Things to consider with Debt Settlement
Date: Mon, 04/25/2005 - 15:43
debt settlement is not a bad deal, if you know a debt is yours, and you have taken the steps to obtain and review billing information to insure that all charges are correct.
A few important things to think about first as you consider this option.
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Check to see if the debt is outside of the statute of limitations - because you might find that in the end you don't have to pay. And if you choose to pay, this will surely increase your negotiating power with the creditor or collection agency.
Check licensing to see if the collection agency is even in their legal right to operate in your state. It might just be the other way around that they owe you money for violations. This could also be further leverage to force direct negotiations with the original creditor.
Understand that collection agencies have multiple relationships with the creditors and rules for reporting.
If the original creditor owns the account, but assigns it to a collection agency. Then both the original creditor and the collection agency have a right to report on this debt.
If the original creditor sells the account to a collection agency, Then the original creditor must report zero balance / sold and the collection agency now reports the balance outstanding.
Collection agencies as well can sell accounts they buy and this would be the same as (5) that the 1st collection agency would then be obligated to report zero balance / sold, and the new collection agency would then pick up reporting the balance.
This gets to be problematic with re-aging though. So first thing here is to determine the reporting periods when the account is expected to expire off of the credit report, and when the account initially went default to check and make sure you are not being hoodwinked by the collection agency. They do this for 2 reasons:
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to extend the reporting period illegally &
to make the statute of limitations to appear to be still in affect so that they can sue you in court to get a judgment entered.
Collection Agencies have contracts with the original creditors that sometimes specify that should a consumer contact them directly it is their obligation to instruct the consumer to contact the collection agency only to pay the debt.
When ever possible though you should always try to deal with the original creditor directly on assigned accounts. For the benefit that you can negotiate that the original creditor retracts the account (reporting ability of the collection agency) resulting in the collection account being deleted off of the credit report. Then also you want to negotiate with the original creditor for removal of their reporting as well (this is not an easy task though).
If you have to deal directly with the collection agency, then it is always to the best benefit to negotiate payment for deletion. Understand though that you can not expect the collection agency to influence the original creditors reporting.
Many times you will see a difference between what is reported as being owed and what they say is due when you contact them. Because most collection agencies usually only report once to add the trade line then they don't bother updating the balance again until paid.
It is illegal for collection agencies to add their own interest or collection fees, but many original creditors contacts have verbiage that legally allow them to do so later... if you can it is always important to keep your contract agreements to catch collection agencies that would step over this line.
The collection agencies are purchasing debt for pennies on the dollar, I have heard some say average of like 4 to 8 cents on the dollar... so if you have a debt of like $10 then they paid around 40 cents for that debt.
So don't be afraid to offer low dollar, they are still making a considerable profit by all means.
Percentage of what many are willing to accept can also range by the age of the account.
I am not 100% here, but what I had followed I figured reasonably this way.
Say the account is still with the original creditor if within the 6 months leading to charge off you decide to offer settlement, usual I hear of is 80% of the balance is what they want to collect. Because that 20% actually made up all the fees that were added onto the main balance.
To take a look at this closer:
Say that you had been paying 12% interest, then you became late so they defaulted the interest rate to as high as 27% interest. By the time 6 months to charge off expires you will have paid them hundreds of dollars in added fees and interest... then if you made the mistake of trying to make partial payments during this period it may have bought them more time and the charge off could be delayed up to 9 months or more. Late fees and Over the limit fees can add up to $80 or more per month so what ever you try to pay if it is not over that $80 plus then you are no touching the balance what so ever.
Average acceptance of 80% is actually just taking you back to before the defaulted status started.
Once the account goes into collections, recent collections can expect a collection agency to want 80% themselves, the older the lower it gets have seen some people get them down to 25% - 35% of the balance.
It all comes down to researching the reporting, license, age of the account, ownership / assignee relationship to see what you can come up with to get the lowest dollar on settlement agreements.
One thing though to consider - if you have the money, then 1st priority should always be negotiating deletion of the account off of your credit report. Because the creditors are preditory and living 7 years with a paid collection is going to cost you the lowest possible interest rates and approvals on new loans as long as the item remains.
The credit industry in general does not want you to have good credit, that is where they make the most profits, and they will milk it for all they got those 7 years if you don't intervene!
It is in this case worth paying a higher dollar to try to get a collection agency's agreement to delete. Though understand there are collection agencies that just won't allow this - that is tough break but some of them out there exist. In this case it will be up to you individually on how bad you need this debt resolved. Sometimes it is worth paying just for paid reporting so that you can move forward to get mortgage loans or such.
In them cases, the only recourse is to dispute with the reporting agency and try your best for deletion that way. Though also the older the reporting the less it affects the credit scores, but that is little help when the credit card companies are still going to penalize you for it even existing.
Absolutely the most important thing here is that when offer settlement - that you get their agreement in writing, if you have a fax machine, then insist that they fax this to you immediately (it has to be on their letterhead / signed! This way if they lied to you and take the money, you have the proof to forward to the credit reporting agency yourself to fix the reporting afterwards.
Also in this confirmation letter you receive from them confirming that they will delete, you need also for them to agree that they won't sell or assign the remaining amount of the debt to any new collection agencies! That is a very big problem for people settling, is that they sell the debt after making their money, and sometimes the next collection agency will actively pursue collection of the whole balance once again, no matter that you already paid a portion.
