A debt collector (American Education Services) has, for many years, been periodically but infrequently sending me letters about a student loan (the current balance is $7830). For a period of several years up to about 2015, I was paying them $50 a month, but then I stopped paying and didn’t hear from them for a while.
This month they sent me a letter saying “You have not made a payment on your student loans in 44 months and our policy is to write off any loan on which a payment has not been received for that duration. . . unless you make a payment by 2/26/21, will write off the student loans and issue a 1099-C to you.”
Note: I’ve asked them in the past for proof that they own the loan (or proof that the company they represent owns the loan) and they’ve never provided that proof to me.
Should I do nothing and take their write-off, or try to arrange a payment plan? I’m not entirely convinced they can prove that they’re legitimately servicing the loan.
I realize that if they write it off, I’d have to pay taxes on the $7830 (since it would count as income) but I wouldn’t have to deal with it again — is that worth it? Should I try to negotiate a settlement for an amount less than the full $7830?
Well, that’s interesting.
The statement of sending you a 1099-C is an IRS requirement and really has nothing to do with your debt.
It is true that if the lender sends a 1099-C you may be responsible for paying tax on the forgiven debt, but you can look at IRS Form 982 to avoid any tax liability of your liabilities exceed your assets.
Now on to the other issues.
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You raise some legitimate concerns about the status of the loan. But what I would be more interested in is the status of the loan under your state’s Statute of Limitations (SOL).
Understanding if the loans are outside the SOL would give you a better idea of how to deal with them. For example, the SOL defense can be raised if you are sued in the future over the debt. As we move into the future, slowly, the SOL will prevent more and more suits, but not yet.
The smart move here would be for you to pay an attorney licensed in your state for a legal opinion about the status of the loans under the SOL. One place to look for such an attorney would be here.
I would not suggest that you either make a payment or confirm you owe the debt if the collector contacts you before you meet with a local attorney.
You may eventually decide to close the door on the debt by settling the debt but at this point, that would not be my first recommendation. But keep in mind that even if you settle a debt does not mean it will not resurface again in the future.
The attorney you talk to, Damon Day, or a host of others could assist you to know what is a good settlement to offer if you get to that point. But don’t jump the gun yet.
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