Legal Question in Credit and Debt Law in North Carolina

Hi,

I had a repossession over 5 years ago. The bank sold the vehicle and then charged off the rest of the debt. I received a 1099-C for the charged off debt from them this year and claimed it on my taxes. However, they are still reporting that I owe $4,000. I'm assuming it is the interest from the loan since they are not allowed to put that on a 1099C. I disputed it on my credit report, but they confirmed that I owe that amount. I know its beyond the statue of limitations, so they can't place a judgement on me but I applied for a mortgage loan and was told that I needed to pay that off in order to be approved. I would like to settle it for less than that is owed so that it shows a zero balance on my credit report. Can you give me advice on how to do that please? Thank you.

Asked on 7/06/13, 2:49 pm

3 Answers from Attorneys

Kenneth Love Ken Love Law
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You simply need to contact the creditor and make an offer. I would recommend you target between 20 to 33% of what is owed and make sure it gets marked as paid in full on your credit report.

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Answered on 7/06/13, 4:12 pm
Lynn Coleman Attorney-Mediator
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The only thing I would add to Attorney Love's recommendation is that you see if they will agree to issue an amended 1099C once your settlement is paid. If they will not, then you should get a tax professional's advice about this, since you have already probably paid tax on the previously reported amount.

The creditor is allowed to continue reporting the charge off even though they issued a 1099C. The 1099C is just a tax code requirement. It does not extinguish the debt.

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Answered on 7/07/13, 12:01 pm
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I agree with both attorneys. The issuance of a 1099c has nothing to do with your liability for the debt. Once a debt always a debt. Even debts that are no longer legally collectible and for which 1099cs are issued can still be reported on your credit report. Bad debts stay on your credit report for 7 1/2 years from the date of your last payment. Dispute of the debt was improper because the debt could lawfully still be reported. And what your mortgage lender told you was correct. No mortgage lender is going to loan funds with an outstanding bad debt.

My advice would be to tell you to suck it up for another 2 years until the debt drops off your credit report. You can offer to pay - but you first need to find out if the lender still owns the debt. It may well have been sold to a junk debt buyer. And if you do pay, since the debt is past the statute of limitations, I would not offer more than 25%. If you do settle, get it IN WRITING first before you pay a dime. Payment now will not only revive the statute of limitations on the debt but expose you to further collection activity if you do not get a settlement letter indicating that a settlement of the debt was made and that no further collection activity will occur. You also need to keep a copy of any payment you make and followup after payment by getting a closure letter that acknowledges your payment of the settlement amount and reiterates that there will be no further collection activity. I have settled debts for clients only to find the debt sold to a junk debt buyer. If you don't have the proof that you paid, then the new collector will try and get you to pay again. Finally, it depends on when the initial 1099c was issued. You only have 3 years to file an amended tax return. So if you paid taxes and go to settle now, you would need to not only get an amended 1099c issued, you would have to file an amended tax return. This is a bigger headache than you realize - its would be easier for you just to not pay pay and wait the 2 years until the debt drops off your report.

Also, if you pay now, its actually going to slightly ding your credit (which is why I told you initially to wait 2 more years before buying a house). As to how much it will lower your score, I cannot say. You might want to go to www.myfico.com and play around with the score simulator there or ask your mortgage lender what would happen if you were able to settle now and whether that would harm your credit such that your credit score would be too low for the mortgage. That would really be awful if you paid this debt only to be denied a mortgage. By the way, mortgage lenders use some variant of the report provided by the credit bureaus to you so what your lender sees may not be the same thing as what consumers get from the credit bureaus.

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Answered on 7/07/13, 10:15 pm

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