What is a settlement?

Answer

In most cases, a creditor will offer the debtor a 'settlement' to settle the account.

The settlement can be a percentage of the debt and usually payable in full at the time of offer or thereafter. [A 'pay now' demand is usually offered.

A written confirmation of this settlement is a good idea just to assure that the unpaid amount is not picked up by a collection agency, at a later time. Make sure the confirmation states that the monies paid by the debtor pay the account in 'full' and the credit report is adjusted to show 'settled-paid in full' for example.

It is best to make the payment or 'settlement' with a money order or cashiers check. Giving out your checking account info can lead to larger withdrawals, by the creditors, at your expense.

Settling is always best for the creditor and rarely good for the debtor.

Answer

In addition, the creditor/collector will be required to file a 1009C with the IRS disclosing the difference in the original balance of the debt and the settlement amount. The consumer should keep in mind the outstanding amount will be taxable according to federal and state tax codes.

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