What is the maximum amount creditor can charge in late fees & interest? What about taxes on forgiven amount?

1. If the original account was $4000, and the creditor added $7000 in late fees and interest in four years, although you requested the account be closed 4 years ago, and made your last payment at that time, are the additional fees legal? Isn't there some type of legal cap, or can over $100 or more be added each month for years?

2. If a company agrees to accept 50% on a debt, where the forgiven 50% only consists of late fees and interest, can they later ask for the entire amount, and take the debtor to court for a judgement?

Also, is the debtor responsible for taxes on the forgiven amount, if it only consists of late fees and interest, and not from the original credit amount itself?
Answer:    The only part of your questions that I know the answer to is the tax part. However, I will say that I think unless you can prove that you asked for the account to be closed, you're going to wind up stuck.

If they settle with you, the amount for forgiven debt may be taxable to you. It generally is, and the amount will be provided to you on a form 1099C (C:Cancellation of Debt). This will be added to your income on line 21 of your 1040. I truly hope that everything works out for you. Let me know if I can be of further assistance.
1. If you requested that the account be closed but you still owed money, then the creditor can still charge interest and late fees. Closing the account doesn't erase the debt. Maximum interest and fees vary according to the state where the account was opened.

2. If a company agrees to settle for half of the owed amount, and you have that agreement in writing, they are not allowed to come back later and try to collect any more. If you do not have written evidence of a settlement, then all bets are off.

3. Not 100% sure on your third question - I think that if the forgiven amount is above a certain level - I think it's $1000 - then you will probably get a 1099 and be responsible for the taxes on the forgiven amount.
This website may offer some answers...

Closing the account only stops additional purchases from being made. You are still liable for the balance due at the time plus finance charges and late fees according the the rates in effect at the time you close the account. If they agree in writing the settle for less than the full amount, and you pay according to that agreement, they must abide by it as well. If you do not follow the agreement TO THE LETTER, they can claim the full amount. As far as the IRS is concerned, there is no difference between principle, interest, and late fees. Any forgiven debt is income.