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Beginning the settlement process?


holly
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I'm about to start my last year of law school and I have a little under $7,000 in debt in collections from when I acted like an idiot in college. :roll: Stupid, I know. It's five different small debts - small enough that they won't come after me, big enough to piss off the bar commissioners. Ugh.

The toughie is that I plan to take the bar exam next July, but the state bar wants the debt cleared before I can go through character and fitness. Given that fact, settlement is (for me) a better idea than debt validation - I get the feeling that they want to see me bleed and they want to see me pay something. I have about $2,500 to settle my $7,000 debt.

I haven't taken any action on the debt since the spring of '04, so it's rolled over more than one collection agency. I don't even get letters any more, and we changed our phone number, so I haven't even been contacted about the debt in quite some time.

I know the very basics - don't contact them on the phone, offer 10% of the debt as the first settlement, don't let them know where I work, where I bank, how much I'm willing to give, or why I want to settle.

But I'm having two problems - I have no idea who I actually owe the debt to at this point (what agency it's with) and I'm not sure how to go about starting this process, other than a letter asking them to give me the current balance of the debt (anything else I'd need to include?). I'm trying to give myself as much time as possible to settle the debt for as low as I can - my deadline is next March/April before character & fitness reviews my bar application.

I know it's the most asinine question you probably get, but - any real-life anecdotal advice for a newbie? How much should I realistically expect to pay in settlement? I'm in Alabama, if that matters. The debt in question was from consumer credit cards (you know the drill - the Visa you apply for on the college concourse and the Victoria's Secret card that seemed like a great idea at the time).

Thanks in advance for any help you can offer.

- Holly

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Everyone who comes on this site thinks that settlement is the way to go. After all, it seems painless, just pay a few bucks and it all goes away. What you don't realize is that validation will delete the matter from your CR, settlement will not.

Settlement will trigger 1099-c's, and get the IRS in on the game. You will have to pay taxes on any "forgiven" amount.

You don't know who to pay? That is exactly what DV is for. My advice is to DV everyone, if for no other reason than to make sure you are paying the right person.

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Thank you for the advice. I did think about the IRS issue - it just seemed like it wouldn't be a biggie. Between my husband and I, we make under $20,000 a year, so any taxes owed on forgiven debt would still fall well under our standard deduction.

My biggest worry with DV is being sent into a lawsuit - that said, the highest debt owed is still under $2,500, with the rest under $2,000, so it would be a small claims issue. I have no wages to garnish and no real assets, but a lawsuit would look terrible on my bar application - worse than a settlement, apparently. That's the real complicating factor.

Do you have any particularly poignant advice for drafting a DV letter? (I'm assuming that I just send a DV letter to the CA noted in my credit report?) Are there any CAs particularly known for sticking you with a lawsuit after a DV letter?

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The amount of cancelled debt will be added to your taxable income for the year you made the settlement. I got burned on this last year and it's going to cost me a lot getting the IRS payed off because of interest and penalties. If you settle all $7k with the $2.5 k available, you'll be getting 1099C's for $5k. At a 25% tax bracket, you'll be paying the IRS an additional $1.25 k next year.....and they have NO sense of humor if you don't have the money.

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The secret is, if the CA had the evidence and the standing to sue, they will do it regardless of whether or not you DV.

Also, remember that if a CA responds with a suit, but does not validate, you can always countersue for the violation and offset the suit.

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