Kendra’s Debt Settlement

Hi Paul,

All of my bills have finally caught up with me.  I do not want to file bankruptcy but have spoke to several credit card companys about doing a settlement. 

Here’s the thing, I am current as of right now, but my husband was paying them.  He is now refusing to pay since his name is not on the account. 

I truly have no extra income to pay.  My mom has offered to give me a gift of $12000, but this will only pay about 50% of my credit card debt. 

When I spoke to the credit card companys they stated I must be past due for them to even discuss with me and if they decide to take a settlement, they will send me a 1099 for the differnce and show the remaining as a settlement on my credit report, but they are going to continue to report the amount of debt I couldn’t pay.

I thought if I did a settelement, they would report as paid settlement with a zero balance. 

Can you tell me the correct way of reporting? 

Thank you.

Kendra

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Hi Kendra,

You should talk to an accountant, but what you may find is that the 1099 is probably a nonissue because of the insolvency exclusion to debt forgiveness.

What they’ve described does not sound like a settlement.  A settlement with an original creditor should have a zero balance and indicate words to the effect of ‘settled for less than amount’.  Make sure you get it in writing and don’t begin the negotiations by telling them that you have access to $12,000.

Yes, your credit report will take a hit before they will be interested in settling.  I don’t know enough about your situation; however, I’ll say that generally speaking it would be worth it to have a few dings on the report and settle the debts prior to charge-off for 30% of the balance.

Thanks for the questions and hope this helps.

Paul

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