Old Credit Card Nightmare

[daveleonard]

What is the name of your state (only U.S. law)? I have been in the Philippines since 2003. Before I left the States I paid all my balances and came to the Philippines. I had one credit card but paid that off.
In 2015 I was doing research on places to rent because I planned to return to the States to get a divorce from my Philippine wife. I took advantage of a free credit search just to see what it said. I found that there was a credit report of an unpaid balance on my account which had been reported to the credit bureau. I called the credit card company and the lady said that my account had been closed in 2006 for none payment and the balance was written off. I did not know of any charges other than what I paid off. I immediately sent a letter to the card company and told them it was an honest error and that I would pay the balance just send me the paper work. I never heard back from them. I was never sent a notice of the cancel debt from any source.

They apparently re-opened that suspended and written off account, charged me interest for the last ten years and wrote it off on their 2014 income tax which of course showed up on my IRS account as a cancel debt which I must figure as income on my 2014 tax return.
This is a big crisis for me because I live on my social security benefit and a small $320 pension. The card company charged interest on that $800 balance and it turned into $24,041 that they took off their tax and advised IRS and I got the cancel debt.
When I wrote the letter to them in 2015 they had my address yet I never received a notice of this action and did not find out about it until my 1040 was sent back by the IRS and the cancel debt revealed.
I earn approx $15,000 on social security, and $320 in a small pension. I have no job here in the Philippines, investments, business or any other income.
This means my income goes from about $18,000 paying no taxes to $49,000 and owing the IRS about $12,000. It will take me likely the rest of my natural life to pay this off, that is if they let me make payments on it. I am 70 years old now.

Is this right for a credit card company to do? It seems to me if they absorbed the $800 in 2005 that they would have had to take the $800 off their taxes as a loss in that year and not re-open the case ten years later or so adding interest to their advantage and taking off $24,000 in 2014 on their taxes.
Any advice? Thanks, Dave





daveleonard

 

[OHRoadwarrior]

You called and reaffirmed the debt, then did not pay it. Why should you not be responsible? You do have the option of disputing the 1099 with the IRS as being inaccurate and let them make a determination based on your story so all is not lost. Your leaving tolled the statute of limitations on the debt, that is why the CC company is in a position to do this. You should note that collecting SS retirement in the Philippines is legal so you will not be caught up in that type of issue.

 

[Zigner]

Your leaving tolled the statute of limitations on the debt...

Yes, but not on the reporting. OP should (have) dispute(d) this with the credit reporting agency due to the age of the account.

 

[single317dad]

Unless you qualify for an exclusion of the forgiven debt from your gross income:

https://www.law.cornell.edu/cfr/text/26/1.1017-1

Then you owe the tax on the forgiven amount. The recalculation of your income for that year may not actually change your tax owed in the way you think it will; you won't know that until you have a tax professional recalculate the figures.

As to the debt itself, though it is probably way past time, I recommend you consult with a consumer debt attorney in the state where the judgment occurred. There may be one or more avenues available to you to reduce or eliminate this debt, depending on evidence you might still be in possession of. Turning an alleged $800 debt into a $24,000 write-off is ridiculous and makes me angry, but me being angry doesn't help you at all. You need to have all the facts of the case reviewed by a professional who can advise you properly.

Hiring an attorney will be expensive, but not nearly as expensive as paying the tax on this "forgiven debt".

 

[davew128]

I would dispute the tax bill. My argument would be that the credit card company wrote off the debt back in 2006 which puts the COD income WELL past the SOL even for substantial understatement. If that doesn't work I'd look to excluding the income in 2014 as it sure sounds like the OP is insolvent. Another argument to be made would be the validity of the cancelled debt balance. Even at 30% interest and collection fees, you don't get to $24k from $800 in eight years.