My success with collection agency

I wrote a little bit ago about a collection agency that was hounding me for a 17K debt. they had agreed to settle for 12+K.

after posting about this situation on this list you guys encouraged me to work the payoff amount down. I got them down to $9200. it was so easy I wish I had persisted in negotiating it even lower. but I am happy with this outcome.

my BIL tell me though that I will have to pay income tax on the difference between the 17K and the 9K since it will be looked at as an income or a finacial windfall. is that true?

thanks for your encoragement. I would have been too nervous to do it on my own. you guys really helped me with ideas on how to approach this.


It probably depends on individual circumstances. Wells Fargo “forgave” a debt that my mother couldn’t pay since she passed away. I just received some kind of tax form indicating miscellaneous income for the forgiveness of this debt. It was only a little under $4000 so no big deal.

Is a big deal. You yourself are not respomsable for her debts. Write ‘deceased’ on the bills they send to HER and take no responsibility for them at all.

When my dad died, I got threats from an attourney and I told them nuh-uh… They’ve left me alone. If they wanted to sue me or something, they really could not being that I was on straight SSI. It is possible they will send you a 1099 for the difference. If they do, then and only then will you need to pay taxes on it.

You do have to pay income tax on the difference. My mom, co-signed for a furniture loan for my brother who never paid the loan. When collection agencies started calling my mother, my mother agreed to pay a reduced amount. A couple of years later she was contacted by the IRS demanding she pay an income tax on the difference between the amount owed and the amount paid.

You, as your parents heirs, are not responsible for their credit card debts after they die. There is a formal method to how debts are paid after someone dies. They can seize the assets and sell them to pay the debts, but once that money is gone, anyone left over is pretty much ass out.

Basically, any old taxes will be paid, then things trickle down. I used to know this by heart, as my mother dealt with it years ago, but you are not responsible for any debt unless you shared it. For instance, did you own the house with your parents? i.e., Homeowners are Sally (mother) and Dorothy (daughter). In that case, they can come after you. Same with credit cards and other loans. If you are the actual debtor, it can transfer to you after the death of the other party. If you are just an authorized user on a credit card, you are free.

In my case, dad and I had a living trust and were trustees. When he died, I took over the house and such. Due to ignorance, and also a sense of right, I did take one of his cards and paid it, as I ran most of the debt up. That’s the one that is paid off now.

Oh I meant that the amount wasn’t a big deal. By the time I take deductions and whatever, there’s no taxable income. I did put deceased on all her bills and wrote letters with copies of her death certificate. The ONLY company to keep pushing to make a claim on her “estate” was Citibank.