Q: What is the proper way to attempt to settle a judgement with a debt collector?
A: There is no "proper way" to settle a judgment. You should negotiate with the debt collector. Tell them about the strong points of your position and the weak points of theirs. Then, make an offer. Let's see if they respond.
A: Not an easy way to answer this online. Best method is by providing limited information to the creditor about the source if the settlement funds. ie: if you owe 10k and tell them that you have 10k you probably will not settle for less than the 10k.
I suggest that hiring a lawyer is best strategy to handle the negotiations.
A: There is no one right way to settle a debt. Each situation is going to be unique based on the facts and circumstances. However, there are some general guidelines that may be helpful. Because you used the word “debt” I am going to assume we are in a pre-judgment situation. This means that the creditor has not yet sued you and obtained a judgment against you.
A debt is just a contract between two parties wherein the parties agree to exchange money for repayment with interest. Usually, the contract is written because you borrowed from a bank. But, if you borrowed from a friend or family, the contract may not be written down. Whether the contract is written or oral, the party that lent the money has the right to enforce the terms of the contract in a court and obtain a judgment against you. Once the lender obtains a judgment, depending on state law, they can take part of your wages and assets (subject to many exceptions) to satisfy the judgment. Now, that process is expensive and time consuming, so they may be willing to alter the terms of the agreement in order to save time and money. These are just a tiny few of the factors that go into these decisions. You can use your imagination to think of many more.
Industry standards for debt collection settlements range from 50%-80% of what is owed if the debtor pays in a lump sum. However, these percentages could be significantly different depending on what the debt is. For instance, if the debt is a mortgage secured by real property (like a house) it is unlikely that the lender is going to give you a significant discount in the principal owed. They will simply foreclose and chase you for the deficiency (the difference between what you owe and what the property sells for in foreclosure). Conversely, if you wrote a bad check, they might take 30% and call it a day. Other factors like your ability to pay, amount of the debt, security, how long the debt is past due, and many others, influence what a creditor may settle for.
So how do you do it? How do you settle? I like to do it in writing. Draft a nice letter telling your lender why you can’t pay and emphasizing how unlikely it is that you will have more money in the future. Be respectful, honest, and keep it short and simple. Conclude the letter by saying that you have included a check to settle the debt in full, and they may accept your proposed settlement by cashing the check within one week (specify a date). Also, ask for a receipt and confirmation that the debt has been settled in full. If your offer is reasonable, they may cash the check, and the debt will be settled. Make sure you keep a copy of the letter for your records. If you didn’t offer enough, they may return your check and ask for more money. This strategy does carry with it a certain amount of risk that the debt collector will cash the check and continue to try to collect on the remainder of the debt. However, such action would be a violation of the Fair Debt Collection Practices Act (FDCPA).
Always avoid talking to debt collectors on the phone. They are good at what they do and will convince you to make payments that you might not make after sober consideration. If you make them put everything in writing, it will keep them honest, and you will not feel unreasonable pressure.
There is a lot more to negotiation and debt settlement, but these are some of the basics.
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