topic Re: Profit and Loss Writeoff? in Rebuilding Your Credit

Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 01:07:43 GMT

Hello,

Im attempting to repair my credit.

One of my reports has an account listed as "Charged iff as bad debt", another has the same account listed as "bad debt Collection" another has it as "unpaid balance reported as loss by credit grantor".

They are all bad. But what is the difference between the descriptions?

This account i am referencing has been closed since 11/04. The last activity was 9/05. I still owe a large amount on it however I have not heard from anyone at this creditor in quite some time.

Is it worth it at this point to try and pay it off?

Its my next to last CC im paying off and probably can't start to pay it off for another 6 months.

Any input / feedback would be GREATLY appreciated.

Thanks!

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 03:50:35 GMT

AFAIK, it's all the same thing. A charged off debt is a bad debt is a profit/loss write-off (which really just means they charged it off as a bad debt).

A more important topic will be WHAT exactly was the "last activity" on this account???!! And what state are you in (and/or what state did you live in when you incurred the debt)???

I'd worry more about SoL and potential lawsuits than your CRs ... if it's a CC, chances are it's still within SoL (average SoL for CCs is anywhere from 3-6 years) and you could be sued for it. At the very least, I'd find out the SoL and the TRUE date of last activity (since in some states, that decides WHEN the SoL starts or resets from). It'd be worth it for the peace of mind.

I don't mean to freak you out or worry you needlessly ... it's just that better safe than sorry!! Once the SoL isn't a worry, you can attack this debt mercilessly and get it OFF your CRs!!

Holler back with your state(s) and the other pertinent info I mentioned!!

Re: Profit and Loss Writeoff?

llecs — Wed, 01 Oct 2008 04:09:18 GMT

Ditto to Wonderin...

Don't even think about tackling it until SOL expires OR you have the $$$ to PIF. You will see increased collection activity if you DV, PFD, GW, or otherwise look at the OC funny.

And you may not want to do a PFD. if this is your oldest account or older than your avg. credit age, then removing it could hurt you.

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 14:12:56 GMT

Thanks for the info!

Connecticut is the state.

The account was closed in 11/04. I think the last activity on the account was a payment I sent in Sept 05 (which i think at the time was simply to get them to stop calling).

Its been 3 years now, and im not sure what the laws are regarding Sol here.

Should i continue to not move on this?

As it has been 3 years would they really sue me at this point?!

Re: Profit and Loss Writeoff?

llecs — Wed, 01 Oct 2008 14:24:47 GMT

http://www.bankrate.com/brm/news/cc/20040116b2.asp

Your SOL is 6 yrs from DOFD or possibly from last payment. So assume that they can sue through September 2011. And yes, there is a possibility they can sue.

I would save as rapidly as possible to offer a PFD. Once you do that, then you may see an increase in your scores if it was factored into utilization. You also prevent CAs from taking over and you prevent a lawsuit. Win-Win.

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 14:31:02 GMT

@Anonymous wrote:
Thanks for the info!
Connecticut is the state.
The account was closed in 11/04. I think the last activity on the account was a payment I sent in Sept 05 (which i think at the time was simply to get them to stop calling).
Its been 3 years now, and im not sure what the laws are regarding Sol here.
Should i continue to not move on this?
As it has been 3 years would they really sue me at this point?!

Well, they might ... and they might not. It depends on the dollar amount and how unscrupulous they might be.

LEGALLY, you're out of SoL (CT doesn't reset the clock with payments -- and it's 3 years from the date of last action caused -- meaning, the clock started when you missed your first payment before CO). LEGALLY, you're safe and sound. BUT, a wee thing like SoL doesn't always stop them from suing -- even though some states have extreme sanctions against suing outside of SoL.

I'd not worry about it. Nor would I touch it. As Ilecs said, if you PFD or complain/dispute, they might remove it altogether and it could adverely affect your AAoA.

