If you are reading this blog post then there is a high likelihood that you are attempting to settle a debt with a debt collector. The next thing you may be trying to figure out is whether it makes sense to hire a debt settlement attorney or company to negotiate a settlement on your behalf. In this article we will discuss these topics and how to go about settling a debt and considerations that may affect your settlement and steps moving forward. You can listen to my discussion on 1150AM KKNW regarding settling a debt with a debt collector here:
What Kind of Debt Do you have?
The first step is to identify the types of debt(s) you have and where they are at in the debt collection process in order to determine how to best settle a debt with a debt collector. Typically for a creditor to accept a settlement for significantly less than the full balance your account must be charged off or at least 6 months delinquent. With that said payment plans or other settlement options to pay off the debt may be available to you on the full balance.
Some types of debt will be harder to negotiate a settlement for less than the full balance than others. Things like debts owed to the government, tickets, child support are likely non-negotiable. Other debts such as personal loans to individuals, debt owed to credit unions or medical bills are more likely to have to be settled for the initial principal balance owed or less of a reduction while federally backed student loans play be a completely different set of rules regarding forgiveness and payoffs for about 90% of the full balance owed but this is constantly in flux.
The best types of debt to consider a debt settlement on are credit card debts, personal loans owed to a bank or other debt assigned to a third-party collection agency. These debts may be assigned or sold to a collection agency or law firm or they may be collected upon in house. If a debt is sold for pennies on the dollar a third-party debt collector is more willing to accept less than the full balance on a settlement. The older a debt is since your last payment or use, the more likely you can negotiate a favorable settlement. If more than 6 years has gone by since your last payment or use, it’s possible the statute of limitations has passed to collect on the debt and you don’t need to pay the debt at all so long has no judgment has been entered against you.
What is a Typical Debt Settlement Result?
Settlement options can vary but I typically shoot to settle for about 50% of the full balance. Settlements can be more or they can be less and you will get the best offer if you offer a lump sum. Sometimes settlements can be spread out over monthly payment of about a year, longer if the settlement amount is higher.
What happens if a lawsuit has been filed against me?
If a lawsuit has been filed against you then you should consider settling with the creditor, filing bankruptcy or filing an Answer in response to buy more time. If you let a garnishment go to judgment then the settling of the debt will be more difficult at a higher dollar amount. Additionally, once a judgment is entered against you, your wages and bank accounts can be garnished as well as a judgment lien placed on real property. A judgment lasts for 10 years and can be renewed for another 10 years and may accrue 12% interest on the judgment balance over time.
Should I Hire a Debt Settlement Lawyer?
Whether you should hire a debt settlement lawyer will depend on your specific situation. If you owe a small balance debt or one of the types of debt that has a small chance to be negotiated for less than the full balance it may not be worthwhile to hire a debt settlement lawyer unless you simply do not want to deal with a specific creditor.
On the other hand, a debt settlement lawyer has experience dealing with specific creditors on a regular basis, knows their settlement limits and processes and gives you the best chance of a the most favorable settlement. While specific results cannot be guaranteed, at least you know you will be in good hands. It is not advisable to reach out to a creditor negotiate, not like the offer you get and then hire a lawyer seeking a better result. Typically, creditors take notes on everything you tell them and that information can be used when talking with a debt settlement attorney which is often not helpful.
What can I Do to Increase My Chances of a Favorable Debt Settlement?
Creditors and debt collectors are in the business of moving money from your bank account to theirs, so they want as much as they can get. It is helpful to send in a hardship letter explaining how you fell behind and what you can afford, you should have your current income and expenses ready in case you are asked, and the more destitute you are, its likely the better offer you will get as they evaluate your ability to pay, job status and sometimes whether or not you own real estate. There may be other factors but you should have this information ready for your debt settlement attorney or the creditor, but I would not disclose your financials (if they are good), unless you are specifically asked about it.