Print

[ira01]

 

Correct.  The character of the income will be based on how you claimed the loss.  If you claimed the loss as a short-term capital loss (what I believe was the correct way to do it) the settlement check will be now be a short-term capital gain.  If you claimed long-term capital losses, the settlement will be long-term gains.  If you did both, now you've got to do some math and allocate some of the settlement as short-term and some as long-term.  If you opted to file this as a Sch C and claimed this as ordinary losses, then the settlement would be ordinary income.

Any interest paid on the settlement money would be interest income to you.

What if you never bothered to claim a loss?

Then the settlement money would not be taxable to you as it's a return of principal.  To cover your bases, you might still want to report it on Sch D and indicate it's a return of principal and it wouldn't increase your income.

Technically, since the loans became worthless years ago, isn't the correct procedure to file amended returns for the years in which the loans were charged off, claiming the losses, and then reporting the settlement money as taxable income now?  Of course, the statute of limitations may have passed for filing those amended returns, but isn't that the taxpayer's tough luck?  Your way sounds an awful lot like simply netting income and deductions from different years, which is generally a no-no. 

[AmexFan]

Now got notice via US Postal Mail, a folded pamphlet.

[112233]

I just updated my address at the website and Im a little worried about the security. Anybody can go there and and change the address of a lender's settlement, especially alarming given the amount of PII tossed around during prosper v1.0 through group leaders etc. I thought the email confirmation would confirm your identity but no, it's just a receipt. Maybe Ill get an identity confirmation card in the mail, the same one prosper used to send or still does send?

[cubbiesnextyr]

 

Correct.  The character of the income will be based on how you claimed the loss.  If you claimed the loss as a short-term capital loss (what I believe was the correct way to do it) the settlement check will be now be a short-term capital gain.  If you claimed long-term capital losses, the settlement will be long-term gains.  If you did both, now you've got to do some math and allocate some of the settlement as short-term and some as long-term.  If you opted to file this as a Sch C and claimed this as ordinary losses, then the settlement would be ordinary income.

Any interest paid on the settlement money would be interest income to you.

What if you never bothered to claim a loss?

Then the settlement money would not be taxable to you as it's a return of principal.  To cover your bases, you might still want to report it on Sch D and indicate it's a return of principal and it wouldn't increase your income.

Technically, since the loans became worthless years ago, isn't the correct procedure to file amended returns for the years in which the loans were charged off, claiming the losses, and then reporting the settlement money as taxable income now?  Of course, the statute of limitations may have passed for filing those amended returns, but isn't that the taxpayer's tough luck?  Your way sounds an awful lot like simply netting income and deductions from different years, which is generally a no-no. 

Worthlessness is grey area.  He could easily argue that he doesn't believe they're worthless yet as Prosper is still obligated to sell them to junk debt buyers per his agreement.

[Oak_Hill_Fire]

I got notification by snail mail today, too. Never received an email notice.

[ira01]

 

Correct.  The character of the income will be based on how you claimed the loss.  If you claimed the loss as a short-term capital loss (what I believe was the correct way to do it) the settlement check will be now be a short-term capital gain.  If you claimed long-term capital losses, the settlement will be long-term gains.  If you did both, now you've got to do some math and allocate some of the settlement as short-term and some as long-term.  If you opted to file this as a Sch C and claimed this as ordinary losses, then the settlement would be ordinary income.

Any interest paid on the settlement money would be interest income to you.

What if you never bothered to claim a loss?

Then the settlement money would not be taxable to you as it's a return of principal.  To cover your bases, you might still want to report it on Sch D and indicate it's a return of principal and it wouldn't increase your income.

Technically, since the loans became worthless years ago, isn't the correct procedure to file amended returns for the years in which the loans were charged off, claiming the losses, and then reporting the settlement money as taxable income now?  Of course, the statute of limitations may have passed for filing those amended returns, but isn't that the taxpayer's tough luck?  Your way sounds an awful lot like simply netting income and deductions from different years, which is generally a no-no. 

Worthlessness is grey area.  He could easily argue that he doesn't believe they're worthless yet as Prosper is still obligated to sell them to junk debt buyers per his agreement.

Considering that Prosper has flatly stated that they aren't selling defaulted loans to JDBs anymore (and the fact that the last such sale was what, 6 years ago?), I think that argument would be a dead bang loser.  A better argument, I suppose, is that they aren't worthless because some charged off loans do make recovery payments, plus the class action settlement has made it clear that payments would be forthcoming from that as well. 

[Xenon481]

I got notification by snail mail today, too. Never received an email notice.

I got the snail mail physical notice. Got the email notice earlier.

[rogerwaite]

Well...

