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Sell Forgiven Debt

Can my creditors sell the difference between the original balances and the settled amounts?

Earlier this year I had some financial troubles that resulted in settling with Chase, BofA and AmEx for less than the outstanding balance. On my credit report BofA is listed as Paid as Agreed with settled for less than full balance in the comments. Both AmEx and Chase are listed as Charge Off with the same comments. I already received a 1099 from AmEx. Since they have the accounts listed as Charge Off on my credit report is there any way they can sell the remaining debt to a collector or am I clear except for the taxes owed on the amount over $600?

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Bill's Answer
(6 Votes) | Find Learn Save
  • Creditors cannot sell the difference between the original balances and the settled amount.
  • Settled debt is a loss and 1099-C filing for creditors and nothing more.
  • A creditor selling the difference would be committing fraud.

The short answer to your question is no, you need not worry about your creditors selling the difference in your forgiven or settled debt.

Here is why: When a creditor and debtor agree to a debt settlement, the difference between the existing balance and the agreed-upon amount is not an asset that a creditor can buy, sell, trade, or give away. It is a loss on a spreadsheet, a potential 1099-C filing it will report to the IRS, and nothing more.

Should the creditor do as you suggest it would commit two counts of fraud. The first victim would be you because the creditor promised to forgive the remaining debt in exchange for a payment from you. The second victim would be the collection agent it sold the debt to because it was misrepresenting the collectability of the debt it was selling.

In summary, you have more urgent and important things in your life to keep you awake at night than what happened to the balance of your forgiven debt.

I hope this information helps you Find. Learn & Save.



(6 Votes)
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  • SS
    Monticello, KY,
    Jan, 2013
    I believe this has happened to me. I settled a debt in 7/11 for about $300 less than what I owed. 1 year of peace, and then in November I received a notice informing me they were still collecting the debt. I never received a settlement agreement that I can find. However I do have the cancelled checks. What is my next step? I called and disputed, but the operator was too busy with a "one-time offer" to listen to me. ( I felt like I was buying a used car much like I did when I paid this the first time). What is my next step? Letters or lawyers?
    • BA
      Jan, 2013
      The next time the collection agent calls, gather as much information about the collection agent as you can, including:
      • Company name
      • The name of the person calling
      • The name of his or her manager
      • The company mailing address
      • Whether this is the same company you made the July 2011 settlement

      After you gather this information, explain to the caller you settled this debt in July 2011, and do not owe the $300. Explain the caller and his or her employer is in violation of that settlement agreement, and if they persist in contacting you about the matter, you will:

      1. Contact the FTC and file a complaint
      2. Contact your state attorney general and file a complaint
      3. Consult with a local lawyer who has consumer law experience and file discuss filing a breach of contract lawsuit against his or her employer

      If the calls persist, then follow the three steps just mentioned.