Be honest with yourself. Is bankruptcy a better solution for your situation? If the answer is yes, then don't bother settling any debts, just proceed to filing bankruptcy.

If you insist on settling with them, I would not voluntarily give them any information. I will sit down and try to figure out how much I could realistically afford to settle the debt for and then tell them this is your final offer and if they won't settle for that amount, then you will just have to file bankruptcy. In this economy, I'll bet they would take it. They probably know that they will be lucky to get anything at all from you.

Two thumbs up!

[Gonzo]

I know I am late, but ditto on the "NO." I would never share any financials with them. It's YOU who gets to determine how much YOU will settle for, not them. They only get to turn it down. Once you give financials, a whole new can of worms opens up about what YOU want to settle for versus what THEY believe your financials show. Since when did debt collectors become CPAs?

[GoingDown]

I know I am late, but ditto on the "NO." I would never share any financials with them. It's YOU who gets to determine how much YOU will settle for, not them. They only get to turn it down. Once you give financials, a whole new can of worms opens up about what YOU want to settle for versus what THEY believe your financials show. Since when did debt collectors become CPAs?

Exactly!