I pay the creditor or I pay the government... any other options?
September 18, 2013 6:30 PM   Subscribe

I'm on SSI for disability, with a long-outstanding credit card debt that's gone to collections. They keep offering me settlements, but a settlement would produce a 1099-C, and Social Security would count the cancelled debt amount as unearned income, which they take dollar-for-dollar out of my SSI checks. That's no better than paying the debt in full (which has been impossible for years and will be for years to come). Do I have any options other than continuing to ignore them?

Every month I get a small SSI check. I'm living on well under $1000/month, while paying for rent, utilities, food, and a $130/month payment plan on another credit card. My finances are extremely tight.

This debt is on the order of $1800. Every month or two, I'm offered another settlement - the most recent one was 40% of the total debt. I could just about handle paying that in full if I ate like a student for a couple months and dredged some cash out of selling some belongings or doing random freelance jobs (at a very slow rate).

But a settlement over $600 requires that they send me a 1099-C, Cancellation of Debt, which is then counted on that year's tax return as income. Social Security counts it as unearned income. Unearned income is withheld from my SSI checks in full. I can't afford to pay off $700-ish of debt and lose almost the same amount (or over a thousand, depending on how they deduct it) from my only significant source of income.

So, I could:
  1. Pay a settlement, and have the forgiven debt "taken" anyway by SSA.
  2. Continue ignoring them until this goes away.
  3. Somehow manage to do enough freelance/side work to save up enough extra money to pay off the debt in full. Because earned income is only withheld 50 cents from SSI on each dollar I earn, it seems like a less expensive solution - but I've been trying this since last year, and I just can't work enough to make any significant progress.
Do I have any other options? If I ignore collections for another 4 years, will the debt "go away" without harming my credit score [too much]? I don't expect to be out of disability and able to work like a healthy person until 2017 at the earliest.
posted by WasabiFlux to Work & Money (15 answers total) 3 users marked this as a favorite
 
Do you have a university anywhere nearby? Do they have any sort of free legal clinic or personal finance assistance?
posted by Madamina at 6:31 PM on September 18, 2013


Could you do a payment plan that results in little enough of it being cancelled per year over several years, such that they don't have to send you a 1099-C? Or do separate settlements for small portions of it?
posted by XMLicious at 6:36 PM on September 18, 2013


I am not a debt expert or lawyer. Debt scrolls off your credit report after 7 years of non-payment. You don't have the money, won't have the money. Bankruptcy might incur the same penalty? Personally, I would learn to get very good at responding to debt collectors. I'm terribly sorry, but I have become disabled, and cannot pay even a small amount, and I cannot accept a settlement. I sure am sorry about it and I understand that it's frustrating for XYZ Corp., but that's the situation I'm in.
posted by theora55 at 6:43 PM on September 18, 2013 [2 favorites]


My sister was in a similar situation, but with a much larger debt. In her case having the debt restructured and a portion forgiven might have resulting in her gaining enough virtual income to make her ineligible for disability.

She ended up filing for bankruptcy. I don't think that makes sense for an $1,800 debt. So that leaves just waiting it out until they stop bugging you.

Sorry that you have to go through this.
posted by alms at 6:54 PM on September 18, 2013 [1 favorite]


Any chance you know someone who might loan you $1205 at a generous rate of interest? I'm thinking you could ask the collections people to write off $595, pay them off with the borrowed money and then repay your friend at $130 a month. In fact, if you made 10 payments of $130, you would be giving them a handsome 7.8% return on their money. You could still pay in installments, you would get rid of $1800 in debt for only $1300, no loss of social security and your friend would get a nice return on his money for helping you out.
posted by metahawk at 7:00 PM on September 18, 2013


Ignore them for now. If/when your circumstances change for the better, revisit your options re: paying the debt.

If you are receiving calls from them, tell them to stop calling and to only contact you via mail.

Given your situation, there's no rush to clean this credit blip up. Focus on optimizing your quality of life as best you can, given your limited means. Health and sanity come first. The creditors can wait.
posted by nacho fries at 7:13 PM on September 18, 2013 [5 favorites]


has the statute of limitations run on this puppy yet? when did you go into default, and how long is the statute on credit card debt in your jurisdiction? be careful, partial payments or promises to pay can start the clock all over again at zero. you sound, as they say in the biz, "judgment proof", blood/turnip. if you are dead set on settling it, 40% of $1800 is $720, and if it were split between last week of december/first week of january, with pro rata debt forgiveness for each installment, with their written commitment to you in hand but no corresponding commitment on your part, you might be able to work it (with the assistance of your local legal aid clinic, because this is a very easy thing to fuck up) so that you don't get any 1099s at all, but unless you anticipate coming into money or garnishable income, i would go with theora55's spiel above, followed with "and this situation won't ever be improving, so please don't ever call me again."
posted by bruce at 7:37 PM on September 18, 2013


The thing is, you don't have to get into any details at all about your circumstances when you tell (not ask) them to stop calling. It's a right all debtors have, irrespective of personal circumstances -- it's not a request, it's a right. I'd keep the personal stuff out of it. Keep it strictly business.
posted by nacho fries at 7:59 PM on September 18, 2013 [2 favorites]


Information on being judgment proof. Go see a bankruptcy attorney on this if you have questions, the initial consultation is almost always free and you can call their office to confirm prior to stopping by. You don't have to file to get some good (and free) advice.
posted by banished at 11:04 PM on September 18, 2013


There are lawyers (legal aid lawyers) in California who specialize in these cases. As a person receiving SSI you may automatically qualify for legal aid services. You really need to talk to an expert to assess your legal options, if that's possible. Call your local bar association or legal aid and ask for a referral to any legal aid program dealing with collections, debt, and benefits. Good luck!
posted by ClaudiaCenter at 11:06 PM on September 18, 2013


Ask them if you can split payments so that no more than $599.00 is taken in any one year. Give them 1/2 now and the other half in the next tax year.
posted by Gungho at 6:48 AM on September 19, 2013


BTW The statute of limitations does not count if they have been in contact and trying to collect before the statute runs out.
posted by Gungho at 6:49 AM on September 19, 2013


My dad is a bankruptcy lawyer and files cases like yours for the legal aid society in his town all the time. If you have a similar group in your area, they might be able to help you out. He also gets referrals from disability support groups, so if you have one for your disability it could be worth asking around there.

If you don't do this then I generally agree with the other commentors that you should not pay the debts and just ignore the calls.
posted by Aizkolari at 9:24 AM on September 19, 2013


Lots of sound advice from someone who went thru the school of hard knocks and law school...just so you know that there is a brighter side.

Change your phone number after you tell them you are " judgment proof" as they cant collect because your income is exempt...don't file bankruptcy yet until you really need it. Quit paying the other card only if you dont use it and are just paying them off. Keep trying to get off SSI like you are now and when you do or win the lottery (my secret plan) you can pay them then.
PS statute of limitations is a long time and runs from when they know you wont pay...quit talking to them.


Good luck.
posted by OhSusannah at 9:43 AM on September 19, 2013


BTW The statute of limitations does not count if they have been in contact and trying to collect before the statute runs out.

I'm not sure what jurisdiction you're writing from but that's typically not the case. Actually securing a judgement can change the equation to a degree, but that's different than making an attempt to collect. IANAnything.
posted by the christopher hundreds at 4:07 PM on September 19, 2013 [1 favorite]


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