Do you have a “charged off” or other outstanding debt that is now held by a collection agency? If so, now may be the time to negotiate your best settlement offer!
According to my source* from Bank of America, BofA’s collection division is accepting settlements of 30% or less on many qualifying accounts.
In the past we could easily get 70-80% of the original account balance. People would just refinance their homes, or find other ways to bring their debts current. With sinking home prices, and negative home equity, people have given up on their debts. They don’t care anymore. As more and more people face bankruptcy, we’re accepting lower and lower debt settlement offers every week.
Before you get too excited, remember, not everyone is going to qualify for these settlement programs.
We look at each case on an individual basis. I’ve received many calls from doctors and lawyers who have been laid off for a few months and fallen behind on their credit cards. They make ridiculous offers to settle their debts, and I have to tell them no way! These people are trying to take advantage of us when they will most likely have another high paying job in a few months. On the other hand, the single mother or father with three kids and few specialized skills will have less earning potential and may never have the means to pay off their outstanding balance. We understand that some people are in a tough spot and we will do everything we can to help them out.
Remember, when you settle a debt for less than you owe, you are usually required to pay regular income taxes on the forgiven amount. Most financial institutions are required to send an IRS Form 1099-C to report the forgiven debt (as income) whenever the forgiven debt is more than $600.
Make sure you have some money set aside to pay the IRS as they have infinitely more power to collect their money than the credit card companies do!
For more information on improving your credit reports and score, check out my credit repair guide and my guide to having late payments removed from your credit report.
*I had a chance encounter with a Bank of America call center supervisor on a recent flight from Detroit, MI to New Orleans, LA. I did not disclose to him that I was a personal finance blogger (how deceptive of me!).
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