Settling debt

[pengyou]

Five years ago, I could not find a decent job, so I left the U.S. I still was not making enough to pay my bills - have about $25K in credit cards - so have not paid them in the past 5 years. I recently checked my credit score and found that my debt has been sold, each card to a different company. One company sent me a letter informing me that I could pay off my debt for about 1/6 of the face value.

That sounds appealing to me. This has hung over my head for so many years. I now have some money to address the issue. I am looking for two things:

1. A check off list on how to proceed with this company to pay off my debt, so that I don't get shafted.

2. General advice on how to proceed.

Thanks!

[btctony]

Get everything in writing before you give them any money. Never give them access to your checking account for automatic withdraws. Ask them if they are willing to remove the collections from your credit report in exchange for paying them.

You can find the pay for delete letter templates with a simple google search. You're in a good position to get them to agree to remove the collections from your credit report.

[snafu]

I suggest you pay by bank draft rather than cheque or electronic transfer. You need a clear paper trail, this is no time to be naive.

[dczech09]

Ask them if they are willing to remove the collections from your credit report in exchange for paying them.

The only problem with this is that the only parties that can remove remarks from your credit report are either the credit bureaus, or the original creditor who placed the remark on your credit report in the first place.

For example, if you had a Capital One credit card account that was sold to XYZ Collections, and it was Capital One who put the "account in collections" remark on your report, Capital One has the power to remove the remark but XYZ Collections does not. So I would not bank on this type of deal. The bad debt buyer/collector does not have this power, so trying to negotiate this type of deal is useless. They may say that they can (they will say anything in order to get you to pay), but that does not mean that you have a deal.

Otherwise I agree. Getting everything in writing first, possibly have a lawyer look at it, and NEVER give the collector access to your accounts. Use money orders or cashiers checks.

Also, be aware that any forgiven debt is considered an income under tax law. The creditor will issue you a 1099 for any forgiven debt and you will pay taxes on that amount as if it were a regular income.

[btctony]

The only problem with this is that the only parties that can remove remarks from your credit report are either the credit bureaus, or the original creditor who placed the remark on your credit report in the first place.

For example, if you had a Capital One credit card account that was sold to XYZ Collections, and it was Capital One who put the "account in collections" remark on your report, Capital One has the power to remove the remark but XYZ Collections does not. So I would not bank on this type of deal. The bad debt buyer/collector does not have this power, so trying to negotiate this type of deal is useless. They may say that they can (they will say anything in order to get you to pay), but that does not mean that you have a deal.

That's an interesting point. I've never had anything in collections, so I don't have first hand knowledge. I do read a lot of credit rebuilding forums and have read over and over again of the success that people have getting collections off their reports at the time of making a deal to settle the debt. Not just a verbal agreement. Actually having it in writing seeing the collection agency follow through with the promise.

I'm not sure if we're actually talking about the same thing though. Are you talking about a remark in the account status section or the section that lists judgements and collections?

[dczech09]

That's an interesting point. I've never had anything in collections, so I don't have first hand knowledge. I do read a lot of credit rebuilding forums and have read over and over again of the success that people have getting collections off their reports at the time of making a deal to settle the debt. Not just a verbal agreement. Actually having it in writing seeing the collection agency follow through with the promise.

I'm not sure if we're actually talking about the same thing though. Are you talking about a remark in the account status section or the section that lists judgements and collections?

Both the account status section and the listing of derogatory remarks.

Be careful of who you are reading this type of information from. Are they the same people selling "credit repair kits?" The Federal Trade Commission and the Fair Credit Reporting Act are pretty clear that "pay for delete" is technically illegal. Only the original creditor can remove a derogatory remark, and they can only do so if it is inaccurate. Accurate bad remarks will stay on your credit report in accordance with FCRA.

What some of the people you are reading about are doing (possibly) is settling a debt and requesting the collection agency place a note in the credit report that says that the bad debt has been settled or paid off for less. A "settled" debt reflects much better on a credit report than a plain old "bad debt."

When a collector commits a "pay for delete" under a negotiated dealer with a debtor, they are in violation of the Credit Repair Organizations Act, FCRA, and the FTC's rulings that creditors and collectors must report accurate information in all cases.

