Deployed military deciding to pay forgiven debt or consumer debt

Military_Frank · #1 (**permalink**) 03-26-2010, 03:02 AM

Hello,

I’m active duty military and I lost my house to a short-sale last year. (Third no-notice move and fourth deployment to Iraq/Afghanistan in a row) The bank settled with a 1099C and I subsequently filed taxes – case closed with exception of bad credit from late house payments and forgiven debt. I have heavy consumer debt, but have always paid on-time.

I just received an unforeseen windfall of money and have the ability to 1. Pay off the forgiven debt, which would take all the money I received. 2. Pay off all my consumer credit, about the same amount of money as the forgiven debt. or 3. Contact the bank and see if they would take less than what I owed to consider the debt paid in full. I assume that even if I paid the forgiven debt in full, those final late payments would affect my credit at any rate.

When the bank forgave my debt and issued the 1099C, did I lose responsibility to pay this debt? If I were to take option 2 and pay off the consumer debt, does the bank have the ability to change its decision and come after the forgiven debt? As for option 3, is it unheard of to ask the bank to settle for less money – even after they have forgiven the debt? I assume if I contact them and they realize I now have money, can they change position and sue me? What other issues should I be aware of? If bargaining with the bank is an option, would it be best to hire an intermediary, and if yes, what type?

Frank

sapphirecapital · #2 (**permalink**) 03-26-2010, 02:21 PM

depends on the state, more details needed, in California its over after the short sale of the house, but Washington State it is not, so really depends, the second option is not going to create a better credit as well, so sit back negotiate with the consumer debt guys, tell them you can't pay it any more and if they do not deal default on it an wait for the call of the collection agent, they will settle it low, as you experienced the rest is taxes. The bank is very unlikely to change the course after the 1099, they can remove the 1099 only in the same year they issued it. I for one would keep the windfall money separate (in a trust and separate account) and sette everything at a high discount and start over

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