Question regarding CC settlement. Too late for PFD?

[Anonymous]

OK, I currently have one CC that shows up as a charge off on my report. It is a CC with a $30K limit that I got behind on thanks to my divorce. Anyways, it has a bunch of 60/120 days late on it's history in addition to the charge off that just posted on 4/08. A few months back I worked out a payment plan over the phone with the company and agreed to pay them $10K to settle the account and I have my last payment due at the end of this month. But now since I have been reading these forums I realize that I should have tried a PFD. What can I do now? Should I just not pay my last payment and send the letter now? Btw, I know about the 1099 they plan on sending me but there isn't anything I can do about that is there?

[llecs]

Not paying the last payment could void the agreement. $10k is a large chunk to settle. I don't know how much you saved via the settlement, but let's say it is $2000. Let's also say you have a 30% tax rate. That is a $600 tax on the $2k from the 1099. So, you really saved $1400. Would you be OK with taking a credit score hit (damage already done) in exchange for $1400 to you? I would. Plus you'd feel better knowing that your debt is paid.

You can always GW them down the road and they might delete because you kept your end of the bargin. And, sometimes, there might be an outside chance they may delete soon anyway.

Edit to add.....plus if the account is older than your average age, you may not want it removed anyway, even if it did say settled on the account. Removing it, if old, could harm your score.

Message Edited by llecs on 05-07-2008 09:45 AM

[Anonymous]

The balance is actually more like $24K so I am saving a little more than $14K by settling. The 1099 tax doesn't worry me too much because I have a judgement (against my ex-wife) for over $33K which I can deem bad debt and offset the 1099. I've had the CC for over 5 years but the last 2 have had a lot of late payments before the charge off so I can't see it helping my credit even if it changes to "settled for less." It's a B of A CC and I have had another car loan through them that I paid perfectly so could that help with a GW letter later? So I guess the question is, PFD now or GW later?

[llecs]

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kahuna wrote:
The balance is actually more like $24K so I am saving a little more than $14K by settling. The 1099 tax doesn't worry me too much because I have a judgement (against my ex-wife) for over $33K which I can deem bad debt and offset the 1099. I've had the CC for over 5 years but the last 2 have had a lot of late payments before the charge off so I can't see it helping my credit even if it changes to "settled for less." It's a B of A CC and I have had another car loan through them that I paid perfectly so could that help with a GW letter later? So I guess the question is, PFD now or GW later?

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I would still GW later. Not paying the settlement as agreed could void it. I'd rather pay $4200 in taxes (est. 30% at $14k) than pay $14k more to BofA because I didn't pay as agreed.

[Anonymous]

OK, thanks.  I guess my next question is how long after the account is settled do I have to wait before sending them a GW?

[llecs]

You can do it anytime. They don't have to follow-through or even respond. Unless their response was a full "Yes, we'll help you", I would send a GW every 45 days to start, and eventually work my way up to sending several monthly to varying address/contacts until they accept. Bug them into submission. I would start the first GW about 45-60 days after the payment clears (give them time to update on their own).