West Virginia Attorney General Reports New Debt Collector Scam
August 22, 2008
West Virginia Attorney General Norman Googel warns consumers about the following debt collector scam.
Scammers repeatedly call consumers’ residences and workplaces and attempt to collect on non-existent debts. The scammers use company names such as “U.S. National Bank,” “Federal Investigation Bureau” and “United Legal Processing.”
The scammers have targeted consumers who applied for payday loans online, Googel said.
The scammers also attempt to use legal jargon– some have referred to “downloading affidavits.”
But, perhaps most surprising is the following: one scammer identifies himself as “Denzel Washington.” Another tells consumers he is calling from “Steve Martin’s office.”
If you receive any such calls (or any other calls you suspect are from bogus debt collectors), report them to the office of your state’s Attorney General, the Federal Trade Commission, and / or the Better Business Bureau immediately.
Discharge of Indebtedness (DOI) Income and 1099-C Tax Forms
August 20, 2008
Many consumers filed for an extension in order to complete their 2007 income taxes because they needed more time to resolve discharge of indebtedness questions.
October 15 is fast approaching…and our office has received many discharge of indebtedness (DOI) questions.
Please see below for some of the most common questions we’ve received in the past few weeks.
What is “DOI income”?
Debt that is canceled, forgiven, or discharged is often called “discharge of indebtedness” (DOI) income. Consumers are sometimes taxed on DOI income.
Many debt collectors and creditors will send consumers a tax form 1099-C showing DOI income. Creditors send this tax form when they settle an account for less than the amount originally demanded.
I received a 1099-C tax form showing DOI income. Do I owe taxes?
A debt collector or creditor’s filing a form 1099-C does not automatically mean you owe taxes. There are several exceptions to the rule that discharge of indebtedness (DOI) income is taxable.
But, a creditor or debt collector is unlikely to research a particular consumer’s situation. It will generate the tax form and leave it to the consumer to prove to the IRS that an exception applies.
So, upon receiving a 1099-C tax form, the consumer and his or her attorney and / or tax professional must evaluate whether the consumer should be taxed on the DOI income or not.
If you should not be taxed, your attorney or tax professional can document your exception to the IRS.
There are many exceptions, but some of the most common are listed below. If you meet certain criteria, you should NOT be taxed on DOI income, even if you have received a tax form.
Even if you do not meet these criteria, other exceptions may apply. You should discuss your situation with an attorney or tax professional if you receive a 1099-C from a debt collector or creditor.
Common situations in which DOI income may not be taxable:
- The debt was discharged as part of a bankruptcy.
- The debt was discharged while the debtor was “insolvent.”
- The debt was disputed by the consumer.
- Forgiveness of interest and fees is often NOT taxable.
Tax Forms and Continued Collections
Once a debt collector has sent you a 1099-C tax form, it means it has forgiven or written off the debt. The debt collector should not continue to collect on the remainder of the debt.
If the debt collector (1) continues to try to collect on the remainder of your debt and / or (2) sells the remainder to another debt collector, it may have violated applicable federal and state laws.
Deliberate use of inaccurate tax forms as collection technique
Our office has heard several accounts of debt collectors’ continuing illegal collection activity through indirect means.
One such technique involves debt collectors’ filing inaccurate tax forms or threatening to file such forms.
If this has happened to you, contact an attorney.
Why Would a Creditor or Debt Collector Negotiate?
August 19, 2008
Why might a creditor or debt collector be motivated to negotiate a settlement of a past due account?
Bankruptcy. If a consumer is forced to declare bankruptcy, the creditor often gets little or nothing. This motivates creditors to negotiate with consumers who sincerely want to honor their obligations.
On the other hand, many consumers feel that bankruptcy is their only option. But, there are alternatives to bankruptcy. Keep this in mind if you decide bankruptcy is not for you or if you do not qualify for bankruptcy protection.
You are making the creditor’s job easier. If you contact the creditor or debt collector early in the collections process, you may be saving them the expense of a lengthy collections process. This may enable them to offer better settlement terms. But, one important caveat: Some debt collectors offer attractive settlement terms only on older accounts. So, this will vary considerably depending on the individual creditor or debt collector.
A lawsuit takes a long time and costs the creditor or debt collector money. Litigation can be a long and expensive process for the creditor or debt collector. Many will accept less money now rather than take a chance on losing in court and / or going through a long appeals process.
So, you may be in a position to negotiate with them before they file suit, and often they will negotiate even after they have filed suit.
And, you should keep in mind that debt collectors or creditors usually must get a final judgment before they can garnish your bank account or wages and / or file liens on your property.
Negotiating and Settling Debts and Accounts
August 19, 2008
Maybe you want to improve your credit; maybe a debt collector has contacted you. Either way, there are several things to keep in mind if you decide to negotiate an account settlement with either an original creditor or a debt collector.
- Research and negotiate all legal aspects of the account. Examples include credit reporting of the account, resale of the account, tax implications of a settlement [including discharge of indebtedness (DOI) income], acknowledgment of the debt, and several other considerations.
- Watch for illegal collection techniques. Collection agencies and even original creditors may violate applicable state and federal law when trying to collect on an account. Document any such violations to prevent them from compromising your negotiation.
- What is the debt collector’s reputation? Attorneys specializing in credit issues often repeatedly deal with the same creditors and debt collectors. You may want to get the advice of an attorney who has dealt with your particular creditor in the past.
- Conduct all negotiations in writing. This can cut down on the stress of the negotiation, and will also provide documentation if the creditor or debt collector violates any laws in its attempts to collect.
- Give the creditor or debt collector only your name and the account number the creditor referenced when contacting you. Note: the creditor / debt collector may have referenced its own internal account number, which may be very different from the account number in your records.
Ware Law Office LLC Page
