One Final try before BK. Plz Critique my final settlement letter (short!) thx

[nceguyfromne]

Creditors are not in the business of signing debtor-generated contracts because a) they don't have to, and b) it's never in their best interest. I'm sure it's happened at some point in history, perhaps with smaller creditors, but I've honestly never heard of it in practical application with a bank or credit card company. If you really want to show your resolve, I suggest simply calling them and telling them you need them to mail you a better settlement offer or you unfortunately won't be able to pay them anything. No need to tell them you're judgment-proof, collection-proof, contemplating bankruptcy or anything else. They've heard it all before and are no more well-advised to believe your threats than you are to believe any of theirs. They are going to run the same, objective asset determination on you that they do on everyone else and determine that you're either a good candidate for a judgment or a bad one. They have no emotional stake in your outcome. It's all business. All numbers.

With any luck they will deem you a lost cause for collection and write it off.

[GoingDown]

I believe it is IRS Form 982. Check with your accountant or attorney as to the best way to use this form.

Yep, good old Form 982, and there was a worksheet that the tax preparer also sent along showing that I had more liabilities (debts) than assets. And it was all sent together with the tax return for that year. Worked fine for me.

I was stressed out over essentially nothing.

[GoingDown]

Speaking from my own experience, I found Cease and Desist letters to work well at holding some of these bill collectors off for awhile. Starting in 2009 I started getting phone calls, and letters from various collection agencies. So I would just send off a letter that I would only deal with the original creditor. Some of those banks must have passed me around for at least 1/2 of a dozen times, and I also think that I spent a small fortune on certified mail for the C&D's. LOL Then about a year later Cap One and BOA decided to sue me on 2 of my smallest balances.

I save certified mail for only the most extreme situations. Most of the time, simply looking up their website online, finding their "contact us" section, then finding their email address, and sending the cease and desist letter by email works fine in most cases. It's essentially free that way. And you still have proof that you sent them a cease and desist letter.

[lillymarlene]

Speaking from my own experience, I found Cease and Desist letters to work well at holding some of these bill collectors off for awhile. Starting in 2009 I started getting phone calls, and letters from various collection agencies. So I would just send off a letter that I would only deal with the original creditor. Some of those banks must have passed me around for at least 1/2 of a dozen times, and I also think that I spent a small fortune on certified mail for the C&D's. LOL Then about a year later Cap One and BOA decided to sue me on 2 of my smallest balances.

[slvnomore]

I hear what your saying and i appreciate your opinion thank you.

So if i decide not to settle at this time what can I send them in writing that will stall them but not admit to the debt or give them to much info, so i can find out more about positioning for BK? They are calling 5 times a day as its about to go into charge off. Thanks!

[ValleYum]

I'm curious what form that was.

I believe it is IRS Form 982. Check with your accountant or attorney as to the best way to use this form.

[bcohen]

Like I (and many other people) have already told you: the potential for an audit is the least of your problems. You simply cannot afford to settle, and have absolutely nothing to gain from trying.

[slvnomore]

I really appreciate all the replays, so many different stories so many ways it can turn out. Its kind of frightening like if you dont make the right move you can blow it.

I asked about the audit because if the medical things and the money wasn't enough my acct. of 20 years died last week and they shredded all my old taxes. - thats why the audit spooked me. I have never been audited as a SE person but this would be horendous timing.

If I offered to settle for a small amount like this, some people say that would tip their hand and cause them to sue right away before i was prepared for a BK.

I was hoping i could get them low enough so I could do a settlement. but the specter of an audit is frightening.

thanks again for all your welcome advice... ; )

[joshuagraham]

The 3 year period of inactivity triggered a mandatory 1099-C form. They sent it to me in the mail in January of the following year. The entire amount of the debt (since I didn't pay them anything at all) and all the interest and late fees were canceled debt, and were about to be treated as income to me. OMG!!! Noooooooooo!!!!!

I freaked out and worried about it, and asked a lot of forums about what to do about it and got conflicting answers.

Finally, my Dad called from Oregon and when I talked to him about it, he said go see a tax preparer.

So, I did. She figured it out after just asking me a few questions, printed out the proper form and the proper paperwork, then did my tax return for that year, charged me a fee, and off the form went in the mail to the I.R.S.

I'm curious what form that was.

