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Can a credit card company re-open an account they closed over ten years ago, charge interest for that time period and then write it off in 2014 on their taxes?

I have been in the Philippines since 2003. Before I left the States I paid all my balances and came to the Philippines. I had one credit card but paid that off.
In 2015 I was doing research on places to rent because I planned to return to the States to get a divorce from my Philippine wife. I took advantage of a free credit search just to see what it said. I found that there was a credit report of an unpaid balance on my account which had been reported to the credit bureau. I called the credit card company and the lady said that my account had been closed in 2006 for none payment and the balance was written off. I did not know of any charges other than what I paid off. I immediately sent a letter to the card company and told them it was an honest error and that I would pay the balance just send me the paper work. I never heard back from them. I was never sent a notice of the cancel debt from any source.

They apparently re-opened that suspended and written off account, charged me interest for the last ten years and wrote it off on their 2014 income tax which of course showed up on my IRS account as a cancel debt which I must figure as income on my 2014 tax return.
This is a big crisis for me because I live on my social security benefit and a small $320 pension. The card company charged interest on that $800 balance and it turned into $24,041 that they took off their tax and advised IRS and I got the cancel debt.
When I wrote the letter to them in 2014 they had my address yet I never received a notice of this action and did not find out about it until my 1040 was sent back by the IRS and the cancel debt revealed.
I earn approx $15,000 on social security, and $320 in a small pension. I have no job here in the Philippines, investments, business or any other income.
This means my income goes from about $18,000 paying no taxes to $49,000 and owing the IRS about $12,000. It will take me likely the rest of my natural life to pay this off, that is if they let me make payments on it. I am 70 years old now.

Is this right for a credit card company to do? It seems to me if they absorbed the $800 in 2005 that they would have had to take the $800 off their taxes as a loss in that year and not re-open the case ten years later or so adding interest to their advantage and taking off $24,000 in 2014 on their taxes.
Any advice? Thanks, Dave
 

 


daveleonard
   
     

 

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If they stopped sending statements during the time the account was supposed to be closed, then by law they waived their right to continue to collect interest on that account.  They can not, then restart the interest charges once waived and they definitely can not back date any interest charges.  This would be a violation of TILA.

I don't know much about the tax issue, but I hear if you are considered "insolvent" by the IRS (your liabilities including the canceled debt is more than your total assets), then you may not have to pay tax on the 1099-C amount.  A tax adviser can give you better information on this than I can.

http://www.sharetheharvest.com/download/organize/Wkinsolv.pdf

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Thank you for the replies. I agree I need to see a pro but that is not easily done since I live on a tiny island in the Philippines. I am not sure Philippine  attorney's would understand the ins and outs of the IRS.

I was not insolvent in 2014 for IRS purposes or practical purposes. Being insolvent would mean I owe more than I produce. As an American making social security and a small pension I could not be considered insolvent due to the low cost of living and the favorable exchange rate.

No, this problem must be attacked on the time angle for account closing, write off date and cancel debt date. These things I do not yet know as I have received no details yet from the IRS. I sent a letter on the 12th of March but the mail takes many weeks from the Philippines. This happened out of the blue and I can only guess why. The cancel debt may be something entirely different.

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Yes, I know cost of living has nothing to do with it. I only mentioned it to show that I would not have any liabilities! I had no liabilities in 2014 to compare to the total cancel debt of $24,000. Most everything is done in cash here and because the cost of living is so low and the exchange most favorable, there were no liabilities.

Thank you.

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What I meant to say is that you will need to contact a pro in the US. I have had CPAs do phone and Skype consultations with me when I couldn't go to their offices.

 

There also may be issues with the cancellation of the debt - they generally have to report on a 1099-C within 3 years of charge off. I don't think they did in this case - they waited too long. I think they may have screwed up. This is why you really need to seek the advice of a professional.

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Thanks so much for your reply, it seems logical to me. I hesitate to contact digitally because I have no credit card. I could pay via Western Union if they would accept that. I also hesitate because I may get in over my head. What I mean is I may end up owing the attorney more than I owe the IRS had I gone ahead and paid them. I really need to wait until I hear from the IRS in a few weeks to know what my charges will be. Of course the IRS will not help in any way to reduce the charges like the filing status, deductions, etc. So, I expect the charges will be in the thousands, perhaps $4,000 to $7,000 on a $800 debt from over ten years ago. Forgive me I am just a little rattled at this point.

Thanks for your answers and help. God Bless.

Dave Leonard

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If you contact a consumer attorney who works with TILA and other consumer laws and they believe this bank violated the law by restarting interest or issuing a 1099 past the legal time frame, then you may be able to get the 1099 retracted or a corrected 1099 sent to the IRS reflecting a $0 amount.  Additionally, if they find the consumer laws were violated and you have already paid some to the IRS or anywhere else to deal with this, you may be able to get that money back in an award for actual damages.  There is also the potential for getting attorney fees awarded too. 

I may want to start there and talk to a few consumer attorneys - you can email most of them for an initial consultation if calling is an issue.  I would venture a guess that any attorney who agrees to help you would wait for a bank check or money order to arrive if they don't accept western union or some other electronic transfer.

I only suggest this because going after the bank may be easier and cheaper than dealing with more complex tax laws due to a potential illegal action of the bank anyway.

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I think you hit the nail on the head Fsthardcheese. Sounds like rock solid advice to me. This is the tact I will take. I just am waiting now to hear the final word from the IRS. Then I will need to check out some attorney's and hope I get a good one. Prepaying the attorney works for me as I won't get in debt to him over my head.

Thanks so much, Dave

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