One Main Financial Debt Settlement

[newscore89]

Hello Guys,

I'm hoping someone here can give me some advice on how to deal with One Main Financial.   I had foolishly took a high rate interest loan out with them in the past &  was unable to continue the monthly payments.  As expected, I was taken to court, they were awarded judgment for $800.00,  & I agreed to pay that amount plus costs, along with an annual interest rate of 25%! (I know stupid right?)  A few months into making payments I lost my source of income & was unable to continue paying.  Rather than immediately collect on the judgment their attorney offered me a lower monthly payment amount, with nothing to lose at that point, I agreed to the lower amount but eventually was unable to continue payments due to being unemployed.  Consequently, the attorney attempted to garnish my wages, but since I was not employed, &  because the amount owed was so small, I think the attorney decided to put me on the 'back burner' so to speak & allow for the amount owed to build up thru the additional interest being tacked on annually. 

Fast forward a couple of years, I receive a letter in the mail from them stating how their attorneys had contacted me about the judgment and due to the nature of the pandemic and financial challenges etc ... they have decided to work with me "directly". They offered to settle the account in full for less than the amount owed.  They offered me a settlement amount at 50% of what was originally awarded in court!  

I am considering taking them up on their 50% offer,  however, I have concerns, currently, this debt & the judgment IS NOT listed on my credit report.  Now I read somewhere that judgments are no longer reported by the 3 credit bureaus, but I dont want to take any chances, my credit score is pretty good, and I'm afraid if I were to contact them & agree to their settlement offer, can & will:

1. Place this debt and settlement on my credit report...that would destroy my credit rating

2. Have the amount be considered a taxable income.  I read that debt settlement can involve a process called "debt forgiveness", where I won't owe money to them anymore, but I may be taxed by the IRS on that $400.00 amount that was forgiven

Guys, I could really use some guidance here, I can pay the $400 settlement offer, I just don't want to wreck my credit and have this debt now listed on my 3 credit reports for the next 7-10 years, nor do I want the amount discounted to all of a sudden be taxed by the government as income.   Any advice on how to tackle this what to say get in writing from them would be helpful.  

Thank you all in advance for any help

NewScore89

[OmarGB9]

For sure the judgment itself wouldn't show up, but there's no guarantee the charge off account wouldn't. Technically they have every right to report it, whether it's paid or not. IF it were to show up, it wouldn't be for "the next 7-10 years." The time a delinquent account stays on reports is 7 years from DOFD, or Date of First Delinquency. You didn't mention any dates, but whenever the account was first late and subsequently charged off is when the clock starts.

As far as the tax aspect, there's no real way around that, the IRS will consider the forgiven amount taxable income and will charge you taxes on it, unless you can prove you were insolvent at the time.

[newscore89]

Thanks for the reply OmarGB9,

In regards to the DOFD, I can't recall the actual date that I first went delinquent, and charged off. The loan was originally taken out in January 2012 & the court judgment date they obtained was December 2015.  So it's been 5 years and 9 months since the judgment date.  Now in regards to the IRS, the original amount they obtained a judgment for was $800.  After taking into consideration what you stated regarding the taxable income situation, it appears it would be better for me to settle the full amount than take their 50% offer and then have to deal with the IRS regarding the discounted amount being counted as income.  

Again, my biggest concern is having the record of this debt all of a sudden appear on my credit reports after all of these years. I'm wondering if you think it would be possible to get them to agree to NOT do this, just simply collect their full amount owed ($800.00), and not place the settled in full amount on my credit report.  Basically, they get paid, and we go our separate ways.  From my biased point of view, it just doesn't make any sense to do something as malicious as placing the debt on a person's credit report presently when that could have been done years ago even before obtaining the court jugment.   Your thoughts?

Thanks again for replying back

Newscore89  

[OmarGB9]

Well, firstly, judgments can usually be renewed indefinitely, so the time since they first acquired it is irrelevant. I was talking about the account itself. If they acquired the judgment in December 2015, then most likely your DOFD was sometime in early 2015 or perhaps late 2014. Either way you should be close to the credit reporting exclusion timeframe. Do you happen to have any old credit reports or old statements from that account to try and figure out what your DOFD is?

As for the IRS thing, if you settle for 50%, then that means only $400 would be forgiven and counted as taxable income. Taxes on such a small amount probably wouldn't be much. BUT, I am NOT a tax advisor; this part of the question is something I'd advise you ask an accountant/tax attorney.

I understand your concern about it showing up all of a sudden and messing up your scores. Like I said, there's no guarantee they wouldn't do that, unless maybe you could get them to explicitly say IN WRITING that they won't do that in exchange for payment in full. I completely agree it's malicious, but it's not illegal either. I'd say try to get them to email/mail you a latter saying they won't report anything to the credit bureaus in exchange for payment in full.