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Hi everyone, from a British Fool! I've just posted this message on the UK Fool Dealing With Debt board, but was advised to ask you guys as the debts involved are owed in the US.... Here goes:

Hi everyone,

<long post warning!>

I have a serious question for you, despite the light-heartedness of the subject of this post!

I've recently returned from a trip to New York with my parents to visit my Grandmother who has been living there for several years now. She is 70 years old and receives a piddling amount of a pension and medicare payments every month,(despite having worked well into her 60's) with which she is supposed to make ends meet. We (my parents and I) try to help out as well, but it's not much, admittedly.

So you can imagine our horror when after a lot of nagging)she admitted that she's got herself into a bit of a pickle with credit cards. At the last count she owed a total of £4000(approx. And that's GB pounds, not US Dollars!) on 3 credit cards (Providian, MBNA and Discover).

Eventually (inevitably) she found she was unable to make the payments and decided to pass it on to a debt management company called Genus to renegotiate the payments. All the cards have now been stopped and she makes a payment of $163/month to Genus who distribute it to the lenders. Obviously, it's going to take her years to clear these debts and, to be blunt, she's not getting any younger. She's already sick and the worry of this is making it worse. Therefore, my parents and I have decided to try and clear this for her.

I have spoken to Genus and they say that we can clear her debt by sending them a bankers cheque made out to USD and then letting them know how to distribute it between the 3 lenders.

I would like to speak to each of the lenders directly to ascertain exactly how much she owes them and then ask if they will accept a lesser amount in "full and final" settlement, just to clear the debt once and for all. (NB. This is an option which exists in the UK, but I don't know if you can do the same thing over in the US)

My question is , are they (the lenders)likely to agree to this, given the arrangement they have come to with Genus? Also, are there any other factors which I should take into consideration before I act?

Thanks in advance for your help

Kind regards

Nix
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Nix

It never hurts to ask. I would imagine if you tell them her age and health and finincial situation that they may be open to an offer.
2 problems. Grandma will get a 1099C from the credit card companies reflecting the amount forgiven and she may have an income tax liability. If she can prove she was insolvent on the date the 1099C is issued she will owe no taxes.
Secondly, they may not release that info to you over the phone. Granny may need to call and get her payoff amounts and relay the info to you. Doesn't she get a monthly statement from the banks?
Good luck.
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Nix,
I doubt that the credit cards will give you any info. because your name is not on the acct. But you grandma can get the info, or she can call them and tell them to give you access to the acct.
I think it is very good of you (and your parents) to help her out like this. But you might want to make a deel with your grandma to cut the cards up once they are payed off. And make sure she calls the companies and tells them to cancel them. If she needs a credit card then maybe you (or your parents) could get one and put her on the card with you. I know this can be risky but it is family.
Best of luck to you!!! Hope you will let us know the outcome.
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First of all when you settle on an amount (not paying the full amount) then I would assume your grandmother will owe taxes on the amount that you didn't pay. Can she afford this? By settling on an amount you could be getting her into another sort of worry.

Is it possible for you or your family to make the full payments, get the cards closed out and then grandmother doesn't have the income tax problems associated with it?

Second of all, who is to say that she doesn't run the cards up again?

Now I wouldn't feel comfortable knowing that my 70 year old grandmother was worrying about her debt load and possibly in ill health.

I am not sure what I would do. And I really mean that. If I paid it all off and she then ran them all up again, I would really be angry.

Catleen
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jsn7 said
2 problems. Grandma will get a 1099C from the credit card companies reflecting the amount forgiven and she may have an income tax liability. If she can prove she was insolvent on the date the 1099C is issued she will owe no taxes.
Secondly, they may not release that info to you over the phone. Granny may need to call and get her payoff amounts and relay the info to you. Doesn't she get a monthly statement from the banks?


Hi jsn7

thanks for your response. Firstly, with regard to releasing info, I am authorised to act on her behalf since our trip to the States. We spoke, briefly, to the CC companies while we were out there and my name has been added to her account, so that shouldn't be a problem.

She does still get monthly statements from the CC companies, but she keeps losing 'em, bless her! That's why I thought it would be easier to just call them myself.

Finally, do you have any more info regarding the 1099C thing? Or do you know where I could find out more? I mean, if they do clobber her for income tax, is it likely to be a punitive amount, or just a small fraction of the monies owed? How is it calculated? Any info would be greatly appreciated.

Many thanks and kind regards

Nix
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Hi wise12

thanks for your response! Don't worry about the cards. They have been stopped and the accounts are now closed. I think this was done automatically as soon as the details were passed to Genus. Anyway, all (ha,ha!) we need to do now is just kill the balances and she'll be OK.

With regard to putting her on a card with me, or my parents.... to be honest, I'd be happier (and so would she, actually) if she just dealt with cash from now on. CC's are fine if you know how to play the game - taking advantage of low rates and cashback and ensuring that you clear the balance before you get stung for the interest, etc

But she's not really in a position to do that and being in any kind of debt really scares her ("so why did she run up the cards like that," I hear you cry. Well that's a long story and I won't go there now)

In any case, once this is cleared up, she'll hopefully be able to enjoy her retirement, instead of worrying how she's going to pay the rent this month!

Thanks again for your advice!

