Short answer
Debt settlement is negotiating a payoff for less than the total balance you owe, which the creditor or debt collector agrees to document and accept as payment in full. It works for the right person and the right situation, and it does not work for the wrong one. This guide is built to help you tell which you are.
Key points on this page
- A settlement is a lower payoff amount, documented and accepted as payment in full, paid either in one lump sum or over time under a term agreement.
- The three common solutions in one line each: credit counseling is “what can be paid should be paid”, debt settlement is “paying something is better than nothing”, bankruptcy is “what cannot be paid will not be paid”.
- Most people looking at settlement are in the middle. They cannot fully afford the debts they have, can afford something, and would rather handle it outside bankruptcy.
- Settlement is a way to resolve a debt for less at every collection stage: the bank’s own recovery department, a collection agency after charge off, a collection attorney, or a debt buyer that bought the rights to collect.
- Most of what happens is controlled by the policies and procedures your creditor or collector has set. Knowing them in advance lets you plan the money for the settlement opportunities as they come.
- Credit cards are the most common debt settled this way, but the same guides apply to business debts, medical bills and personal loans. CRN has provided this education and these services since 2004.
Welcome to CRN’s Debt Settlement and Negotiations Guide. This guide makes up the largest portion of the debt relief and credit guides published on this site. That’s because debt settlement does not fit into a tidy package like consolidating credit cards, consumer credit counseling, or bankruptcy. I thought it important to have an introduction to debt negotiation due to the amount, and variations of content, you will find here.
The concept of settling unpaid debts, like credit cards, is not overly complicated, though it is certainly something that cannot fit on a single web page. And once you introduce the different stages of debt collection; and how to negotiate with debt collectors vs settling with your bank; or outline what you can do when settling collections in the court; the content for the debt settlement guide grew larger, and continues to expand.
Credit cards are the most common type of debt that can be negotiated and settled for less than the total balance owed. Much of the debt settlement guide focuses on this from of unsecured debt for that reason. But there are many other types of debts that the guides can be applied to. You will find guides related to settling business debts, medical bills, personal loans, and more, throughout the site.
Get the Most Out of This Debt Settlement Guide
We highly recommend you read through the debt settlement program in order. This will allow you to gain the maximum level of understanding of what credit card debt settlement is, how it will work in your specific situation, when settling debt works best, or even why you might want to avoid debt settlement all together. This recommendation includes any of you reading who may have committed to settling credit card debts that you stopped paying some time ago.
Following the recommended outline for settling credit cards is suggested because:
- Debt settlement, as it is explained by the media, and what is probably more than 10,000 websites, often does not scratch the surface of the topic (it cannot be explained sufficiently in a single article).
- A debt settlement company selling their program to anyone who will listen will often fail at giving you a detailed outline of what they are trying to sign you up for. Opting instead to put profit or sales commission goals in front of your need to be adequately informed.
- You should understand the fundamentals of settling debt so you can weigh the benefits and the drawbacks with clarity – before negotiating and settling debt yourself, or hiring a professional.
Following the way we have laid out this section, no matter what stage of collection you might be in (and especially if you are still current with payments to creditors), puts you in the best position to succeed with debt settlement.
Once you complete your review of our debt settlement guide, you will know more than the majority of sales people who are the front line for selling debt negotiation to the public.
Before You Jump Into Debt Negotiation
CRN advocates settling credit card debt as a personal financial solution. We have provided debt settlement education and debt negotiation services since 2004. We are good at it. We have made our customers, members, and readers good at it. We are also not your Aunt Mildred’s debt settlement company (no offense Mildred).
We have decided to create and publish the online debt relief program for many reasons. We may fully lay out more of the reasoning in a later update to this section, but for now, here is some of the considerations we have in doing this:
Debt settlement works for the right person and the right situation. Debt settlement does not work for the wrong person, nor does it work well for the wrong situation.
We decided to create and publish this guide so that you can tell the difference between whether settling credit card debts is right for you, and if it is, when, why, and how much of your money to put into this method for resolving debt. We hold nothing back. We offer our support freely to the public through dedicated feedback in the comments on virtually every page of the site, and on our DebtBytes YouTube channel.
If we can save you from making uninformed debt and credit decisions that can hurt, rather than help you, we want to. If we can save you money when you settle credit card debts, we will.
What is Debt Settlement?
Debt settlement is what happens when you negotiate a payoff for less than the total balance you owe on a debt. The lower payoff amount will be something the creditor or debt collector agrees to document and accept from you as payment in full. The lower negotiated amount should be something you can afford to pay in one lump sum, or over time if it is a term settlement agreement.
Negotiating and paying a lower amount to settle debts you are already late with is very common. There are elements to settling some types of debts that you can set your clock to because the process can be highly predictable. And there is both safety and comfort in this predictability.
Settling credit card bills, and other debts you cannot afford to keep up with paying, is a pretty straight forward concept. And so is determining whether settling with creditors and collectors is right for you. Let’s start by narrowing down the basic principle of the 3 most common debt solutions to one sentence each.
- Consumer credit counseling and payment consolidation is based on the principle of “What can be paid – should be paid”.
- Debt settlement is based on the principle of “Paying something – is better than nothing”.
- Bankruptcy is based on the principle of “What cannot be paid – won’t be paid”.
If you are looking at debt settlement as a way to deal with problem bills, it is likely because you are in the middle. You cannot fully afford the debts you have now, but can afford something, and would prefer to manage the situation outside of bankruptcy.
