On the Credit.com forums, we answer credit questions from readers all over the country who are dealing with credit card, mortgage, auto loan, or credit report issues. Recently I corresponded with Joe about his $30,000 credit card debt. Joe is on disability and struggling with severe mental health issues as well as his wife's breast cancer. His only source of income is disability. He can't handle the stress of the debt on top of the other problems.
He met with a bankruptcy attorney, which is the first step I always recommend to someone in that situation. The attorney told him he couldn't file for Chapter 7, but at the same time he was essentially "judgment proof." That means that even if his creditors sued him, they wouldn't have any way to really collect.
I encouraged him to write to his creditors, by certified mail, explain the situation, and ask them to stop contacting him. He did that.
He has already received a letter from one of them indicating they are writing off the debt. You can read the letter here.
I told Joe it is essential he now meet with a tax professional to see if he can avoid having to pay taxes on the canceled debt. It's important he do that now, rather than waiting until next April.
I share this story because there are many people struggling right now with no ability to pay back their debts. Many of these people are experiencing extreme financial stress and need to see a light at the end of the tunnel. Joe's story may provide the impetus they need to get help with their debt.
Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.
Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.comTalk Credit Radio. Reach Gerri at creditexperts@credit.com.
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Gerri,
Read the response again! They are not WRITING OFF the debt but charging it off. Which can be later on sold to a 3rd party then the collections can restart!
This debt is not canceled may still be sought after to settle at a later time.
I wondered the same thing, but the letter reads:
“After further review and based on the information you have provided, I would like to confirm that we have updated our account records to ensure that there will no longer be any collection efforts made on this account. Additionally, monthly billing statements will stop, and there will no longer be any payments due. The remaining balance will be charged-off as a loss to the bank.”
I am pretty confident that means he is off the hook. I am pretty sure an attorney would read it that way too.