“Debt Settlement” Archive
Feb
6
I received an email from a reader who finds himself in the same situation with American Express as I found myself in several months ago. I had significant balances with American Express which I knew I wouldn’t be able to keep up with given they were charging me 30% interest each month. Like this loyal reader, I too tried to get American Express to work with me on a reasonable payment plan with reasonable interest. As I mentioned in prior posts about my negotiations with American Express, you cannot reason with the unreasonable.
I had three accounts that were officially charged-off by American Express in 2007:
- AMEX Blue ~12K Balance
- AMEX Gold ~8.7K Balance
- AMEX Green ~1.8K Balance
In early December, the negotiations with the collection agencies that had been handling the AMEX accounts had stopped. The lawyer that I had been using–a member of my group legal plan–was dropped from the plan and my case was closed. Since then I have continued to receive phone calls–albeit less frequently–and numerous letters from the collection agency than is handling the AMEX Gold and AMEX Green accounts. The AMEX Blue account actually went back to AMEX.
In mid January, I received an offer from American Express to settle the balance on the Blue Account for 55% of the original balance. The offer came with several important caveats:
- Should I ever apply for an personal AMEX card again, any amount that was ‘forgiven’ would have to be repaid for the application to be considered
- Should I ever apply for an corporate AMEX card again, any amount that was ‘forgiven’ would have to be repaid for the application to be considered
From my perspective the only possible problem would be getting an AMEX corporate card. I currently have one with my current employer, an employer which I frankly don’t see myself leaving anytime soon. That said, there is always the possibility I’d need to take another job and apply for an AMEX corporate card. There are other corporate card providers, but AMEX seems to dominate that marketplace.
The other problem, quite frankly is that I don’t have $6,500 sitting around to send to AMEX, so a lump sum debt settlement isn’t in the cards. From my perspective, I’m left with the following options:
1) Repay everything in full over time, with payments that fit my budget. The accounts have already charged off so frankly AMEX would be happy to collect something each month on these account. Should I decide to head down this route, I will ask that upon payment in full, AMEX remove the charge-off entry from my credit report. The removal of the charge-off would likely be a deal breaker for me in this scenario, particularly given how inflexible they have been to date.
2) Settle for an amount less that the amount owed. Again, I would ask that the charge-off entry be removed from my credit report. If they didn’t agree to this, I’d ask that the charge-off be reported as ‘Paid In Full’ when settled for a smaller amount. This is probably the more likely scenario and until confronted with having to repay any forgiven amount, I’d just be done with AMEX and never do business with them again from a personal perspective.
3) Do nothing. Given the accounts are already listed as charged-off, my credit score has likely taken a big hit already. In the State of Washington, the statute of limitations for creditors to pursue collection is 3 years. After that, they cannot come after you BUT the negative credit information will remain for a total of 7 years. This is an undesirable choice because the creditors could sue me, something that is feasible given the amount of the debt. I don’t recommend folks take this approach.
Ethically I would like to try Option #1 and given my tight budget, this may be the only possibility for now. That said, if I could get the charge-off entry removed using Option #2, I would figure out a way to make this happen. I’m willing to take a calculated risk that the next time I would need to apply for an AMEX Corporate Card, I will be in a financial position that would allow me to simply repay anything that was ‘forgiven’.
I’ll keep everyone posted as I determine the best course of action. Now that the account has charged-off, AMEX does indeed seem a lot more willing to work with me to get things resolved. Of course, of monumental importance to me, will be getting those charge-offs removed from my credit report. Charge-offs are about the worst mark, with the potential exception being bankruptcy, that you can have, particularly if the charge-offs are recent.
Sep
24
Well it looks like I have some good news to report. My lawyer called me today and the collection agency who is handling my larger AMEX account–a balance of just over $12K–has apparently agreed to settle for 50% of the balance. In addition, they have also agreed to remove any negative reporting to the credit agencies once the payment is received.
My lawyer and I both agreed that no payment will be sent until the offer is confirmed in writing along with the agreement. The collection agency indicated they would faxing over the settlement letter tomorrow.
So for a little over 6K, I will eliminate nearly 12K in debt, which will absolutely jumpstart my running totals. We still have some work to do on the other AMEX account, but it will certainly feel good once both of those account are retired and I can focus on managing my monthly budget/finances.
Hopefully I will have a confirmation to report tomorrow. I am also considering posting the letter–details blurred out of course–so folks can see what a proper settlement offer should look like in case you don’t have the resources available to you to use an attorney.
