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Dispute Strategies

Making a Settlement Offer

Another strategy for removing negatives from your credit report is to reach a settlement agreement with your creditor. If you decide to settle on an account you should always include as part of the settlement agreement that they must:

  1. Remove the tradeline from your credit report, or update your account status to "paid as agreed", and
  2. Stop reporting the collection account to the credit bureaus.

If your account has been sold to a debt-buyer, they may not be able to update your original creditor record. If your account was assigned to a debt collector, you should be able to update the original creditor file and delete any associated collection accounts. Remember to always get everything in writing prior to paying them. Please review the tutorial on Settlements if you want to go this route and remember:

  1. Never concede the debt is your account or responsibility.
  2. Any associated collection account(s) must be removed from each of your credit files.
  3. The original account must reflect a zero balance and be listed as "paid as agreed" (if creditor is still the original creditor).
  4. All collection proceedings must stop and the creditor or debt collector has no right to legally pursue the debt any further or to sell/transfer the account.

Remember, the difference between the amount you owe on a debt and the amount you actually pay in a debt settlement is considered by the IRS as taxable income. The creditor or debt collector is required by law to report to the IRS, using form 1099, the amount of money forgiven in the settlement, and you may be responsible to pay taxes on that amount. I use the word "may" because reporting doesn't always occur. In fact, most of the time it doesn't (people receive a 1099 less than 20% of the time). However, negotiating over 1099 reporting is something you should never do. Don't even make the request. Never ask that your account with the original creditor be updated as "paid in full", either. In both cases you are requesting—in writing—that they break the law.

Always keep in mind tax implications if you are considering settling. Settling a $10,000 debt for $1,000 just to get it off your credit report might mean you are paying several thousand dollars more in taxes down the road. If you have the time, consider waiting until the statue of limitations expires on the debt. Creditors are much less likely to report on time-barred debts, so initiating a dispute after the statute of limitations has expired is likely to result in its removal.

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