One last thing, if you settle for a difference exceeding $600 on what you owed verses what you paid, then it is the collection agencies right to forward you a 1099 (Earned Income Tax Form) that will result in you paying taxes on this amount.
Best of wishes,
A few important things to think about first as you consider this option.
[list=1]
This gets to be problematic with re-aging though. So first thing here is to determine the reporting periods when the account is expected to expire off of the credit report, and when the account initially went default to check and make sure you are not being hoodwinked by the collection agency. They do this for 2 reasons:
[list=1]
Collection Agencies have contracts with the original creditors that sometimes specify that should a consumer contact them directly it is their obligation to instruct the consumer to contact the collection agency only to pay the debt.
When ever possible though you should always try to deal with the original creditor directly on assigned accounts. For the benefit that you can negotiate that the original creditor retracts the account (reporting ability of the collection agency) resulting in the collection account being deleted off of the credit report. Then also you want to negotiate with the original creditor for removal of their reporting as well (this is not an easy task though).
If you have to deal directly with the collection agency, then it is always to the best benefit to negotiate payment for deletion. Understand though that you can not expect the collection agency to influence the original creditors reporting.
Many times you will see a difference between what is reported as being owed and what they say is due when you contact them. Because most collection agencies usually only report once to add the trade line then they don't bother updating the balance again until paid.
It is illegal for collection agencies to add their own interest or collection fees, but many original creditors contacts have verbiage that legally allow them to do so later... if you can it is always important to keep your contract agreements to catch collection agencies that would step over this line.
The collection agencies are purchasing debt for pennies on the dollar, I have heard some say average of like 4 to 8 cents on the dollar... so if you have a debt of like $10 then they paid around 40 cents for that debt.
So don't be afraid to offer low dollar, they are still making a considerable profit by all means.
Percentage of what many are willing to accept can also range by the age of the account.
I am not 100% here, but what I had followed I figured reasonably this way.
Say the account is still with the original creditor if within the 6 months leading to charge off you decide to offer settlement, usual I hear of is 80% of the balance is what they want to collect. Because that 20% actually made up all the fees that were added onto the main balance.
To take a look at this closer:
Say that you had been paying 12% interest, then you became late so they defaulted the interest rate to as high as 27% interest. By the time 6 months to charge off expires you will have paid them hundreds of dollars in added fees and interest... then if you made the mistake of trying to make partial payments during this period it may have bought them more time and the charge off could be delayed up to 9 months or more. Late fees and Over the limit fees can add up to $80 or more per month so what ever you try to pay if it is not over that $80 plus then you are no touching the balance what so ever.
Average acceptance of 80% is actually just taking you back to before the defaulted status started.
Once the account goes into collections, recent collections can expect a collection agency to want 80% themselves, the older the lower it gets have seen some people get them down to 25% - 35% of the balance.
It all comes down to researching the reporting, license, age of the account, ownership / assignee relationship to see what you can come up with to get the lowest dollar on settlement agreements.
One thing though to consider - if you have the money, then 1st priority should always be negotiating deletion of the account off of your credit report. Because the creditors are preditory and living 7 years with a paid collection is going to cost you the lowest possible interest rates and approvals on new loans as long as the item remains.
The credit industry in general does not want you to have good credit, that is where they make the most profits, and they will milk it for all they got those 7 years if you don't intervene!
It is in this case worth paying a higher dollar to try to get a collection agency's agreement to delete. Though understand there are collection agencies that just won't allow this - that is tough break but some of them out there exist. In this case it will be up to you individually on how bad you need this debt resolved. Sometimes it is worth paying just for paid reporting so that you can move forward to get mortgage loans or such.
In them cases, the only recourse is to dispute with the reporting agency and try your best for deletion that way. Though also the older the reporting the less it affects the credit scores, but that is little help when the credit card companies are still going to penalize you for it even existing.
Absolutely the most important thing here is that when offer settlement - that you get their agreement in writing, if you have a fax machine, then insist that they fax this to you immediately (it has to be on their letterhead / signed! This way if they lied to you and take the money, you have the proof to forward to the credit reporting agency yourself to fix the reporting afterwards.
Also in this confirmation letter you receive from them confirming that they will delete, you need also for them to agree that they won't sell or assign the remaining amount of the debt to any new collection agencies! That is a very big problem for people settling, is that they sell the debt after making their money, and sometimes the next collection agency will actively pursue collection of the whole balance once again, no matter that you already paid a portion.
One last thing, if you settle for a difference exceeding $600 on what you owed verses what you paid, then it is the collection agencies right to forward you a 1099 (Earned Income Tax Form) that will result in you paying taxes on this amount.
Best of wishes,
Thanks kb9tbq for coming up with yet another informative post.
Thanks kb9tbq for coming up with yet another informative post.
Keep in touch. We all will love to hear from you with such amazing facts.
Roxette
creditor company bought by another company
If I had an account for a credit card in 1999 and I defaulted and the company sold my account or their company to another credit card company, do I still use 1999 as the origination date of the account in order to invoke Statute of Limitations?
Hi theoturin Certainly, you will have to consider 1999 from w
Hi theoturin
Certainly, you will have to consider 1999 from where your SOL will be counted. Since the debt has originated from that year, you will have to look at the SOL in your state for the time period.
Roxette
If the debt charged off before it was sold to the new company...
If the debt charged off before it was sold to the new company... then yes you are going to go by the 1999 date you had with the 1st company.
If it was sold before charge off, and you had activity with the 2nd company then the last time you paid them is going to be used to determine the correct SOL.