Sep
14
I spoke with attorneys yesterday and they have fired off settlement offer letters to the two collection agencies handling my accounts from AMEX. The offer, which both agencies have indicated they would accept is for 40% of the original balance owed, to be paid in two payments.
In addition, my attorneys have asked for any negative credit reporting to be deleted once payment is received. This too, has been verbally agreed to by both collection agencies.
That said, as I am painfully aware, nothing is ever complete and final until it is received in writing so we shall see how things progress. If the settlement was agreed to, this would knock out nearly $21K ($8,400 paid out of pocket) of my debt, so I am hoping things work out for the best.
The collection agencies have been given until the 24th of September to respond so I should have some answers in the very near future as to how this unfolds.
Aug
3
It has been a while since I have had any dealings with American Express so I wanted to keep my loyal readers (and my new ones) abreast of the situation. The latest, and most interesting development, was having my one other account with AMEX–which I have been paying on-time each month–sent to collections without any notification whatsoever. Fortunately, it was sent to the agency that my lawyer has already been dealing with so the negotiations should be swift.
As I reported in an earlier post, my lawyer had sent letters to the collection agencies asking for verification of the debts. To date, they have not responded and, as I come to find out, aren’t legally required to respond. This is interesting, given I have the legal right to dispute the debt under the Fair Debt Collection Practices Act (FDCPA).
Regardless, I have advised my attorney to start the negotiation process with both collection agencies. There are two key things that I would like to get from the process:
- Settlement of the debt for less than the total amount due as I simply don’t have the means to pay that amount in a lump sum.
- Deletion of any negative credit reporting to the major Credit Reporting Agencies (Equifax, Experian and Trans Union). This is commonly referred to as a “pay for deletion”.
My lawyer has indicated that both of these are quite possible, particularly given the amount of the debt I owe to AMEX. The process will probably take another few months to completely wrap up, so in the meantime I am stashing away funds so I can pay whatever settlement is reached in short order.
I will keep you all posted as things move forward.
CLARIFICATION: Although there is no legal time limit for the collection agencies to respond to the debt verification request, they cannot continue to pursue the collection of the debt until I am given a written verification of the debt.
Jun
29
Much to my surprise I got a new statement from American Express–complete with late fees and additional interest–for each of the two accounts that are being handled by the collection agencies. This makes me wonder if the debt has truly been passed on to these agencies or if American Express still owns the debt. Given that I had only fallen 60 days behind at the point the outside collection agency became involved, I would posit that these accounts haven’t yet been charged off; this usually happens at 180 days.
I will be sending the statements to my attorney today (per her request) and we will see how things proceed from there. My attorney has sent out letters of verification to the collection agencies, which may prove interesting given the debt may potentially still reside with American Express and not the collection agencies. I will keep you all posted on how things proceed.
Jun
19
As my loyal readers now, I–through my attorney–am currently negotiating with AMEX to settle nearly 20K in credit card debt. It is likely that the debt will be settled for something around 50% of the total due, which means nearly 10K of the debt would be forgiven by the creditor. I hadn’t thought at all about tax consequences until my attorney mentioned this to me. Much to my surprise, it looks like my debt ‘forgiveness’ may carry with it some serious tax implications.
According to the IRS Publication 525, the amount of cancelled or forgiven debt is generally considered taxable income; this includes income. This seems like a very cheap tactic by the IRS to collect more revenue, arguably from taxpayers who cannot afford it. The amount of debt forgiven isn’t taxable in certain situations:
- The debt is canceled in a bankruptcy case under title 11 of the U.S. Code
- The debt is canceled when you are insolvent. However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent
- The debt is qualified farm debt and is canceled by a qualified person
- The debt is qualified real property business debt
- The cancellation is intended as a gift
Now, as much as I would like to think AMEX would give me 10K in debt forgiveness as a gift, this isn’t likely. The only way I can avoid having to pay income tax on the forgiven debt is to prove I was insolvent at the time of the debt forgiveness. Given I will have sold off most of my assets by the time I repay AMEX–arguably IN ORDER to pay AMEX–I will have very little in the way of assets. I rent an apartment and I lease a car so I have very little in the way of tangible, liquid assets. I will absolutely have to consult with an accountant for my taxes this year.
The moral of the story is that while if you end up negotiating a debt settlement with a creditor, be sure to include in your calculations the tax implications. How much debt forgiveness would it take to push you into the next tax bracket? Is it worth it? These are all questions you should consider before making any settlements. When in doubt, talk to an accountant or other qualified professional.
For all of you who made it this far, be sure to enter the Windows Vista giveaway. This is a gift from me to you, so don’t worry about any tax implications.