[GoingDown]

Agreed. The banks figure that if there are any assets to get, the bankruptcy trustee will get them, and they'll get their cut, without having to hire a legal team to do it. And if there are no assets, that it would be so much in your self-interest to do Chapter 7, that you would be doing it anyway. And you can best bet that these days, some boutique data mining consultant has been examining the optimal offer to allow for a particular debtor situation - and it probably is much, much higher than the piddling amount you are offering.

I still disagree with this.

Everyone is different and faces different situations.

But I am speaking from my own personal experience.

Look at my join date for this forum: November 2005

I had a lot of credit cards (Visa, MasterCard, Discover) and store credit cards (Target, Sears, Chevron, Shell, etc.), and a new car loan, and all of them went south. I stopped paying all of them in 2005 and early 2006.

Only one of them ever filed a lawsuit against me: Capital One. And they did it about 4 months after I stopped paying them. They were one of the first I stopped paying.

All of the rest of them are now beyond my state's 6 year Statute of Limitations for filing a lawsuit and winning. In other words, none of the rest of them filed a lawsuit against me, and now their debts are time-barred by the Arizona statute of limitations. They could in theory still file a lawsuit against me-- very unlikely-- but even if they did, I would simply file an answer and use the fact that their lawsuit is time-barred by the Arizona statute of limitations, and they would lose the lawsuit and have to pay my court filing fees and legal costs.

So, my experience has been that if you truly are judgment proof and you tell them in writing (the phone jockeys at collection agencies don't care what you say on the phone about your judgment proof status) that you are judgment proof, 99% of them will not file a lawsuit against you.

And yes, I really do know they check out whether or not you are worthy of a lawsuit in most cases. Wells Fargo was coming after me for a $12,000 Visa card account that I stopped paying. They sent the account to a local collection agency which called several of my previous employers which were listed on my credit report and asked them all sorts of questions about me. Fortunately, I was still friends with those ex-employers and I had already told them what to say when the debt collectors called them, and they told them (I won't go into the details here) that in so many words, I wasn't worth suing. They even called my landlord (who was also a friend) and the things he told them also helped convince them that it was a losing battle to come after me. Add to that, at that point I had become completely self-employed (plus the temp work I did), so there was no current employer to call about me. That seems to be a key to all of this. If they can call you at work, you are very likely to get sued.

So, here is what they knew about me...

1. I sent them a letter telling to cease and desist any communication with me and that I was judgment proof. So now I had just taken away their main method of getting paid-- calling me on the phone. I had also let them know that I knew even if they sued me and got a judgment, they would still never get a penny from me, since I was judgment proof, and I told them that I did not have a checking account, so there would be nothing for them to seize-- another big method of them collecting their money.

2. They were unable to find a current employer for me. And what they heard in terms of misinformation from previous employers was not what they wanted to hear about a debtor.

3. They knew that I lived a rented house, and that I had no real estate. And the misinformation from the landlord was also some stuff they didn't want to hear.

So, let's break that down into their main methods of getting paid:
A. Calling me on the phone and scaring me into voluntarily paying them.
B. Filing a lawsuit and seizing my checking account.
C. Using a judgment to garnish my wages
D. Puting a lien on my real estate.

Oops! They knew they couldn't do any of those things to me. Why waste money, time, and effort on someone who is never going to pay you anything and who you can't force to pay you anything? Might as well go on to lower hanging fruit.

[GoingDown]

I have personally been through the whole 1099-C ordeal and here was my experience...

HSBC Visa charged off my credit card back in 2006, and I fully expected them to sell it to a junk debt buyer like almost every other credit card was doing with my charged off credit cards.

But no, they kept it themselves and tried relentlessly for about a year to collect the debt from me using 5 different collection agencies. I kept sending them cease and desist letters (also telling them I was judgment proof in writing-- I NEVER TALKED TO THEM ON THE PHONE!!!), and then that collection agency would fall silent, and about 2 months later or so, here comes a new collection agency trying to collect the same HSBC debt.

Then for some reason (I think it was because they knew I was judgment proof), HSBC just sat on the debt and didn't sell it to anyone and strangely enough, they didn't even bother trying to collect it. They fell completely silent-- no phone calls, no collection letters, and no sending it to a new collection agency-- for 3 full years.

