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SETTLING UNPAID DEBTS
INTRODUCTION
Many of us have, at one time
or another, defaulted on a
debt, such as a magazine
subscription, a credit card, or
a bad check. Usually, these
bad debts show up on our
credit report and haunt us
every time we apply for
credit. If this has happened
to you, there is a way out,
even if you can't afford to
pay off the entire debt. You
can settle the debt with the
creditor.
SETTLING WITH YOUR CREDITOR
According to the Citizen's
Rights Council, "the average
consumer can settle a debt
for about 70 cents on the
dollar ... A professional
negotiator will settle an
average debt for about 60
cents on the dollar including
their fee." If you need
debt settlement assistance, use
one of the URLS at the end
of this document to locate
help.
UNDERSTANDING THE RISKS
You may actually
overestimate the risk of overdue debts.
Creditors do have the option
of wage garnishment or
property seizure, but but
unsecured debts, such as
magazine subscriptions or
credit cards, are not usually
collected to the full extent
of the law. However, if the
debt relates to a an
automobile or a home, the
possibility of repossession
is quite serious.
Very few creditors will
resort to a garnishment on a
relatively small unsecured
debt. Garnishment and seizure
are effective but expensive
and time consuming. Even if
the creditor did use these
harsh methods to make you
pay, they probably wouldn't
be able to recover enough to
offset their collection
costs.
BANKRUPTCY
Many consumers fold under
the perceived strain of unpaid
debts. Hundreds of
bankruptcies take place in the United
States each week for amounts
under $5000. They are so
intimidated by their
creditors that they flee to
bankruptcy, even though
bankruptcy can bring total
credit devastation for the
next ten years. If these same
consumers had waited and
ignored the threatening letters
and telephone calls, they
would have realized that their
creditors were all bark and
no bite. Bankruptcy is the
best option for some people,
but it is much overused.
When a consumer files for
bankruptcy, everyone loses -
especially the creditors.
The risks of judgments,
garnishments, and property
seizures must be properly
balanced against the
likelihood that such drastic
collection measures will
ever happen. The risk, and
the decision to take that
risk, are entirely yours if
you're in such a position.
WHAT DEBTS CAN BE SETTLED?
An unsecured debt is a debt
where their is no
collateral. Unsecured debts
include:
- Medical bills
- Credit
cards
- Department store
cards
- Personal loans
-
Collection accounts
-
Student loans
- Amounts
remaining after foreclosure or
repossession
- Bounced
checks
Most unsecured debts can be
settled. But, utility
companies generally wont
settle for less than the full
balance. There are some
creditors who will NOT settle,
but most will take a
less-than full payment as a
settlement to close a
delinquent account.
Secured, collateralized
debts, such as a home or
automobile, are another
story. If the creditor can
simply repossess the
property, why should he negotiate?
You can often renegotiate a
short payment relief with a
secured debt, but don't
attempt to settle the account
while you still possess the
property.
Additionally, the creditor
must have a good reason to
want to settle. If the
account is paid current, and
there is no recent history
of late payment, it will be
difficult to convince the
creditor that it is in their
best interest to settle.
This is not a recommendation
that you stop paying your
bills that are current. If you
stop paying your current
bills, you will almost
certainly make your credit
situation worse. If bad
credit is not an issue for
you at this point and you
feel you must stop paying
your bills in order to settle
them and get back on top of
your debt load, make that a
decision at your own risk.
GETTING THE UPPER HAND
After an initial period of
attempted collection, the
creditors will likely stop
calling and the debt will be
filed away for future
attention. The longer the money
remains uncollected, the
better your chances of getting
a good settlement.
Eventually, the creditor
will consider the bad debt a
loss in order to receive a
corporate tax write-off. This
does not mean that you don't
owe the debt. The
corporation may then collect
on the debt themselves,
sell or assign the debt to a
collection agency, press
for a judgment and
garnishment, or temporarily ignore
the debt. The course of
action chosen by the creditor
will vary widely between
corporations and debts.
According to the Citizen's
Right's Council "Many
consumers lack sufficient
funds to repay a debt in full
when a creditor demands
payment. In many cases, much of
the debt represents interest
and penalties accrued while
the consumer was unable to
pay. It will be in the best
interests of both parties if
a reasonable arrangement
for settlement can be
reached.
Unfortunately, you cannot
expect to reach an affordable
settlement if the creditor
thinks he has the upper hand.
If, for example,you tell a
creditor that you really need
to get this debt settled to
get into your dream home,
you can forget any kind of
settlement. The creditor will
insist on the full balance.
It will be in your best
interest if the creditor
believes that you have very
little money and you are
teetering on the edge of
bankruptcy. An attorney who
handles your settlements
should approach each creditor
as though this is their last
chance to compromise, and
get something out of your
debt, before you declare
bankruptcy and they get
nothing.
Also remember that time is
on your side. Never look too
eager to settle. Take plenty
of time to reach an
agreement. Don't accept the
first, or even second,
settlement offer. Make sure
that they are the ones
calling you to push the deal
forward.
You have the natural
advantage in debt settlement,
because you have something
the creditor wants. You must
hold out for your terms
until the creditor gives you
what you want. Once you've
written that settlement
check, your advantage
disappears. So, get your terms in
writing before you even open
your checkbook.
