Dana’s Story

Mine is twofold: Testimonial and attempt to stump the experts!

First, the testimonial. My credit score was doomed until I stumbled upon this site about 10 months ago. I used the abundant advice on this site and have repaired my credit so much so that I’m well within reach of approval for a mortgage to purchase my first home!! The pay for deletes, references to consumer rights using exact verbiage, and the ever helpful green cards, have been a credit-saver. I CANNOT THANK YOU ENOUGH!

Now, for the question. I had a vehicle on my report for about $12,000 that went into default back in February of 2002. It was repossessed, but wasn’t reported as such. Additionally, GMAC reported the debt twice on my report, with 2 different account numbers, for different amounts, AND they were not reporting the payments I was making on the account. It simply read that the account was seriously delinquent. It goes without saying it wasn’t difficult to get it removed from my credit file since even I didn’t know what account was valid, and GMAC couldn’t verify (sounded like a failure on their part records wise). Also, the statute of limitations shown on my credit report showed the debt would be removed in October of 2008 anyway. So, it is gone.

This past week I received a letter from a collection agency for the full amount of this account attempting to settle for less than the amount owed. Up until now I’d never received a letter from any collection agency regarding this account. I’ve scoured BrokenCredit.com for answers on what to do in this case, but I can’t find anything. I’d like to send the collection agency a letter citing what my rights are and their wrongful collection practices (if they’re wrong at all).

Even more on this issue is the IRS. I received a letter from them back in September stating I would have to pay taxes on the full amount of the debt because GMAC has reported it as income to me. So, I am also paying the IRS. I stopped making payments to GMAC once I received this letter. I sent a letter to dispute this with the IRS along with copies of my payments to GMAC (how can I owe taxes for income on a debt that I’m still paying on?), but the IRS still says I owe taxes on the amount. I don’t want to mess with the IRS!

Can the collection agency really collect on this debt? And am I really up against the wall with the IRS on this?

Oh…if I may add…today, while sending off my final letters and proof to the credit reporting agencies, my local post office informed me of a new way of receiving proof of receipt without the need for the green card. The clerk said to send via Certified mail. On the receipt is the tracking number. Within 3 days of mailing check the tracking number on the USPS website and simply print out the signature. I tried this with one of the past letters I mailed and sure enough! There was the address, date and time of delivery, and the printed name and signature of the recipient. She assured me it was just as good as the green card. Saved me about 20 bucks today! This should be enough…right???

Dana

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Hi Dana,

Don’t confuse ‘statute of limitations’ with ‘reporting limits’. Credit reporting limits are generally seven-years (or 7.5 years from the date of first delinquency) and this is federal law.  The statute of limitations on the other hand, has to do with the length of time with which the debtor is at a heightened risk of a lawsuit and that length of time is governed by state law.  The good news is that it is gone from your credit report.  The bad news is that your payments may have restarted the statute of limitations.

Since it’s impossible for me to be an expert on every state’s statute of limitations, I am going to leave that to you to determine.  If the statute of limitations had expired, then a debt collector cease communication would effectively end the new found (creepy) relationship between you and this debt collector; however, for the remainder of this answer I will assume that the statute of limitations has not run.

Well what have we here?  They are a debt collector and as such are subject to the good ole’ FDCPA.  If this was their first communication with you then within five days of that initial communication, they are obligated to send you your validation rights.  The validation rights should inform you that you have thirty-days to request validation.  I would definitely request validation and, of course, send it CMRRR (call me old fashioned, I like the green cards!). 

You have bad records, they have bad records.  Has this thing been paid off?  Questions, questions…  I don’t know the answers.

The debt collector is barred per the FCRA from reporting it to the CRA because debt collectors are required to use the same date of first delinquency as the original creditor.  If they do report it then that means they’ve re-aged it which is actionable, so I wouldn’t worry about that too much.

The bigger concern would be that they might attempt to obtain a deficiency judgment.  This is why it is important to question whether or not the sale of the car was completed in a ‘commercially reasonable’ manner.  If it was not, then the junk debt buyer is barred from obtaining a deficiency judgment.  Further, if the consumer denies that the sale was ‘commercially reasonable’ then the burden of proof is on the debt collector to prove that it was.  This would involve producing required notices to the consumer, evidence the sale was publically advertised, timing of the sale and the actual method of disposition. 

If it were me, I would demand evidence that the sale was ‘commercially reasonable’ in my debt validation request as well as a complete accounting of the payment history and the original promissory note.  Now a debt collector does not have to provide all of that for proper validation, but I’d be building a case file if they should pursue legal action.

As for the second issue of the IRS and taxes – the easiest solution would be if the insolvency exclusion to debt forgiveness applied.  This would involve filing form 982 with the IRS and if you have $12,000 more debts than assets then there would be no taxes owed on the 1099-C.  If you find that you won’t meet the insolvency exclusion then, in addition to fighting it based on what you’ve listed, also add to that the fact that a 1099-C should only include principal forgiveness (and not interest forgiveness).  It sounds like GMAC is having some accounting issues.  Maybe now that they’ve received $14 billion in TARP money they are a little more cheery.  Nah!  Doubt it!

Read: Debt Collection after a 1099-C, Creditor Document Retention & Did You Receive Your ‘UCC’ Compliant Repo Notice?

Thanks for the questions and congratulations on your progress!

Paul

This author is not an attorney or tax advisor.  This information should not be considered legal or tax advice.  Please consult an attorney for legal advice and please consult a qualified tax advisor for tax advice.