Iowan

Need help with Debt Settlement

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I just received a debt settlement from Citibank. It is for 30% of my debt which I think is a pretty good deal although I have never had a debt settlement before so I have some questions.

1. How does this affect my credit?

2. Can I ask them for a Deletion for payment?

3. Is this a good idea? My debt is for $4885 and they want to settle for $1465.

I have not been sent to a third party collection agency yet and I actually just made payment arrangements the day before this was dated. When I called to ask about it, she said my payment arrangements had not gone through yet.

Can someone give me some advice on what I should do?

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1. A settlement is better than a collection account being added. But not as good as a payment in full or a deletion. Hard to say how much it will help your credit..but it shouldn't hurt.

2. You should send a goodwill/pay for deletion kinda letter. Do a search on here to see if anyone has had any luck with Citibank for goodwill. However I doubt a settlement would help with getting a deletion. Payment in full would prob work better.

3. So I take it they already charged off the account? How behind are you? It looks like a good deal money wise if you don't have the money to pay in full.

Not sure about taxes...i've settled a few accounts back in 06..never filed it on my taxes..so unless i get hit with an audit i'm not concerned about it...it's up to you.

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How does this affect your taxes at the end of the year since I am told I would be getting a 1099c form.

Thanks so much!!

There are five situations where a cancelled debt does not have to be reported as income:

Bankruptcy – the debt was already discharged through a bankruptcy proceeding.

Insolvency – your total debts exceed your total assets at the time your debt was settled or deemed non-collectable.

Indebtedness is due to a qualified farm expense.

Indebtedness is due to certain real property business losses.

Discharge of your debt was treated as a gift.

If you are truly insolvent, you or your accountant can address this on your return. You can fill out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness or attach a detailed letter to your tax return explaining the calculation of your total debts and assets.

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Nothing wrong with asking and while I don't know what bracket you are in, but keep in mind that the amount of income tax that would be due next year as the result of this debt forgiveness is going to be fairly minor anyway and certainly something you can save for until the end of the year (or up your withholding/quarterly payments slightly to cover it).

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