The 3 year period of inactivity triggered a mandatory 1099-C form. They sent it to me in the mail in January of the following year. The entire amount of the debt (since I didn't pay them anything at all) and all the interest and late fees were canceled debt, and were about to be treated as income to me. OMG!!! Noooooooooo!!!!!

I freaked out and worried about it, and asked a lot of forums about what to do about it and got conflicting answers.

Finally, my Dad called from Oregon and when I talked to him about it, he said go see a tax preparer.

So, I did. She figured it out after just asking me a few questions, printed out the proper form and the proper paperwork, then did my tax return for that year, charged me a fee, and off the form went in the mail to the I.R.S.

No big deal.

I had no assets (no real estate, no 401K, etc.), and lots of debts, including some student loan debt, and the 1099-C fiasco ended up being much ado about nothing.

So, if you have something (assets like a 401K or some other retirement accounts) to protect and worry about then BK might be the best option for you.

Otherwise don't sweat it.

By the way, I am self-employed and I have never been audited.

There was one time when I forgot to report some income from a customer who sent in a form declaring the amount they had paid me, and the I.R.S. was quick to jump down my throat about it, and I had to pay the taxes on that amount plus penalties and interest, but that was my bad. My own fault. And was not technically an audit. Just unreported income that they came after me for.

On the positive side, the debt canceled by HSBC has never been paid and I will never have to pay it. As it turns out, once they send you one of those things, contrary to what I have heard on other websites, they do seem to give up on it.

And as a note of interest.... only original creditors seem to issue them for 3 years of dormancy. Junk debt buyers have gone dormant for more than 3 years on many of my credit cards, but for some reason, none of them have issued 1099-C forms to me or the I.R.S.

[HHM]

Let me as succinct as possible...

The endeavor to settle is "pointless" in this situation.

[TheBajan]

I have one other question, When you say if you get a 1009c for the forgiven debt and then declare legal insolvency, (that dismisses the taxes on forgiven debt). you are very likely to be audited expecially if self employed. How often does that happen? That is new to me and seriously something to consider... thank you so much.

slvnomore,

Audits happen all the time. There are different things that create red flags. People who are self-employed have a higher potential of raising a red flag than people who are not. That's why they get audited the most. Someone who magically comes up with $7,000 to pay off debt and then tries to tell the IRS that they have no money, and no assets, is going to raise a big red flag. Couple that with the fact that you are self-employed and it really raises the risk of being audited. I can't tell you what your chances are in numbers or percentages. I can only tell you that it's a gamble on your part to go this route. Most people don't get in trouble with the IRS for being dishonest. They get into trouble because they don't keep impeccable records and also because the IRS code can be interpreted in a lot of different ways. One auditor will say something is okay while another auditor will not.

As Joshua has already stated, you really have to be completely, totally, insolvent. There are no exemptions and they will scrutinize your life. After all, you are asking them to forgive paying probably $7,000 in taxes (depending on your income bracket). Technically, they are only supposed to audit back for the past three years. However, IF THEY BELIEVE that fraud is involved, (it doesn't have to be true), they can go back as far as they want. That's why a good tax preparer will tell you to keep your returns forever rather than the typical three year period.

I wish you the best,

The Bajan

[joshuagraham]

Technically, yes. However, really consider if you want to open up that can of worms with the IRS. As a former tax preparer, I can tell you that the largest group of people to get audited are people who file a schedule C (self-employed). If you manage to come up with $7k to settle both cards, (again assuming they will accept 15%), and you claim insolvency to avoid the tax on forgiven debt, you are inviting an audit.

Best wishes,

The Bajan

And something to think about is that the IRS considers insolvency to include retirement and other assets that would be exempt in BK. So unless you really don't have a pot to ..., the IRS would come after you eventually. Only BK truly removes the IRS!

You only have a year or so to go until Obamacare will remove any possibility of getting medical debt. (Yes, we could!)

[joshuagraham]

First of all thank you so much for all advice. I am new at this. They have already offered to settle for 30%, & 40% this was a counter offer before charge off to the OC. Why would they rather force me into BK and get nothing. rather than $2000? help me understand that? is there a threshold amount they make more in charge off on under which they wont go? I have no assets and qualify for the means test. thank you for your constructive feedback it is appreciated. if i do send the letter have I forgotten anything in the form I have written?

Because $2K is about 5%, and they have figured out that the probabilistic expected value of the eventual return on your defaulted accounts is much higher.