The Net Settlement Fund shall be distributed to all eligible Class Members (“Eligible Recipients”) in proportion that their losses from defaulted notes bear to the total losses of all Class Members from defaulted notes, according to the “Plan of Allocation,” described below.  An Eligible Recipient means a Member of the Class who purchased one or more Notes sold by Prosper during the Class Period (“Class Period Notes”), and who incurred a financial loss as a result of at least one note defaulting during the Class Period. Thus, a purchaser of at least one Class Period Note is an Eligible Recipient if he or she paid more money to purchase a note than he or she received in principal and interest on that note.

Ok, that's a bit muddled, but it does seem to say simple out minus in, in other words, it doesn't appear to consider the difference between interest and principal.  Therefore, one has to look to see how much interest he received on defaulted notes and subtract that from the "principal chargoffs".  The interest received on defaulted notes is not summed anywhere on the prosper web site, so I'd have to do a spreadsheet?  For my 212 defaulted notes?  Holy heck.  And then probably I'm supposed to subtract the amounts recovered after chargeoff.  (for me I think they're small tho.)  That sounds like a lot of work.  One can go to the "notes" page, filter by "chargeoff" and then I get 5 pages of numbers.  I'd have to copy & paste to a spreadsheet.  

Just glancing down the list, I see "net recd" is often more than half of the amount loaned.  In several cases it is more than the amount loaned, even tho the loan defaulted, because a lot of interest got paid in the first year or so.

And then those badly worded words "their losses from defaulted notes"... Does that mean sum for each defaulted loan, or each defaulted loan where the principal loss exceeds the "net recd"?  In other words, do my so-called profitable defaults reduce my settlement amount?  How can a court clerk draft such ambiguous language?  Did he never take a math class?  Can't he write an equation?

I might just wait 'til the check arrives.

Fred, I read the bit about principal and interest as only being part of the definition of an Eligible Recipient - "is an Eligible Recipient if he or she paid more money to purchase a note than he or she received in principal and interest on that note." Once you are eligible your portion is based on your losses of defaulted notes period. As far as determining that I think it's the total charge off figure. You can get this real easy in your Prosper account. I clicked on Investing then under a heading labeled Current Allocation I clicked Note Status. It made an orange circle appear and when I hovered the cursor over it, it gave me my total charge offs of $1490.

[artjunkie]

I got a folded notice.

Since my losses total a staggering $88 on the $299.10 I "invested," I'll be surprised if I get even one penny.

[msava]

Why are borrowers who never did a single loan receiving the class action info?

[NewHorizon]

I got notification by snail mail today, too. Never received an email notice.

Got my snail mail notice yesterday (27th).   Just now saw the updates to this thread, checked my spam folder, and there it is.

Altho' tiresome, I still say it seems strange that if Prosper is blamed for lowered ROIs, that they then award only those whose ROI happens to be negative.

And similarly, it seems strange that Prosper should pay the lousiest lenders (Muleshoes, etc) the most money.  It's not Prosper's fault that some lenders had lousy judgement.

[yankeefan]

I got notification by snail mail today, too. Never received an email notice.

Got my snail mail notice yesterday (27th).   Just now saw the updates to this thread, checked my spam folder, and there it is.

Altho' tiresome, I still say it seems strange that if Prosper is blamed for lowered ROIs, that they then award only those whose ROI happens to be negative.

And similarly, it seems strange that Prosper should pay the lousiest lenders (Muleshoes, etc) the most money.  It's not Prosper's fault that some lenders had lousy judgement.

...but they didn't tell us (in the right way, using a prospectus) that "YOU COULD LOSE MONEY".  That's all they had to do, but Chris was smarter than anyone else, I suppose, and said he didn't have to do that.

[mothandrust]

And similarly, it seems strange that Prosper should pay the lousiest lenders (Muleshoes, etc) the most money.  It's not Prosper's fault that some lenders had lousy judgement.

Prosper isn't paying them.  

Prosper is paying $10M to have the lawsuit settled.  Prosper is (I think) ambivalent about whether the funds get distributed pro rata based on amount invested or some other method (e.g. 100% recovery on AA/A defaults, 50% recovery on B/C defaults, 10% on D/E/HR defaults).

Rosen doesn't have a horse in the race either--they just get a cut of the 10M regardless of how it is divided up.

Lead plaintiffs would be the people to ask why the winners and losers are who they are.

[NewHorizon]

Lead plaintiffs would be the people to ask why the winners and losers are who they are.

At least some of whom (plaintiffs) are here at ORG and, AFIK, haven't elected to chime in on this earlier.

And I totally get that the main idea is that Prosper pays SOMEbody regardless of how equitable it may or may not be to the individual class members.

So (shrugs), I'm just kvetching anyway.

[msava]

I just wish the final decision would hurry up. Can we expect the money immediately after the judge agrees to this settlement? Payments over 3 years, does that mean monthly checks, credits to Prosper account or yearly distribution? I was a muleshoes type of investor so hopefully, I'll get back more than $100 bucks.

ETA: How much interest is the money earning which CA says we will also receive?