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 14:34:34 GMT

@llecs wrote:
http://www.bankrate.com/brm/news/cc/20040116b2.asp
Your SOL is 6 yrs from DOFD or possibly from last payment. So assume that they can sue through September 2011. And yes, there is a possibility they can sue.
I would save as rapidly as possible to offer a PFD. Once you do that, then you may see an increase in your scores if it was factored into utilization. You also prevent CAs from taking over and you prevent a lawsuit. Win-Win.

Well, duh on me. I totally missed that.

For some reason, I just glossed over the Written and glommed onto the "Oral" -- stupid, stupid, stupid.

Re: Profit and Loss Writeoff?

llecs — Wed, 01 Oct 2008 14:53:29 GMT

@Anonymous wrote:
@llecs wrote:
http://www.bankrate.com/brm/news/cc/20040116b2.asp

Your SOL is 6 yrs from DOFD or possibly from last payment. So assume that they can sue through September 2011. And yes, there is a possibility they can sue.

I would save as rapidly as possible to offer a PFD. Once you do that, then you may see an increase in your scores if it was factored into utilization. You also prevent CAs from taking over and you prevent a lawsuit. Win-Win.
Well, duh on me. I totally missed that.

For some reason, I just glossed over the Written and glommed onto the "Oral" -- stupid, stupid, stupid.

No, I missed it too. Usually Open SOL is lower than Written. So, I opened the link and saw the 3 as being the lowest and almost responded with that.

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 15:17:43 GMT

The feedback here is great.

What is AAoA?

Anyways I dont think i want to reach out to them for any reason at all anytime soon.

The balance due is over 17K and there is no way I can pay them that (it was much less however as you know the late fees add up to a couple extra thousand after many months of not paying!)

I currently have around 20 accounts (most in good standing) on my reports with about 13 years of credit history. So i think somehow getting it removed might be the best course of action and it wont impact my scores that much but i could be wrong.

When / if I am able to reach out to them,- what is the best recommended course of action at that point? Removal first and if that does not work, then simply try to pay it down?

THANKS EVERYONE FOR YOUR FEEDBACK!

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 15:21:31 GMT

@Anonymous wrote:
The feedback here is great.
What is AAoA?
Anyways I dont think i want to reach out to them for any reason at all anytime soon.
The balance due is over 17K and there is no way I can pay them that (it was much less however as you know the late fees add up to a couple extra thousand after many months of not paying!)
I currently have around 20 accounts (most in good standing) on my reports with about 13 years of credit history. So i think somehow getting it removed might be the best course of action and it wont impact my scores that much but i could be wrong.
When / if I am able to reach out to them,- what is the best recommended course of action at that point? Removal first and if that does not work, then simply try to pay it down?
THANKS EVERYONE FOR YOUR FEEDBACK!

Unless you have them on a HUGE legal violation, I don't see them removing unless you paid the balance off (whether via settlement or in full).

Right now, they have the leverage. They can still sue you or just let this pull your scores down ... unless you have some "poop" on them, they have no reason to even entertain removal -- unless you can prove that they can no longer legally collect on the debt. :/

I'd say, let it age and save up to settle, at least. But for good measure, just in case they decide to do something before the SoL's up, I'd make sure to have at least 75% of the balance on hand to avoid a judgment.

Re: Profit and Loss Writeoff?

Anonymous — Wed, 01 Oct 2008 16:12:34 GMT

I thought in certain cases a P&L writeoff has tax implications - it's like getting free money from the Creditor that gets the consumer taxed, while the creditor gets a tax relief, on a small amount of the original debt. I would expect that in these cases, the debt is not recoverable any longer by the creditor - does anyone know for sure?

Re: Profit and Loss Writeoff?

