topic Re: $13,000 Collection in Rebuilding Your Credit

$13,000 Collection

Anonymous — Thu, 31 Jan 2013 20:14:17 GMT

Ok back story, this is a collection that started from a private school loan. I've been paying $300/month for almost 3 years. I have the cash to pay the $13,000 but I know they are able to negotiate based on trying to do so a year ago. I'm sure I'll be fine with whatever number we settle on, what I'm more concerned with is that effect on my credit reports. Should I be using these negotiations to ask for anything else? PFD, letter of zero balance? We are 10 months out from buying a home and I want to be as perfect as I can be for the underwriters!

Re: $13,000 Collection

Anonymous — Thu, 31 Jan 2013 21:32:21 GMT

Sure, you can ask them for a PFD.

Is it a 3rd party CA or in house OC collection?

Settled or paid in full looks the same to FICO and won't hurt your score. Where it could cause a problem is on manual review.

You could ask them if you settled to report as paid in full if they won't do a PFD.

Re: $13,000 Collection

RobertEG — Thu, 31 Jan 2013 21:34:44 GMT

You have a golden carrot to dangle at them and attempt a modification of your existing agreement.

I would offer them full payment now in exchange for agreement to delete from your CR.

Satisfaction of the debt prior to mortgage app process is definately a plus, with or without CR deletion, as it is hard to predict what requirements your prospective mortgage lendor might impose. They may, even though you are under a payment plan and are making satisfactory payments, want the debt satsified in full prior to loan approval.

If you can also achiever CR deletion, any part that your score may play in the mortgage app process, such as getting you a lower rate, will be a plus.

If they accept a PFD, I dont see that you need any letter of zero balance, as it will no longer be on your CR, and thus not somethng the mortgage lendor will even be aware of.

That is the best of all options.

Re: $13,000 Collection

Anonymous — Thu, 31 Jan 2013 21:45:25 GMT

It sounds like they are a 3rd party CA, but they make it sound like they work a lot with the school I went to. Maybe they have some contract with them. I'm really nervouse about this whole thing. I just want them off my expense list each month. I hate being at their mercy. I'll try those things, I appreciate the suggestions I'll let you know how it goes! May the Force be with me!

Re: $13,000 Collection

Anonymous — Thu, 31 Jan 2013 23:14:32 GMT

SUCCESS!!! I just got a call back from them, they offered 2 payments of $5,000 and they said they would remove it from the CBs! I didn't want to counter I'm just so happy this is finally going to be over with! Besides I am already saving 3k off the current balance. My wife is going to be so happy!

Re: $13,000 Collection

Anonymous — Thu, 31 Jan 2013 23:36:32 GMT

Congrats!

Re: $13,000 Collection

Shogun — Thu, 31 Jan 2013 23:50:29 GMT

Happy dance!

Re: $13,000 Collection

sphinx313 — Fri, 01 Feb 2013 03:52:50 GMT

Congrats! Be on the watch for the 1099-C on the $3,000 for next years taxes.

Re: $13,000 Collection

RobertEG — Fri, 01 Feb 2013 08:32:18 GMT

When you do get the 1099c, check out your obligation to pay before simply paying.

If you can show insolvency, meaning your debts, including the cancelled debt, exceed your assets, you have no obligation to pay taxes on the cancelled debt.

Re: $13,000 Collection

Anonymous — Sat, 02 Feb 2013 20:56:13 GMT

Wait what? I've never heard of a 1099-C. What is that? Am I still going to be responsible after I pay the CA $10k and they remove it from my CR?

Re: $13,000 Collection

Anonymous — Sat, 02 Feb 2013 21:01:24 GMT

A 1099-C is sent to the IRS and to you showing a forgiven debt. If you settle for say 5000 the other 8000 could be put on a 1099-C. That 8000 will be considered income for the year you receive it.

Re: $13,000 Collection

Anonymous — Sat, 02 Feb 2013 21:09:15 GMT

So in this case where the settled amount difference would be $3k I'll receive a form for 2013 taxes and I should save that for when I file taxes for that year? I make just under $100k and am purchasing a home this year, how much would this affect me?

Re: $13,000 Collection

RobertEG — Sat, 02 Feb 2013 21:14:06 GMT

The tax code considers debt cancelled by a creditor as "income" to the consumer, although not in the normal sense of what is considered cash income.

If at least $600, the IRS wants its cut on that "income."

Uncle Sam, not the creditor, gets it. The creditor is simply required to notify the IRS of the consumer's obligation.

The IRS will excuse that obligation if the consumer can show insolvency.

Re: $13,000 Collection

Anonymous — Sat, 02 Feb 2013 21:17:58 GMT

Well I'm pretty sure I wont be able to show insolvency so I'm just going to be stuck with it I guess, that sucks.