Kind regards

Nix
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It's my understanding that a 1099C reflects the amount of debt forgiven and is considered income and is taxed at whatever rate she pays. I did a "google search" and got a large number of sites. You might browse through those. DOes she have someone handle her taxes? That might be the place to start.
FWIW, I sympathize with the losing statemnts problem. We went through that with my late MIL. It can make for a few challanges.
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Thanks jsn7! Same thing (google search) had just occurred to me as I couldn't find many references to it in a search on this board....

Thanks to all of you for your replies

<off topic comment>
Isn't the internet bloody marvellous!
</off topic comment>

Kind regards!

Nix
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Something else you need to think about.

You may have to pay Genus off too.

I don't know what the contract she signed says, but I'm sure the Genus is making money in there somewhere and they are going to want their money no matter what she does about the debts.

If she paid all her fees up front, there should not be a problem. If Genus keeps to keep part of the monthly payment, they may demand all the payments they were planning to get over the life of the contract.

Perhaps there is a flat cancellation fee she has to pay? Or it could be based on a schedule.

Think of it as if you were attemping to close a car lease early. The leasing company doesn't care if you drive their car. They just want to be sure that they get all the money they expected to over the lease.

So with pre-payment penalties and taxes, it might not be worth messing with.

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Cable:

Well I just learned something. I thought about the tax liability and the settlement. Never considered that they would have pay off Genus as well.

Good thought.

Catleen
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Cable666 said

You may have to pay Genus off too. I don't know what the contract she signed says, but I'm sure the Genus is making money in there somewhere and they are going to want their money no matter what she does about the debts.

Hmmm, I don't think so... I was worried about this the first time I spoke to them, so I asked and, IIRC, there were no penalties for settling early. (I was jetlagged at the time though, so I think I'll just confirm that one before we go ahead!) I didn't ask about "full and final" settlement however, cos that only occurred to me last night.

P'raps it would be easier for us to just take the hit and clear the entire debt rather than trying to be clever and just causing ourselves more tax related problems in the future

What do the rest of you guys think?

Regards

Nix
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I would have to agree with this. Just pay the full amount and avoid the tax related problems.

God bless your Grandma. Aren't they great!

Catleen
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Catleen said
God bless your Grandma. Aren't they great!

oh yes!

Thanks Catleen!

Kind regards

Nix
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Your grandma has a good family. She's a lucky lady and so are all of you.

Susan
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Thanks Susan, but it's natural, innit? I mean, I can't imagine just leaving her there to suffer - especially if I can do something something about it.

Basically, I know that, if the situation were reversed, she would do the same for me. And even if that were not the case, I would still help her out because I just feel that it's the right thing to do. She's my Granny and she's sick and I just want to reduce her burden in anyway I can.

I've just read that back, and it sounds totally nauseating, but that's just the way I was brought up (no pun intended!) But you know what I mean!

Thanks again guys!

Kind regards

Nix
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I would agree- it's natural. I would do the same for my family. But its still very good to see. And your posts made my day-- its great to see family taking care of family.

Susan
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Nix,
If your grandmother's total income (including the 1099 that she may receive if you settle on a smaller amount) is less than her standard deduction and personal exemptions, she will not owe any taxes.
Given the information that you have supplied regarding her income (small) I would venture to say that she would fall under the taxable income level and you would be safe.
I would run the numbers to make sure though.

Your friendly CPA
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Thanks for the advice Brisav. The problem is that this is all getting a bit complicated! I have been searching all over the web for the relevant info, but I'm not having much luck! Do you or anyone know what the "taxable income level" is, or how it is calculated?

Hopefully there is a quick (or at least, not too complicated) answer to this one. Otherwise I'm afraid we're going to have to bite the bullet and pay off the debts in full (aarrgh!)

Kind regards

Nix

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Thanks for the advice Brisav. The problem is that this is all getting a bit complicated! I have been searching all over the web for the relevant info, but I'm not having much luck! Do you or anyone know what the "taxable income level" is, or how it is calculated?

You might find something here:

http://www.fool.com/taxes/taxcenter/topics/index.htm

(although I suspect it'll be quicker to ask on the Taxes board!)

Cheers

Jane
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I'm sorry to hear that your in such a dilema with regard to your mother's cc's and taxes. Here's the deal- from what you've told us your grandmother owes about $5500 (£4000). If you were to settle at about 75% (just a number I pulled from the air) she would get a Form 1099 for about $1375. Set that number aside for a moment.
In the US your mother gets a standard deduction of $4400, a personal exemption of $2800 and an additional exemption of $2800 for bein over 65 (assumption made). In addition, if she's blind she gets yet another $2800 exemption. I'm going to assume that she is not however. Therefore, $4400 + $2800 + $2800 = $10,000. What this means is that unless her TAXABLE income is greater than $10,000 she won't owe any tax. She only owes tax on amounts over $10,000 and most likely at a 15% rate. Therefore, if she is over $10,000 in taxable income (doesn't sound like it) she would owe $1375 * 15% = $206.25 in tax. So, in a worst case scenario (owing tax on all of the $1375) she/you would come out ahead over $1000.

Caveat - These examples are for federal taxes only, the deductions/exemptions are for 2000 returns and this example contains some assumptions.

To get is straight from the horses mouth you could go to the Forms & Publications page at the Internal Revenue Service's web site at
http://www.irs.ustreas.gov/forms_pubs/index.html

Good luck and let me know how it turns out and if you have anymore questions.
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