Anonymous — Thu, 02 Oct 2008 21:58:15 GMT

I think there are tax implications. 1 of my cards that i settled on for a reduced rate sent me the remaining balance that i had to file when i did taxes. they counted the remaining balance as untaxed income which really hurt me as i ended up owing more taxes that year because of it.

in this case, the credit report says this account particular was charged off as bad debt..etc, however they havent sent me anything that the above mentioned credit card did regarding me being taxed on it.

Re: Profit and Loss Writeoff?

valley_man0505 — Fri, 03 Oct 2008 14:40:45 GMT

@Anonymous wrote:
I thought in certain cases a P&L writeoff has tax implications - it's like getting free money from the Creditor that gets the consumer taxed, while the creditor gets a tax relief, on a small amount of the original debt. I would expect that in these cases, the debt is not recoverable any longer by the creditor - does anyone know for sure?

The P&L writeoff is a tax situation for the OC, however, to my knowledge, this is not something that would affect the debtor. When they actually collect the debt, however, that is a different scenario. If they allow you to settle for less than the amount owed, the "forgiven" balance is considered "untaxed income" by the IRS if the OC reports that to the IRS--I think the OC actually writes off the forgiven amount as a loss, so the IRS bascially passes the bill to the debtor. Writing off the "forgiven" amount is different than a CO, since charging off a debt is NOT forgiving the debt--they can still collect on a CO!

I don't know if any of that makes any sense. Basically, though, they can write off a debt as a loss on their taxes. Then they could still collect the debt even though they already wrote it off as a loss. Then, if they agree to settle and collect less than the amount actually owed, they can also write-off the "forgiven" amount as a loss again, and THIS is the situation that would affect the debtor as the IRS would then require the debtor to report the forgiven amount as income.

Re: Profit and Loss Writeoff?

Anonymous — Fri, 03 Oct 2008 14:56:46 GMT

@Anonymous wrote:
I thought in certain cases a P&L writeoff has tax implications - it's like getting free money from the Creditor that gets the consumer taxed, while the creditor gets a tax relief, on a small amount of the original debt. I would expect that in these cases, the debt is not recoverable any longer by the creditor - does anyone know for sure?

Once a 1099-C is issued the debt is no longer recoverable by the CA (or OC). Several CAs have been royally spanked on the basis that they've submitted 1099-Cs and then continued attempts at collection.

It's not "income" if you have to pay it back.

Re: Profit and Loss Writeoff?

valley_man0505 — Fri, 03 Oct 2008 15:04:58 GMT

Wonderin--for clarification, the 1099-C is what they file for "forgiven debt", not the form filed for a CO, right? Many of us would have much simpler lives if they could no longer recover debt that has been CO'd.

Re: Profit and Loss Writeoff?

Anonymous — Fri, 03 Oct 2008 15:14:28 GMT

@valley_man0505 wrote:
Wonderin--for clarification, the 1099-C is what they file for "forgiven debt", not the form filed for a CO, right? Many of us would have much simpler lives if they could no longer recover debt that has been CO'd.

Yes, the 1099-C is for "forgiven debt" and it's SUPPOSED to be filed within 36 months of a charge-off or cessation of collection activities. The only catch is that if the OC sells the debt (so it's not technically considered an uncollectable debt), it's NOT an uncollectable debt, since it's changed hands.

Sort of like this:
Joe defaults on CC with ACME CCC for $200. ACME tries like heck to collect on the debt for 35 months. But since they don't want to forgive the debt, they sell the debt to ACME CA for $100. If they don't sell the debt, they have to write it off as a P&L and send you the 1099-C for the cash value of the debt ($200).

ACME CA tries to collect on the debt for 35 months (again, staying within the 36 months rule). When they're unable to collect, they sell the debt to BETA CA for $50. Restarting the 36 month rule. If BETA CA can't collect after 35 months, they will sell the debt to CHARLIE CA for even less (say, $40).

