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Got a settlement letter


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I just got a settlement letter from Discover that says if they receive my payment by the 19th, the account will be settled in full (they won't budge on the credit reporting so I'm just going to pay them and then dispute it with the CRAs later.) Anyway, my husband is all paranoid that they will still try to get a judgement even after we pay them because it doesn't expicitely say so in the letter. Isn't that what "settled in full" means? Even if they did get a judgement, couldn't we just get it vacated by showing that the account was settled before the judgement?

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Once they settle, there's no point in suing you, they got what they wanted.. $$$$. Tell your DH not to stress about that. What you need to know is that if Discover doesn't issue you a 1099-C, which is reported as income with next years tax return, then they can and will sell the remaining balance to a CA and they'll hound you for the remainder. SO, if you want to prevent that, make sure you get a 1099-C. The tax on that is likely far less than the amount of the debt. 1099-C's only need to be reported for amounts of $600 or more of 'cancelled debt'.

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Under certain circumstances forgiveness of debt income is NOT includible as income.

From the Internal Revenue Code:

STATUTORY EXCEPTIONS TO INCOME FROM THE DISCHARGE OF

INDEBTEDNESS

Code Section 108 provides that certain discharges of indebtedness will not be included in income:

(1) a discharge of a debtor in a bankruptcy proceeding;

(2) a discharge of an insolvent taxpayer;

(3) a discharge of qualified farm indebtedness;

(4) a qualified student loan discharge; and

(5) qualified real property business indebtedness.

Code Section 108(a)(1), 108(f).

As for insolvency:

The term "insolvent" means the excess of liabilities over the fair market value of assets, determined on the basis of a taxpayer's assets and liabilities immediately before the discharge. Code Section 108(d)(3). A taxpayer's assets for this purpose include assets that are exempt from

creditors' claims under the applicable state law.

Also, check this out, Item III:

http://www.buchalter.com/FSL5CS/articles/articles195.asp

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