1099 after settling debt with cc company

[recycbride]

What is the name of your state? ohio--Husband has old debt with credit card company (citibank) somewhere around 2K--They told him they would settle for 1K but they would have to send him a 1099 because the balance of 1k (after they would be paid the settlement amount of 1K) would have to be considered income, therefore, requiring them to 1099 him--Does this make sense? Has anyone ever heard of this?

 

[Ladynred]

Yes, it makes sense and it is legal. If he settles and they agree to forgive the remaining 1K, then they are supposed to report the 'forgiven' amount to the IRS. Anything 'forgiven' over $600 is reportable, by YOU, as income. HOWEVER, if you can prove that you were insolvent at the time the debt was 'forgiven', then you do NOT have to report the 1099 as income on your 2003 taxes. Insolvency's not that hard to prove if your liabilities are greater than your assets.

How old is this debt ? When was the original creditor last paid ?

IF he decides to settle, make sure you get the settlement agreement IN WRITING, I wouldn't pay them a dime w/o a signed agreement. You should also try to negotiate for either full deletion of any negative info they have reported on his credit report, or at least a 'paid' status. "settled for less than full balance' is a NEGATIVE mark and will not help his credit.

 

[recycbride]

1099--ladynred

It's a real old debt--over 10 years which he's been paying on with a payment plan with them--He started the payment plan about 5 years ago, something he probably should have never done since it was past the sol when he started it---If we knew then what we know now, he never would have went that route and, it would have been off his credit report by now--Maybe the logical thing to do would be just to keep paying on payment plan since his credit is screwed up with this and will continue to be messed up either way?

 

[Ladynred]

What ? A 10 yr old debt is STILL on his credit report ?? No WAY !

How is it showing on his credit report ?? What is being reported for date of last activity and/or charge-off with the original creditor ? What dates is the CA reporting ??

Negatives can ONLY remain for 7 years - period ! Collections can NOT survive the reporting of original debt - its a violation of the FCRA if it does ! Its possible the debt has be illegally re-aged.. another violation.

 

[JETX]

Look at it this way......
He received $2,000 in the form of 'loans' on the credit card. If they now 'forgive' part of that debt and agree to accept only $1000, he has benefited to the tune of the unpaid $1000. And that 'benefit' is treated as income by the IRS.
For more on this, go to:
http://www.sba.gov/banking/notices/info5000-776-4-1-2002.doc

 

[recycbride]

1099-old debt-ladynred

It's with the original creditor which is citibank--it was a citibank credit card--it says opened in 1985 which is correct--then it says closed 10/99 which I know is not correct--then it says "paying partial payment agreement", maximum delinquency of 90 plus days occurred in 10/98, in prior 48 months from date closed 2 times 90 days, 1 time 60 days, status as of 10/99: paid or paying as agreed, updated 01/2002