Dealing with collection agencies can be stressful. But truth be told, if you don’t have the money, you just don’t have the money. When it comes to settling debt, here are some things Jane did, wish she had done, and wish she had KNOWN.
First, you are going to have to pay taxes on the amount of debt that was discharged. So, if you owed $5,000 and settled that debt for $2,805, the credit card company is going to write the remaining $2,195 off as lost income. And guess who the government is going to come after to pay income taxes on that money: Y.O.U
Aren’t they lovely people? Doesn’t seem fair, does it? Why on earth are they coming after you to pay taxes on debt you couldn’t pay in the first place? The way the government sees it, you got goods or services or even a vacation out of some of the debt that was discharged. How did you pay for that? With “extra income” that’s how. So you’re going to get a 1099-C form for every debt that was discharged. And if you don’t get one, you still have to calculate how much was discharged and pay taxes on it because you can be sure that the government knows about it.
Sure, there are ways to try and get out of it. You can see if you can qualify for an exemption, but that’s also a good way to get the IRS to look at your returns extra hard. Pay your stupid tax.
When it comes to settling, the first thing you need to do is decide how much you can afford to pay. If you owe $5,000 and you can only scrape together $2,000 in a reasonable amount of time, then that’s all you have.
Let the collection agency send you an offer or call them with one. If you can afford their offer, pay it. But if you can’t, call them (or wait for them to call, because they will probably call you every day) and tell them how much money you have – they can take it or leave it.
They want SOME money, and it costs money to sue people, so if they think that’s all they’re going to get they’ll take it. Get the new amount IN WRITING and then send them money via Western Union, check, money order, anything BUT electronic access to your account, unless you’re going to close that account.
Jane gave two companies electronic access to her savings account because she was changing banks at the end of the month. If they tried to go back in there and take more (which does happen sometimes!), there would be nothing to take. That’s all she had in there and when the payments cleared, the account would be shut down forever.
Keep in mind, the collection agencies will try to get as much money out of you as they can. They’ll say things like, “We can’t go any lower.” or “Let me ask my supervisor if it’s okay to take less.” Crap like that. They already have a lowest number in mind. There is no supervisor. Don’t let them bully you into giving them your mortgage money. If all you have is $2,000, keep repeating that and hanging up on them until they take it.
It was nothing quite that dramatic for Jane. She paid the lowest amount they would take on the phone the day they called because she wanted to move on with her life. But she didn’t pay more than she had set aside to pay. They weren’t getting mortgage money, electricity money, or ANYTHING else. She had three cards to settle, so she had to be firm. She didn’t get quite as low as she may have wanted, but it was lower than what they originally asked for.
There’s a high turnover rate for some of these jobs, and let’s face it, their job sucks. There is no reason to be rude, but do take this seriously. People get sued all the time, although that’s not nearly as scary as it sounds, from what I’ve heard.
What happens when they sue you is that you get dragged into court, the judge asks if the debt is yours, and then the people suing decide if they want a settlement, a repayment plan, or garnishment of wages, and most people settle before any kind of garnishment happens, if they can scrape together the funds to do so.
The biggest take away of all when it comes to this: Learn from your mistakes. Never make them again.