Posts Tagged ‘Debt settlement’ warns: 1099-C surprise: Canceled debt often taxable as income

For many consumers, after the collector leaves their lives, the taxman arrives

If you thought your money woes ended last year when you settled that credit card debt, think again. For many consumers with debt problems, after the debt collector leaves their lives, the taxman arrives.

Months after successfully resolving credit card debts, consumers may receive 1099-C “Cancellation of Debt” tax notices in the mail. Why? The IRS considers forgiven or canceled debt as income.

Creditors and debt collectors that agree to accept at least $600 less than the original balance are required by law to file 1099-C forms with the IRS and to send debtors notices as well. The more than 4 million taxpayers a year who receive the forms must report that portion of forgiven debt as “income” on their federal income tax returns.

1099-C tax surprise

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Debt settlement firm settles with Maine for six figures


By Russ Van Arsdale, executive director, Northeast Contact

Posted Dec. 22, 2012, at 2:10 p.m.

Here’s a short, sad story of a consumer from southern Maine who ran up more than a quarter million dollars in debt on 10 credit cards.

He hoped for a happy ending when he hired a debt settlement company called Legal Helpers Debt Resolution LLC. He paid the firm an upfront fee and monthly payments, believing its claim that it was effective in “helping consumers resolve their debt problems.”

Legal Helpers website trumpets that it is “the nation’s largest debt resolution law firm” with “offices in 50 states.” When Eric Wright went looking, he found an office in Thomaston but had a lot of trouble finding the attorney who was supposed to be there.

Wright is staff attorney for Maine’s Bureau of Consumer Credit Protection. He was looking for the attorney on behalf of our southern Maine consumer, who was less than pleased with the iceberg-like progress Legal Helpers seemed to be making.

Wright investigated complaints from about two dozen Mainers, most of whom had dropped their business dealings with Legal Helpers.

“They didn’t appear to have done anything,” Wright told me last week. “There never seemed to be a method to the madness of what they were doing” in terms of getting clients’ debts reduced.

As other Mainers complained, Wright advised them to cease doing business with Legal Helpers. To that firm — and apparently a number of others in what Wright terms an “awful industry” — doing business means keeping a large chunk of clients’ money and putting some in accounts to be used for debt settlement. Problem was, Wright said, it might take two or three years to get enough money in those accounts to make debt settlement a reality.

By then, creditors got tired of waiting, and so did many of Legal Helpers’ estimated 15,000 to 20,000 clients nationwide. The firm did negotiate deals on two of our consumer’s accounts, which he paid off at 35 cents on the dollar. He did almost as well on his own, negotiating a rate of 45 cents on seven other accounts.

There was also the matter of registering to operate in Maine, which the company refused to do even though Maine law requires registration by debt settlement companies. Attorneys are exempt, unless those attorneys’ sole activity is settling debts. Legal Helpers claimed it had “partnerships” with attorneys who were licensed in Maine, and so should be exempt.

Wright turned the whole matter over to Maine’s attorney general, William Schneider. Last week, Schneider and Will Lund, superintendent of the Bureau of Consumer Credit Protection, announced a settlement with Legal Helpers and with The Mortgage Law Group LLP, a sister company of Legal Helpers that claimed to have a national reputation for representing homeowners in danger of losing their homes to foreclosure.

Under the agreement, the firms will pay $250,000 to be equitably distributed among more than 300 Maine consumers. The companies also agreed to stop charging monthly fees to present clients and will pay the state $15,000 to cover part of its administrative and investigative costs.

“These settlements send a strong message to others in the debt relief business that the state of Maine will not tolerate those who take advantage of Maine consumers in financial distress,” Schneider said in a news release.

In July, the state of Illinois reached a $2.1 million settlement with Legal Helpers.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer 04412, visit or email

Debt Settlement Company CSA Settles Unfair Trade Practices Claims – Maine Attorney General

August 9, 2011

AUGUSTA – Attorney General William J. Schneider announced today that Maine reached an agreement with Texas debt settlement company Credit Solutions of America, Inc. (CSA) and its owner Douglas Van Arsdale to settle allegations of unfair trade practices.

After two days of trial that began July 18th, CSA agreed to enter into a consent judgment to resolve claims that they violated the Maine Unfair Trade Practices Act with an advance fee debt settlement scheme.

Since 2003 CSA provided debt management services to Maine consumers by promising to negotiate with their creditors in order to obtain settlement of their credit card and other unsecured debts. CSA collected advance fees of up to 15% of the total enrolled debt to be negotiated. The company claimed that it could eliminate 40% to 60% of a consumer’s debts.

In most cases CSA held consumers responsible for paying the enrollment fee, regardless of whether all of the enrolled debt was settled. Of the 561 Maine consumers who enrolled with CSA and paid its advance fees, only 6 settled their debts at 40% of the total debt owed.

“Maine consumers in financial distress are particularly vulnerable to deceptive marketing of debt relief services,” said Attorney General Schneider. “Despite CSA’s claims that consumers who enrolled in their program would be debt free in 36 months, the truth is that debt relief is not a quick fix.”

According to the consent judgment, CSA and Van Arsdale agreed that they will not accept payment in advance of providing services and will not enter enrollment contracts with new Maine consumers. In addition, CSA will pay $150,000 for the costs of investigation and litigation related to the resolution of these claims.

CSA will be permitted to continue to provide services to existing Maine customers in compliance with state law. Debt management companies are required to be licensed and bonded through the Maine Bureau of Consumer Credit Protection. These companies must offer an approved consumer education program and ensure that their debt management counselors are properly certified.

“More than 98% of Maine consumers who dealt with this company did not get the promised results,” said Will Lund, Superintendent of the Bureau of Consumer Credit Protection. “Consumers who do their ‘due diligence’ before committing money, and who check to see if a company holds a valid license, can save themselves a lot of grief.”

If a consumer loses money as the result of law violations by licensed companies, Lund said his office can recover those lost funds by making a claim against a surety bond posted as part of the licensing process. Consumers can call the Bureau at 1-800-DEBT-LAW (1-800-332-8529) to verify a company’s license status, or they can review the rosters of licensed companies at the Bureau’s website:

This case was prosecuted by Assistant Attorney General Linda Conti, Chief of Attorney General Schneider’s Consumer Protection Division and Kate Silsby, Assistant Attorney General with assistance from the Bureau of Consumer Credit Protection within the Maine Department of Professional and Financial Regulation.

To learn more about debt relief services contact:

The Federal Trade Commission 1-877-FTC-HELP (1-877-382-4357)

The Maine Bureau of Consumer Credit Protection 1-800-DEBT-LAW (1-800-332-8529)

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