TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, May 21, 2011

TP Has $28k Income on Paying $45k on $20k Student Loan ($73k With Interest)

Martin v. Commissioner, T.C. Summ. Op. 2011-62 (May 19, 2011):

Petitioner attended college in the early 1980s. Petitioner borrowed $19,986.72 from the Connecticut Student Loan Foundation (CSLF) in order to finance his college education. At some point petitioner became delinquent in his loan payments. In 1988 CSLF filed a complaint in the Connecticut Superior Court. Petitioner received personal service of the complaint, failed to appear at the judicial proceeding, and a default judgment was entered on May 17, 1989, for $27,655.30. ...  On December 28, 2005, petitioner mailed CSLF a personal check for $45,000 to extinguish his then-outstanding liability of approximately $73,258.

In February 2006 CSLF filed documents in the Connecticut Superior Court evidencing petitioner's satisfaction of the judgment and a release of CSLF's claim against petitioner. CSLF issued a Form 1099-C, Cancellation of Debt, to petitioner for 2006 reporting income of $27,821. ...

Petitioner did not present any evidence that the basis of the agreement with CSLF to extinguish the debt for less than the full amount was based on these positions or any good-faith claim that he was not liable for some or all of the debt. On this record, we conclude petitioner did not have a good-faith dispute with respect to the indebtedness with CSLF in the amount claimed by the creditor.

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In other news:
(a) defaulting on a student loan can cost you a few thousand dollars in legal fees; and
(b) sixteen (16) years of interest at a statutory rate of ten percent (10%) will more than quadruple your balance.

Posted by: Meano | May 21, 2011 4:53:33 AM