Settling a charge after 1099-C

Anonymous · ‎10-21-2014

I have a charge off on my credit report with Chase. At the beginning of 2013 they sent me a 1099-c and I paid my taxes and included the 1099-c in my taxes for 2013. The charge-off is for $10,000 it is still showing the full balance. I called today to ask if I could get the balance changed to zero and they said they would change the balance to zero for an amount of around $3700 and the status would change to "settled for less " with the zero balance. My question will I be able to get a mortgage loan with a zero balance and a status showing settled for less or does the status need to show paid in full in order to get a mortgage loan? The charge-off is about four years old.

pipeguy · ‎10-21-2014

As long as you were issued a 1099-C for the credit card balance, the debt is "canceled"

http://apps.irs.gov/app/vita/content/36/36_04_005.jsp?level=advanced

Once you pay the IRS if required and not avoided through one of the exceptions such as insolvency, that's it.

Tthe Creditor should zero out the balance and no longer report the tradeline once they issue a 1099-C.

If your issuer sent you a 1099-C for the account balance, you paid the IRS and now they are offering to settle the debt with reporting that the account was settled for less, that's all kinds of illegal.

It happens, but it shouldn't.

(edit = second link added) http://www.creditcards.com/credit-card-news/forgiven-debt-1099C-income-tax-3513.php

0REDSOX7 · ‎10-21-2014

Retain you a consumer finance attorney. Many will offer free consultations. With a clear cut case as this, they would be paying you $1,000 plus your attorney fees.

BK Discharge 2/11/14

Currently in the garden.

Anonymous · ‎10-21-2014

@pipeguy wrote:
As long as you were issued a 1099-C for the credit card balance, the debt is "canceled"

http://apps.irs.gov/app/vita/content/36/36_04_005.jsp?level=advanced

Once you pay the IRS if required and not avoided through one of the exceptions such as insolvency, that's it.

Tthe Creditor should zero out the balance and no longer report the tradeline once they issue a 1099-C.

If your issuer sent you a 1099-C for the account balance, you paid the IRS and now they are offering to settle the debt with reporting that the account was settled for less, that's all kinds of illegal.

It happens, but it shouldn't.

(edit = second link added) http://www.creditcards.com/credit-card-news/forgiven-debt-1099C-income-tax-3513.php

They should zero the balance, yes, but they are not obligated to remove the tradeline.

pipeguy · ‎10-21-2014

additonal link: http://www.forbes.com/sites/peterjreilly/2013/05/20/bank-cannot-issue-1099-c-and-subsequently-try-to...

and more detailed link: http://debtorprotectors.com/lawyer/2013/06/05/Debt-Collections/-The-King-of-Zombie-Debt-The-1099-C.-...

I do not believe that debt officially "canceled" as it says on the 1099-C can continue to be reported as anything but perhaps a neutal listing. In every case I went through with my crash and burn (business failure after 18 years) the 3 or 4 Chase or Citi accounts that were canceled were removed from our reports once a 1099-C was issued (wife and I owned the business as sole-P, which we personally were responsible for). Two of four AmEx accounts were settled for less, 1099's were issued for the balance and the accounts disappeared.

Of course if you read the links I posted above, it seems creditors are trying to have it both ways and the courts are pushing back. This is on the debt, not the reporting of the tradeline though.

Anonymous · ‎10-22-2014

Actually its really no different than settling for less than owed - because that is precisely what is happening - the creditor is 'settling' for $0. They MUST zero the balance, but deleting the tradeline is purely at their discretion. You really cannot argue that forgiveness of the debt means a default never occurred - it just means the debt will not be persued. The have the right to report the default, and the zero balance - meaning the debt is paid. I don't think you'll find any case law to support otherwise.

RobertEG · ‎10-22-2014

If you pay the full amount or settle for less, the debt is discharged, and thus the creditor must update the debt balance to $0.

Most mortgage lendors are concerned with having delinquent debt discharged as a pre-conditions.

However, some may additionally view a settled for less as a negative factor in their decision making.

It informs them that, in the past, the consumer did not pay the fulol debt they obligated. It is clearly a pattern that, if repeated, could mean a loss for any creditor.

Thus, whether paying in full or settleing for less will be a factor to a prospective lendor is an individual consideration to that lendor, not a general bar to new credit.

You might counter their offer by agreeing to pay a bit more, (e.g., 50%) in exchange for not reporting the optional specal comment of paid/settled for less.

Absent that optional reporting, the account will appear the same as if paid in full.