Debt relief scam mars victim's credit rating

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Dear To Her Credit,
I'm 72 years old. Four years ago, I got into a credit card debt relief scam. I paid them $6,000, and I was told my debt would be legally eliminated and credit files cleared.

I now have banks showing write-offs on my files, and it's affecting my creditworthiness. I'm slowly bringing my score up. My only income is Social Security benefits. I have no investments or anything. How can I get these old debts off my credit history?

Also, do I have to file on April 15 to claim the eliminated credit card debt as income? I haven't filed in five or six years. -- Audrey


Dear Audrey,
There's nothing the debt relief company or you can do to remove correct information from your credit history. What happened, happened. If the debt relief company led you to believe that it could magically make debt go away and leave not a trace, shame on them.

However, at 72, with no investments and living on Social Security benefits, you can probably live with a fair-to-middling credit history for now, assuming you are not applying for new credit.

Don't misunderstand -- I'm not saying your credit score doesn't matter anymore and that you can stop taking care of it. At 72, you should expect many good years ahead of you and should take good care of your total financial picture, including your credit. However, some people start to see a credit score as kind of a grade or judgment. It's no such thing.

Your credit score is only a tool, generally used by potential creditors to help them decide if you're a good credit risk. At your life stage, the most likely time someone would pull your credit report might be when you want to rent a new house or apartment. They may want to see your history of paying bills before you move in. If you've been paying your rent regularly, that should suffice. Some landlords won't even check your credit history. They'll be happy with references, including those from current and former landlords.

Furthermore, your credit may be in better shape than you think. If you've been keeping up with your bills since you used the debt relief company four years ago, your history should be looking up. Negative marks from several years ago are not nearly as damaging as more recent negative items. Every month that goes by, as you faithfully pay your bills, your credit history looks better and better. You can check your credit scores at for about $20 from each credit bureau.

Regarding the written-off debt and your taxes, if you have not received a Form 1099-C from the credit card companies, I don't recommend that you file to claim it as income this year. If you claim the canceled debt as income now, you may receive a Form 1099-C in a future year for the same debt. It's better to wait until you receive the form.

If you do receive a Form 1099-C some year in the future, be sure to claim an exception to paying tax on the forgiven debt, if it applies. The most common exception is that you were insolvent when the debts were canceled. This means that you had more debts than assets, which is likely to be true when you can't pay your debts. In this case, file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, with your income tax form.

See related: 6 exceptions to paying tax on forgiven debt, 1099-C frequently asked questions

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Updated: 01-22-2018