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have cc w/balance xfers & cash advances,settlement possi


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Hi,

I'm new to this site and not too familiar with debt settlement, bk... So any help would be appreciated.

I've a couple of questions.

Here's my situation. I've 8 credit cards that totals around $80k. Despite the high interest rates, for years, I've been able to pay at least the minimum without being late, ever. But due to job loss, I will no longer be able to make any payments. So I've stopped paying since September 2005. Now, I'm getting constant phone calls from the 7 CCs. My credit report is spotless other than the high debt to income ratio which kept my score kind of low. I would like to borrow some cash from friends and family to pay off what I owe in order to keep my credit rating clean, avoid bk, avoid being sued... But I know I won't be able to borrow the entire $80k. I can probably come up with 20-30k. From posts on this site, it seems that I might be able to settle anywhere between 25%-80% of the total. But in order to get by the last few months, I've also done some balance transfers and cash advancements to pay off the credit cards and other bills. I read from a post by "sifxpert" stating the following:

"I have extensive knowledge with Citi and MBNA accounts so if you are still fighting I may be able to offer some useful tips. Citi is tough but will settle for 50%. The only reason they wouldn't is if you had balance transfers or cash advances within the past year. Otherwise, you can get 50%."

Does this mean I won't be able to settle at all or I still can but they just won't settle very low amount? BTW, my CCs include AMEX (2), Discover, Chase, Citibank, MBNA, Bank of America (2).

Thanks in advance for your reply

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First, understand that paying less than the full amount WILL NOT keep your credit clean. "Paid for less than balance", "Settled", "Charge off"...are all fairly serious dings to your credit reports.

Second, trading "secured debt"...i.e, loans from friends...for unsecured debt (CCs) is just not a good idea.

Third, sifxpert does indeed appear to have contacts at some of the CCs you mention, but he also does not appear to have a firm grasp of some of the ramifications for settling. For example, the IRS mandates that you be issued a 1099c (unearned income) for any portion of the debt that is forgiven, and requires that you pay taxes on that portion. So do the math...$80k...pay say 50%...you've got 1099c of $40k to pay taxes on.

Unless your prospects for finding work and paying your debts in the next 3 months are really good, you really only have two choices: a.) let the debts go into collections and play the DV, dispute game until you get a CA to screw up enough to sue; or, 2.) file BK.

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Willing....I'm sorry but that is just terrible advise.

I wonder what your background is and if you are qualified to answer some of the questions you do.

I'm really baffled by your response to this post. When it comes to credit repair I must say that you are very well learned but some of your posts offering financial advise is down right scary.

When I post comments about settlement procedure and tax consequences I speak from the experience of 1000's not just what I read somewhere and certainly not from only one personal experience.

If I can not offer the best possible solution according to educated experience I do not.

Yes, when you settle a debt, according to the IRS and CC policy you are required to pay taxes on savings of $600.00 or more. The fact of the matter is that a very small percentage ever see a 1099 and those who do are insolvent for the most part therefore they are not required to pay.

If you look at a CC agreement, there is a disclosure in most that states something along the lines of "you are responsible for the full amount and the CC reserves the right to either arbitration or litigation blah blah unless the debtor provides prrof of insolvency." I just bought a BOSE home system and in the agreement there was a collections clause with this statement and I have read this same disclosure in other CC agreements.

What this clause is basically stating is that we will accept a settlement based upon your financial hardship and proof of insolvency. Have you ever settled a debt? Well, when you call the CC they ask a number of questions about your finances to determine if you should qualify for a settlement. Insolvency = Settlement. Don't you think its a bit redundent to send a 1099 to someone who has already proven insolvent?

Of course, the IRS and the CC's are completely different but the fact remains that a very small percentage (about 10% or less) of accounts settled actually get a 1099. This guy is obviously insolvent..he's unemployed! So why even go there?

I don't mean to bash you by any means and I certainly do not want to get into a pissing match...I deal with enough at my job but I get very frustrated when I see people posting advise that they have no business posting.

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sifxpert: Yes, I have settled debts. And yes I did receive 1099c for the "savings" over $600. In fact, when we declared BK7, we even received 1099c's from AMEX for the debts that were discharged. Yes, we were insolvent and yes we did not therefore have to pay taxes, but none the less, AMEX sent them just to further hassle us.

If none of your clients have as yet received a 1099c, then there's a good chance that either you lose track of them once the debt is settled OR the balance of the debt continues to stay on their CRs and will eventually be sold to a JDB The IRS will notice the hundreds, thousands, or millions of dollars in unearned income you save your clients....and, unless your agreement with your clients says something to the contrary, YOU may wind up liable for some of it.

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We do not "lose track" of any mail. I have a dept. that handles all mail for our clients. Like I said, the decision to submit the 1099 is up to the creditors. Most do not which is why we do not receive many. Collection accounts almost never and very rarely do we get a 1099 from an OC. Cap One and Amex always. These are the only two OC's that will always send the 1099. Every year its the same. As far as being liable.... We are on top of all correspondence and forward the 1099 to the client with instructions to handle.

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Okay, you're getting closer. CAs do not have to issue 1099c...after all, the debtor doesn't owe the CA, they owe the OC. OCs are required by the IRS to issue 1099c....it isn't their choice. Their only choice is when.

If the account is not paid in full, the OC may decide to keep the balance on their books for as many as 7 years depending on their accounting practices. When they finally do get around to writing it off, they are required by IRS rules to issue a 1099c. And...the 1099c is for the year in which the debt was forgiven...so basically if you settle an account for less than full amount in say, 2000, the debtor may get a 1099c in 2007 for the forgiven amount. And, according to the IRS, the debtor will owe taxes and penalty and interest for 7 years. Do your clients keep in touch with you for 7 years?

By "we are on top of all correspondence", you mean that your company has power of attorney to negotiate debts on behalf of you clients, then you are assuming liability for any errors or omissions that may arise as the result of that....unless, of course, your contract states something to contrary.

This is why I suggest that anytime an account is charged off or settled for less than the full amount, a debtor should demand as part of the settlement a 1099c for the forgiven amount. Yes, they will have to pay taxes on that amount (if they are still solvent), but unlike a CA, the IRS will take payments. Furthermore, once a 1099c is issued, an OC would have a hard time selling the balance to a JDB.

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