Once a year I get all three of my free credit reports, as is my right under credit law. Today was the day I could get the newest reports, and this morning that produced a huge surprise.
The mountain of debt
When Claudia, my late wife, passed away, I was left with a huge mountain of debt, and the method I used to handle the mountain was a debt settlement program. I wouldn’t recommend this method for the faint of heart.
It was pretty gut-wrenching. It consisted of allowing all the cards to go over 90 days delinquent, then working with the companies to get them to reduce the buyout by 40%, 50% and in one case 90%.
The caveat is when you settle, you pay them the full settlement amount immediately. (note mortgage, auto and student loans may not be included in a settlement program).
This plan turned out to be a nightmare, and part of the reason was my settlement company folded part-way through the plan. You see, part of the plan I purchased was that all calls from creditors would go to them.
When they folded, guess who got the calls? (I later got some of the money I paid to them back as a settlement in a class action lawsuit). On the good side, I got very good at handling creditors.
I have an excellent concept now of what creditors can, and can’t, do to you, and how to get them to stop, or at least reduce, their harassment.
Having been through this nightmare myself, I’d never, ever recommend a settlement program to anyone under any conditions.
| Stage | What happened |
|---|---|
| Go delinquent | All the cards went over 90 days delinquent |
| Negotiate | Companies reduced the buyout by 40%, 50% and in one case 90% |
| Settle | Each settlement paid in full immediately |
| Company folds | The settlement company folded partway, so creditor calls came to him |
| Tax bill | The forgiven difference was taxable income that year |
I think it would be better to declare bankruptcy. For example, there was one small fact I didn’t understand. The difference between what you settle and what you should have paid is fully taxable as income (federal and state) in the year you settle.
So if you should have paid $10,000 to a card, and you settle for $3,000 (which is common), you’ll find $7,000 added to your taxable income for the year.
That made the that year a very difficult year, on top of my wife’s passing.
The other thing a settlement program does is totally rape your credit. I wound up with 13 paid charge offs. That’s really bad. My credit score, at it’s lowest, dropped to under 300. Shesh.
The surprise on the report
The surprise today was fantastic. Today, on all three credit bureau’s, my score is over 700! All of the write offs have fallen off my record.
Settlement wrecked his credit, and the free annual reports later showed it fully recovered.
Wow!
This is a good way to end the year. 🙂