Single Mom Struggling to Make Ends Meet and Paying Off Debt. – Sam

“Dear Steve,

I have 3 credit cards and an auto loan. One card was recently paid in full after being delinquent for a year. The 2nd one I have made payment arrangements with and will be paid in full as soon as my tax return is received. The 3rd and highest balance (approx $7000 with Wells Fargo), I have payment arrangements set up until I receive my tax return at which time I am going to try to negotiate a settlement. I am a single mom to a 3 year old little boy and fell on hard financial times when I was laid off in August of 2008 and did not go back to work until March of 2010 and then was laid off again in September of 2010 and didn’t get back to work until March of 2011. Previous to getting laid off I had a credit score of 670 and no missed payments on anything.

My question is concerning Wells Fargo mostly. The account was charged off, sent to an outside collector, returned to Wells Fargo and at that time they must have sold the debt. The account now sits with an attorney office in MN (the state in which I reside). I am thinking I am going to offer them approx. $3,000 to settle the debt (balance sitting now is around $7000). Is this a fair offer to make them? I am trying my hardest to get more financially stable for my son, even moved back in with my parents to start eliminating the debt and hopefully get a savings account started once the debts are resolved.

My next question:
I’ve read all about having to claim the amount over the settled amount on taxes as unearned income. So, I am aware of that. I am considered a “low income” household. In 2012 I grossed $25,000. Will having to claim that extra amount on my taxes have a severe impact on me? I claim “0” on my W2 to insure a lump sum return at the end of the year and because my ex has the right to claim my son every other year (2013 being his year).

And final question:
What recourse do I have, after getting these account settled and paid, to getting my 670 credit score back. Unfortunately, I do not have a lengthy credit history. I purchased my 1st car at 19 (2003) with a cosigner and by 21 I refinanced and had the loan soaly in my name and paid it off in full early. I purchased my 2nd car in 2008 -didn’t even make the 1st payment before being laid off- and do not have a great history with the payments since I was not working. I just got it taken out of repossesion status in September of this year and have not been late on a payment since. So, I’m at a total loss as to how to get a good score back so I can get approved to rent an apartment and hopefully before I’m 35 (I’m 28) to purchase a home.

See also  Unemployed and Struggling to Make Your Mortgage Payment? Check Hardest Hit Fund for Help.

I know this is a lot to take in and some of the info might be uneccesarym but I am not sure how much background you need. Any help at all is so very much appreciated. I just want to put the stress of this behind me so I can build a secure future for my son!


Dear Sam,

The IRS says that if you are not insolvent, meaning your liabilities are less than your assets that you will have to pay tax on the forgiven debt that is more than that point when you become solvent. That might be a somewhat confusing answer but you’d need to talk to a tax advisor about your specific situation.

What I am struck with is this burden, sacrifice and struggle you’ve been under. If the goal here is to recover and have good credit again it seems you’ve taken the long path.

Since you are already living at home and it seems like your primary goal here is recovery for you and your son, bankruptcy would have had you out of debt in 90 days and rebuilding good credit and saving money immediately. Debt discharged in bankruptcy is not subject to any tax.You can click here to find a local bankruptcy attorney and talk to them for free.

Once you tackle the underlying debt the process of building good credit is really very simple. Just read this guide and you’ll find the answers you need to rebuild great credit.

As far as the leftover Wells Fargo debt goes, if you’ve already been making payments on it you might have missed your chance at debt validation but there are real concerns that debt that was sold to debt buyers may not be legally collectable due to a lack of proper transfer and documentation.

See this article on what to ask for to validate a debt.

See also  I Lost My Job Two Months Ago and Have $19,000 in Credit Card Debt. - Steve

My read of your situation is that you’ve been flailing around a bit trying to do “the right thing” and have struggled. I can help you get headed in the right direction but the thing that would be the most helpful for me is for you to identify the single most important goal you want to achieve. Is it debt repayment, rebuilding credit, getting back on your feet, out from the debt, building savings, or something else?

Please post your responses and follow-up messages to me on this in the comments section below.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Do you have a question you'd like to ask me for free? Go ahead and click here.
Damon Day - Pro Debt Coach

Follow Me
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Steve Rhode
Follow Me

2 thoughts on “Single Mom Struggling to Make Ends Meet and Paying Off Debt. – Sam”

  1. Steve,

    I chose not to do bankruptcy as I only have a total of about $8,000 in credit card debts. I was advised it was better to take this route, and honestly I didn’t want to take the easy way out. I chose to get into this crisis and I need to figure out an honest way to get out of it. I wasn’t raised to run away from problems I created.
    I just finished the numbers for my taxes and thankfully am getting a very nice chunk back.
    Have you had any situations dealing with Wells Fargo and settling with them? I am hopeing to offer them $3,000 for the approx $7000 owed (the original limit was $6200 on the card – the dollar amount over that is simply interest for non payment). Do you feel this is an aggressive enough offer to make them?

    • I’m worried you’ve become tangled in an emotional reaction that is less relevant in dealing with debt. See Is Bankruptcy Sinful and Bad or Right and Moral? An Examination.

      Personally I think whoever gave you that original advice did you a terrible disservice and set you off on a long path of fixing the past instead of fixing the future. The appropriateness of bankruptcy is never based in the amount of debt but the life situation.

      Also, consider that while you may be getting a big check back from your taxes, that may be more of an indication you are having too much taken out each month when you need it most. You might consider adjusting your withholding so you break even at tax time and have more in your paycheck to help you build an emergency fund.

      Settlements with Wells Fargo are all over the board depending on when and how you approach them. I’ve seen everything from 27% to 60% settlements.


Leave a Comment