Negotiations With Debt Collectors & Relevant Legal Considerations
While some debts are secured by a certain asset, many debts are unsecured. These may include amounts owed to credit card companies, utility companies, and healthcare companies. A collection agency may take over for the original creditor in pursuing a consumer for these debts. Since the collector handles a large number of debts of various amounts, it may accept a settlement in which the consumer pays off part of the debt. The collector’s goal is to maximize its bottom line rather than collecting all of each debt, and it loses money each time that it contacts a debtor. This may make it more profitable to collect part of the debt promptly rather than collecting the entire debt over a long period.
You may be able to negotiate with the collector to arrange a lump sum settlement or an installment payment plan. However, if you do not have the resources to follow through on a settlement or payment plan, you should not suggest it in a negotiation. This could restart the clock on the statute of limitations and make your position worse than when you started.
Lump Sum Settlements
Sometimes a collection agency will accept a settlement for about half of the debt, while others will insist on receiving the majority of the debt. In other situations, if a debtor is facing extreme financial difficulties, a collection agency may settle for less than half of the debt. It may realize that you will be unable to pay the debt for the foreseeable future, and it may not want to spend resources on futile collections efforts. If you decide to start a discussion about a lump sum settlement, you should have a firm upper limit for what you are willing to pay. The collector likely will see your offer as an admission that you have resources to pay and will try to squeeze out as much money as it can.
Collection agencies are generally more likely to accept a lump sum settlement than agree to an installment plan.
However, a lump sum settlement is usually attractive to a collector. It provides an efficient resolution to the process and allows it to close its records on the debt. The collection agency can pay the settlement to the original creditor while subtracting its fee, or it can keep the settlement if it owns the debt. Either way, the agency tends to come out in a better position than it would have if it had taken an all-or-nothing approach.
If a lump sum settlement is not feasible for you, you can try to arrange a monthly payment plan. The collector may not find this option very attractive. Debtors unfortunately often default on a payment plan after making a few payments, which means that the agency needs to start over with the process of pursuing them. You may need to complete certain forms regarding your assets, income, and expenses to convince a collection agency to set up a payment plan. This may not be a smart decision, since the agency will know much more about your situation than it did previously, which could facilitate its efforts to collect. If you do complete these forms, you should make sure to provide accurate information to the best of your knowledge. You should also get confirmation of your agreement in writing.
Removing Negative Information From Your Credit Report
In the process of negotiating a debt settlement, you can ask the collection agency to remove information about the debt from your credit report. This may not be a decision that the collector can make, which means that you will need to reach out to the original creditor. The collector can provide you with the creditor’s contact information. You should emphasize the hardships that you are facing while pointing out the ways in which you are trying to rebuild your finances. A stronger credit report will be important to this process.
Following a settlement, the collection agency should agree to report the debt as satisfied in full to credit bureaus. You should confirm this step in writing with the collector and the original creditor. This may involve communicating with each party separately if the debt collector does not have the authority to take this step.