If CHARLIE CA can't collect and they send you a 1099-C. Some have said they can only 1099 THEIR loss on the debt (say, $40). Some have said that CHARLIE could 1099 for $240 (the amount of the original debt + what they've paid for it)... or $200 (original debt amount). I honestly believe that the IRS regs state that the debt can only be forgiven for as high as the original debt (no collection fees or interest added). IRS regs DO support this.

At least, that's what I gather from the IRS.

Re: Profit and Loss Writeoff?

Anonymous — Fri, 03 Oct 2008 15:19:44 GMT

@valley_man0505 wrote:
Wonderin--for clarification, the 1099-C is what they file for "forgiven debt", not the form filed for a CO, right? Many of us would have much simpler lives if they could no longer recover debt that has been CO'd.

Forgot to say: I don't think it really matters unless it depends on caring WHO you pay. If you're happier paying the IRS (some years I would be, some years NOT), then ... but when it comes down to it, in the end, you just .... pay.

The advantage of paying the 1099 (well, not PAYING it, per se, but letting it "enhance" your income for that tax year) is that you wouldn't owe the interest and/or fees. The original debt is just that -- just the original amount owed prior to interest and such.

So if you owed ACME CCC $200 and they tacked on $1000 in interest over the years, ACME has to take the hit on the interest -- they simply don't get a penny of it -- and that "savings" is passed on to you.

But now, if that "extra" $200 slips you into a higher tax bracket and you go from paying 21% in taxes to 26%, it might not be much of a savings at all. I don't see how that realistically happen (though we've had a simple extra $200 slip us higher -- but not enough to be THAT higher in tax percentage), but it COULD, depending on the amount forgiven and where you stand.

*shrugs*

Re: Profit and Loss Writeoff?

valley_man0505 — Fri, 03 Oct 2008 15:30:01 GMT

A CO isn't considered "forgiven", though, correct? For example, I had a Discover card CO'd in 2004. Discover still owns the debt, but they recently had a CA try to collect from me. This does not fall under the 36 month rule, right? Is a 1099-C filed for a CO? Or, only if they "settle" for less then the total amount owed?

FWIW--I would rather pay the IRS anyday, just out of principle. I would rather see my money go them than to a CA. Of course, a CA that plays by the rules and actually works with me would be okay, but, I would hate to see the "typical" CA's get a dime from just out of principle--they don't deserve it for the way they treat people.

Re: Profit and Loss Writeoff?

Anonymous — Fri, 03 Oct 2008 16:57:08 GMT

@valley_man0505 wrote:
A CO isn't considered "forgiven", though, correct?

NO. It's still considered a viable, collectable debt.

For example, I had a Discover card CO'd in 2004. Discover still owns the debt, but they recently had a CA try to collect from me. This does not fall under the 36 month rule, right? Is a 1099-C filed for a CO?

It's filed for a CO when it's determined to be "uncollectable." Usually, that status occurs when it's not been collected upon for 36 months. And BTW, that's of ACTIVE collection efforts. So far, I've not been able to find any determining criteria on what exactly constitutes "active" efforts. Still looking. :/

As to why exactly Discover's not 1099ed the debt, yet, I don't know. I'm still looking up all the regs dealing with the whens, whys and hows. So far, though, it seems that after 36 months, they're SUPPOSED to.

Or, only if they "settle" for less then the total amount owed?

If they're unable to collect, period, OR settle for less.

Though my previous post might have been a bit misleading. If you defaulted on a $200 debt and they P&Led it, they wouldn't have to send you a 1099-C. That's only applicable for amounts OVER $600. But again, that could only be the original debt -- no interest or fees.

FWIW--I would rather pay the IRS anyday, just out of principle. I would rather see my money go them than to a CA. Of course, a CA that plays by the rules and actually works with me would be okay, but, I would hate to see the "typical" CA's get a dime from just out of principle--they don't deserve it for the way they treat people.

Yeah, I guess me, too. But the IRS DOES irritate the crap out of me some years. Scares the crap out of me, too!! o-O