RESTORING BAD CREDIT
The credit reporting system
gives consumers very little
reason to pay their debts.
If the debt were ignored, the
consumer would have a good
chance at never hearing from
the creditor again, and,
after seven years from the date
the debt was written off,
the negative credit listing
would disappear. If the
consumer were to pay the debt,
then that seven year period
would begin all over again.
A paid collection or charge
off will trigger credit
denial as quickly as an
unpaid collection or charge off.
It's like getting time added
to your sentence for good
behavior.
Fortunately, creditors make
their profits by collecting
from their customers, not
reporting negative credit
information. Because
creditors can see this "catch-22"
situation, they will often
agree to delete any negative
listing upon settlement of
the debt.
Collection agencies will
always agree more readily to
delete the negative listing
than banks or credit cards.
The only case where you
should have a real problem with
collection agencies is when
they represent a larger,
institutionalized creditor.
Many creditors, though, have
an agreement with the
credit bureaus that they
will not allow a negative
listing to be deleted upon
settlement. Larger creditors,
such as huge credit cards or
banks will require more
pressure before they will
agree to delete a negative
listing, but virtually every
creditor will give in with
the right amount of
convincing. Every creditor who
reports to the credit
bureaus can also change the
information they report. In
most credit organizations,
there are dozens of people
with the authority to make
changes on the credit
report. Anything a creditor
reports, a creditor can
change.
You may take two approaches
to having the negative
information deleted upon
settlement of a debt:
pre-notification of terms
and post-notification of
terms.
Pre-notification of terms:
you tell the creditor
up-front that you will
require the deletion of the
entire negative listing as a
part of the payoff. The
agreement to delete the
listing and consider the debt
settled is documented in
writing and signed before the
payoff takes place.
Advantage: Time will be
saved and you won't be
disappointed at the last
moment. It is also less likely
that you will have to fight
the creditor later to
actually delete the negative
listing.
Disadvantage: When the
creditor discovers that your
credit is important to you,
he will usually ask for a
larger settlement amount -
sometimes full balance - to
meet your terms.
Post-notification of terms:
once settlement negotiations
are complete, the creditor
receives the agreed payment
with the requirement that
the negative listing be
deleted attached to the
check. This approach requires
use of a "conditional
endorsement" document (drafted by
your attorney) notifying the
creditor of your terms.
Advantage: You will almost
always get a better
settlement amount. The
creditor will often be tempted by
the payoff when the terms
arrive and will deposit the
check without blinking at
the new terms.
Disadvantage: The creditor
often hangs up on the new
term and might send the
settlement check back. The
creditor might still ask for
more money, or reject on
the deal altogether. If the
creditor simply deposits the
check without intending to
follow through with your new
term, you will have to fight
the creditor later and
force him to delete the
negative listing.
Never expect a creditor to
meet an agreement that was
made verbally. Everything
must be in writing and, even
then, you will probably have
to fight to make the
creditor live up to his end
of the bargain.
You may find that some of
your creditors are willing to
hold out longer than you are
willing to hold out before
agreeing to delete the
negative listing from your file.
In other words, they will
not agree to delete the
negative listing under any
circumstance. Once again,
let it be said that every
creditor will give you what
you want if you speak to the
right person long enough
and you make the right
offer. But if you are on a time-
line, and your attorney
can't get them to agree to full
deletion, you have a couple
of other options:
List the Account as
"Paid" only. You may counter-offer
that the creditor simply
list the account as "Paid"
rather than delete it
altogether. This is a true
indication of the status of
the account and many
creditors will concede and
agree to this wording. A
"Paid" status is
still very negative for a collection
account or an account that
will show "Paid Charge-off"
or "Paid
repossession." You should only agree that the
account show
"Paid" if all other negative notations,
such as
"Charge-off," "Repossession," late notations,
and "Collection,"
are deleted at the same time. A simple
"Paid" notation on
a regular trade line is neutral and
should not hurt your credit.
List the Account as
"Settled" only. You may
counter-offer that the
creditor simply list the account
as "Settled"
rather than delete it altogether. "Settled"
is an inherently negative
listing but not as negative as
"Paid charge-off."
Don't agree to a "Settled" listing
until you have exhausted all
other possibilities.
"Settled" will
still trigger a credit denial. You should
only agree that the account
show "Settled" if all other
negative notations, such as
"Charge-off,"
"Repossession,"
late notations, and "Collection," are
deleted at the same time. If
you agree to a "Settled"
notation, you must continue
to work hard to delete the
notation through the credit
bureau dispute process.
List the Account as
"Paid Charge-off" or "Paid
Collection" or
"Paid was 30, 60, or 90 days late." This
will be the creditor's first
choice, and your last
choice, of what to place on
your credit report once you
have paid. These notations
are almost as damaging as
showing the same debt
unpaid. It is very common, though,
for an account to be deleted
(through credit bureau
disputes) once it has been
paid. The creditor now has no
compelling reason to keep
the negative listing on your
report. For this reason, it
is still usually a good idea
to settle even if the
creditor won't budge on deleting
or positively modifying the
negative listing.
FOR MORE FREE INFORMATION
ABOUT CREDIT AND
CREDIT REPAIR, VISIT
LEXINGTON LAW FIRMS AT
http://www.uni-sol.com/lxngtn
Visit the Window of
Opportunity:
www.uni-sol.com/window
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