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Category: Bankruptcy Law
Satisfied Customers: 17223
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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I had an account Im trying to settle charge off this week.

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I had an account I'm trying to settle charge off this week. The bank told me to call IBM. When I called them they said they were part of the bank, but I think the call was routed offshore. I had offered 40% before they charged off. Now IBM says they want 60%, and they gave me until 10/10 to decide. I don't want to pay more than 40 or 50%. Should I wait until next month and say I just don't have the cash? I have been holding off paying other creditors, but I have to pay them now because I couldn't settle with the original bank before they charged off. Does not make sense for them to charge off, but still negotiate the settlement offer for higher than I offered.... Please help me make sense of how this part works.

When a creditor charges off a debt, the creditor is entitled to deduct the charged off amount from its tax returns. Since the typical large corporation pays a marginal 35% federal tax on its earnings, negotiating for less than 35% is a waste of time, because the creditor can do better without negotiating with you at all. If the creditor is subject to state income tax as well as to federal, then the two taxes must be considered. IBM is headquartered in Florida, which has a 5.5% state income tax rate. Consequently, any offer of less than 40.5% will be summarily rejected, because it exceeds the corporation's tax charge off rate.

If the creditor is asking for more than that, then it's simply because the creditor wants some sort of profit for its efforts. A 10% profit is reasonable, which would bring you to approximately 50%. Unless you threaten to file Chapter 7 bankruptcy, you are unlikely to be able to negotiate below 50% with your target creditor. Sometimes, the threat of bankruptcy will cause a creditor to substantially reduce its offer. But, even if you threaten bankruptcy, your target creditor would never have an incentive to negotiate below 40.5% -- which is its marginal tax rate on revenue.

Please let me know if my answer is helpful or if I can provide further assistance.
Customer: replied 3 years ago.

If IBM is headquartered in Florida, why would they tell me they are a department of the bank that I'm dealing with?


So if they rejected my 40% offer. I should counter their 60% offer with a 45% and ask the collector to take it to his manager, correct? That's over what they paid for the debt 35% and the 5.5% income tax would be 40.5%. I can tell them I know they are lieing and they are based in Florida then threaten bankruptcy in general and not say if it's Chapt 7 or 13. I know it would have to be 13 if anything and that's why I decided to go the debt settlement road.

Offer 45% and advise them you will have no other choice but to file bankruptcy and see what they decide.
Category: Bankruptcy Law
Satisfied Customers: 17223
Experience: 14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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