Plain and simple, pay for delete is illegal. Some companies can get away with it if they are removing their own remark.

There is a great deal of information online about the pay for delete topic. Many people CLAIM that they have done it successfully (and I don't doubt that some have). However, when you look at credible sources, we see that this practice is actually illegal but many creditors can get away with it if they are removing a bad remark that they themselves posted on someone's credit report.

Hope this makes sense!

[pengyou]

Thanks for the advice. Unfortunately, I missed the deadline to take the offer while trying to get the money together. Suggestions for what to do now:

1. Call them and see if they will extend the offer? (I am concerned that if I call in any situation other than having a money order to put into their hands, they are going to try to increase the amount or even try to get the full amount from me.)

2. Wait and see if they will send another offer - perhaps even a lower amount?

3. Call and see if I can negotiate another offer, for a lower amount?

[dczech09]

Your credit is probably already trashed, so do not let any credit factors determine your next move.

Since you are so far behind, I would approach it one of two ways:

1. If you have the ability to repay your debt, then do so. It is your debt, you borrowed it, so do the right thing and pay it back.

2. If you cannot pay it back, then spend some time stashing money aside. It sounds like you have not paid for a while, so this may be your situation. In that case, stash away some money for a bit and wait until they contact you. They WILL contact you again! And when they do, you can discuss a new settlement amount. Say to the effect of "I have $X that I am willing to offer in settlement. If you will accept this, then please send written confirmation. Once I receive written confirmation, I will send the money."

ALWAYS make sure a deal is in writing. Never send them a check or allow them electronic access to your bank account. Send a cashiers check or money order for payment.

Rest assured, the bank or collector will contact you again! They will do so in order to get acknowledgement of the debt from you because they do not want the statute of limitations to pass. You probably have several years before a statute of limitation expires (depending on your state). But rest assured, they will try to collect again. Probably sooner than later. So save up money and get ready!

[dczech09]

Another thing, just as an FYI...

If and when you settle your debt, any forgiven amount of the loan will be considered an income for tax purposes. As long as the forgiven amount exceeds $600 (easy), the creditor will file a 1099 for you with the IRS. What this means is that you will treat the forgiven debt as an income and will have to pay income taxes on that amount. So if $20,000 is forgiven for example, you may have a tax bill as much as $3,000 (or even more).

Just something to be aware of.

[pengyou]

Interest? I did not know that. I have 2 credit cards that are in the same boat. Both have been sold to other companies. So, am I better off to wait until the end of December to deal with the first one? and then, a day or two into January, contact the second company? I am afraid that if I pay off both in one year - at the same discount - I will get slapped with tax on $40K in income Do these companies have access to my credit rating? I am also afraid that if I pay off one now and then wait until next year to pay off the second one, the second one will not be so willing to negotiate for such a low rate if they know that I have already paid of half of the total credit card debt, i.e. may think that they can get more $$ from me.

[corawhite07]

Five years ago, I could not find a decent job, so I left the U.S. I still was not making enough to pay my bills - have about $25K in credit cards - so have not paid them in the past 5 years. I recently checked my credit score and found that my debt has been sold, each card to a different company. One company sent me a letter informing me that I could pay off my debt for about 1/6 of the face value.

That sounds appealing to me. This has hung over my head for so many years. I now have some money to address the issue. I am looking for two things:

1. A check off list on how to proceed with this company to pay off my debt, so that I don't get shafted.

2. General advice on how to proceed.

Thanks!

Have you ever tried to file for bankruptcy? Or did you went to financial adviser?

[Weird Tolkienish Figure]

Five years ago, I could not find a decent job, so I left the U.S. I still was not making enough to pay my bills - have about $25K in credit cards - so have not paid them in the past 5 years. I recently checked my credit score and found that my debt has been sold, each card to a different company. One company sent me a letter informing me that I could pay off my debt for about 1/6 of the face value.

That sounds appealing to me. This has hung over my head for so many years. I now have some money to address the issue. I am looking for two things:

1. A check off list on how to proceed with this company to pay off my debt, so that I don't get shafted.

2. General advice on how to proceed.

Thanks!

Frankly you should pay what you owe, however, whatever they want you to pay, below the original amount owed, I would be fine with.