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Talking to Creditors

January 18th, 2008 at 02:55 am

Last night I received a call from Bank of America. They called to advise me that my account was now being transferred to collection (I thought I was in collections, they are calling almost daily). They further advised if I could give them $$$$ they would not send it to collections.

So I'm thinking to myself, this person is doing their job so I'm going to be real here. I tell the guy that if I had the money I would have paid my payment, I explain my financial situation and my lack of income. I further explain that I can't sell my home and pay them because my house is worth what I owe, a company that big and one that deals with mortgages, has to know about the housing crisis (they are buying Countrywide; what is up with that?).

I advise him I'm totally insolvent, owing more than I'm worth, I further inform him that I will be getting assistance from family and etc. to "settle" my debts with them. I advise him that I have consulted with a bankruptcy attorney and that is an option, but because of my strong convictions to pay what I can, I will settle with them at a later date.

The gentleman I spoke with was very nice and told me he was sorry to hear about my situation and wished me the best. He said he was following policy transferring my account to internal collections and he also said that later on I may be able to settle.

I then had a conversation with him about the IRS rules about cancelled debt. I told him that the lawyer had encouraged me to file bankruptcy because of the tax liability associated with cancelled debt and that with the state of our economy, I would think that the major credit card companies would lobby to eliminate that tax because it discourages people trying to settle their debt and this must be affecting the credit card companies and the number of filings people are doing (Bank of America was one of the biggest advocates for changing the bankruptcy laws and they lobbied for the change). He eluded that there may be other tax benefits to the credit card companies when a person files bankruptcy? Hmmmm, never thought about that.

With all the talk from the politicians about reducing tax and etc., you would think with all the foreclosures and credit issues people are suffering today, the cancelled debt tax would be eliminated, a good place to start instead of cutting tax for the rich.

To those readers who do not know about this tax, if you have debt that is forgiven, you will receive a 1099C and you have to claim this forgiven debt as income. Otherwise, if I have a credit card for $20,000 and I settle for $5,000, I will have a 1099C for $15,000, which I am to count as income on my income tax forms that year. However, if I am insolvent, meaning I owe more than I'm worth, I can file IRS form 982 and not be taxed on the 1099C to the amount of my net worth. Otherwise, if I owe $100,000 and I only have $50,000 in assets, I do not have to claim the first $50,000 in 1099C income. The flip side of this is if you file Bankrutpcy, you are exempt from the tax (doesn't that encourage bankrutpcy for many people?)

Well the wheels are rolling now and it will still be several months before I can settle. The credit card companies raised my rates from 2.99% to 29.99% and they are charging over limit fees of $39.00 per month and late charges of $39.99 per month, really trying to help me out here. Most credit cards will not settle until you are at least 120 to 180 days delinquent. I need the time to save money and pull things together, but there is a part of me that just wants this all over now. I can't imagine how much I will owe when I get to settlement, probably at least $150,000 - it scares me just writing it.

6 Responses to “Talking to Creditors”

  1. Nic Says:

    You offer a wealth of information. Perhaps you can also consider debt counseling as a career...or,a side job.

  2. fern Says:

    You're right that any 'forgiven debt' is considered a taxable event. So then your creditor becomes the IRS, which in my opinion is worst case scenario.

    The credit card industry is ruthless. They depend on the people who can't pay their bills for much of their income, so to take advantage of a bad situation, they immediately hike up interest rates when you don't pay and start piling on those late charges, making it harder and harder to dig yourself out. It's so outrageous.

    While we all need to take responsiblity for our actions, I believe the credit card industry has driven many people into serious debt situations precisely becus of their practice of hiking interest rates for any conceivable excuse....your credit score drops, or you're late with a payment to another credit card issuer, etc. The whole system needs a major overhaul.

  3. John Dunn Says:

    Nic, fern and Bank of America,
    I took the position that I did not owe the Credit Card Banks anything and won. The burden is on them to prove that you owe them money.

    You talk about taking responsibility for your actions, so how is it that you believe you owe them anything?

    It is not the Credit Card industry, it is the Government that allows that to happen. The Banks write the debt on their books when they create the account and then when you stop paying, they write it off the books. Write on and write off...

    If you don't know what your rights are, you have no rights.

    As far as the IRS, show me a form prescribed by the Secretary of that conforms to the Paperwork Reduction Act, (PRA).


  4. Bill Says:

    Warning - Do not contact or send anything to John Dunn "olivier@ipa.net" ... his operation is a scam.

  5. TheInhabitant Says:

    The Form 1099-C OMB 1545-1424 is routinely issued improperly by the creditor who discharges the debtor’s deficiency.

    The Internal Revenue Service presumes the 1099-C as issued by the Creditor to be presumptively correct. This statutory fact was codified by those charlatan, thugs, and thieves who populate the federal legislature, and is codified in Title 26 USCA Subtitle F Chapter 76 Subchapter E § 7491

    This 1099-C moves as a legal fiction within a legalistic arena known as the “fiction of law”. The “fiction of law” is legally defined as a falsity presumed to be true to secure justice, albeit by devious means.

    Anyone who stipulates that the discharged deficiency will accrue as taxable income to the “debtor” has no comprehension to the written laws of the United States or the Treasury’s substantive rules and interpretive regulations codified in Title 26 CFR part 1.

    When confronted by the Form 1099-C, all one need do, is administratively address the issue within the form driven substantive rules of the Internal Revenue Service.

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