How Debt Negotiation Works
Each of your credit card lenders will have a policy for how they handle collecting on accounts that go delinquent. Some of these policies include:
- Getting you back on track by offering reduced payment hardship plans that may be temporarily extended to you for 3 to 12 months, or applied over the life of the balance in a 5 year payback schedule. Read more about credit card hardship payment plans.
- Debt collection efforts internal of the banks own recovery department.
- Charge off your debt as noncollectable and place your account with a collection agency who will bug you over the phone and through the mail to get you to pay.
- Placing your account with a debt collection attorney.
- The legal rights to collect from you could be sold to a debt buyer.
Debt settlement is a method to resolve unpaid credit card bills for less in every one of the scenarios above. That’s as complicated as the debt settlement process will ever be.
It’s the “how will debt settlement work for me” and “is debt settlement even for me” questions that make for the details.
Is Settling Debt Right For You?
Ahhh… the details. Yes, getting the best deals, and the most from settling debt, is in the details. And the details when negotiating and settling can change from one creditor to the next; from one collection stage to the next; and most certainly from one personal set of financial concerns to the next.
The majority of what happens in the process of settling credit card debts is controlled by the policies, procedures and protocols that are set up by your creditor or outside third party debt collectors. Knowing the policies and procedures for each of your accounts you will settle, in advance of the settling, is a huge benefit. You simply plan ahead financially for the settlement opportunities that will be presented, and make the right moves along the way.
You can use this site to help you settle your debts on your own. We offer upfront education about the debt settlement process, supplemented by on the ground and “right now” details provided free in the comments section of this website. And you can get one on one dedicated professional feedback by requesting an expert debt settlement consult over the phone.
We know that many people are freaked out by the concept of negotiating and settling credit card debts on their own. You also have access to professional debt negotiators, and often at the most reasonable cost found in the industry. If you would like to talk to me, Michael Bovee, about that, you can reach me at 800-939-8357, choose option 2.
In the next section I will bluntly outline who debt settlement is right for and why debt settlement is a race. You may already be in the race and not know it.
Continue on in the debt settlement guide to How and Why Banks Settle Credit Card Debt with You.
As you will see throughout the site, I respond to reader questions and comments throughout the day, so feel free to post below for feedback.
This Debt Settlement Guide includes:
An Expert Guide to Credit Card Debt Settlement (you are here)
How and Why Banks Settle Credit Card Debt with You
Types of Accounts to Include in Your Debt Settlement Plan
Why Settling Credit Card Debt is Like a Race
How to Settle Credit Card Debt Quickly
How to Talk to a Debt Collector
How to Negotiate Credit Card Debt Successfully Yourself
7 Largest Credit Card Banks and How They Settle Debt
Get Debt Settlement Letters and Agreements from Collectors
Paying Debt Collectors After You Negotiated a Settlement
Michael,
I’m in the same situation as many of these people. My story is too long to tell. In a nut shell, on my credit report, I see some that say Charged off and I get letters from collection agencies and some that say Account Closed ans some that say the account was purchased by another lender. I know in reading your responses, I am still responsible for the debt, and am willing to settle, even though I know each one is going to send me a 1099. My question is, can an account that’s in collections or has be purchased, specifically, purchased, charge me more than the amount that was written off? After it’s paid, even if it was settled for a lower amount, how does the Credit Card company handle that. Do they get their money from the purchaser? Do they re-record it as income? Will I now get 2 1099’s I want to get this settled, once and for all. Our other option is bankruptcy. We’ve already got the black marks on our cc report, if it can’t hurt us any more than it already has, is that the better option? If we do that, we won’t be liable for taxes, correct? Hope you can help! Thanks!
Mary Ann – When an account gets charged off, the agreement at the time of that event may mean interest is allowed to continue to inflate the balance owed. But there are also instances where “junk fees” – collectors adding fees that cannot be justified – can occur. If your aim is to negotiate a settlement for a significant savings, it may not be productive, or a good use of time, to get into how the inflated balance was achieved. That said, I can think of many files I have worked where getting to the bottom of how collection balances ballooned, in a seemingly arbitrary way, is the first thing I dig into.
When you negotiate and pay a settlement on a credit card bill with a collection agency that is working directly for your lender, the settlement and now zero balance owed, is updated to the credit report by the original credit card lender.
When you settle with a debt buyer, and if they are reporting to the credit bureaus, they would update the account to show settled and zero balance owed. The original credit card lender should already have been showing the debt as charged off and zero balance owed to them – so no change to the banks reporting would be needed.
This is not to say that credit reporting always goes like it is supposed to. You do have to review everything and if things need corrections it is up to you to get that done.
If your credit card debts were sold, the bank will get nothing from you settling with debt collectors on those accounts.
If you negotiate your settlements with collection agencies working for the banks, the creditor will get paid, and the agency gets to keep a portion of what they got you to pay.
Banks are required to follow accounting principles, so if they charge off a debt and record the balance as a loss, but later are able to recover some or all of that money, they would have to account for that.
You should not get 2 1099c’s for the same account.
Comparing settlement to bankruptcy is something best done when you have all of the facts about each path. I can help you understand the benefits and drawbacks to negotiating the debts down if you post a comment reply with the following info:
Name of original creditor; when account last paid; who is collecting now; approximate balance owed.
In order to truly evaluate bankruptcy you should consult with a pro. You can call 877-278-8117 for a free consultation and determine:
Whether you qualify for chapter 7, or would have to file chapter 13.
If chapter 7 is an option, are there exemptions you do not meet that would make negotiating the debts a better alternative.
If filing chapter 13, are there benefits you will realize that you cannot from settling on your own.
You are correct – 1099c’s and forgiveness of debt are not an issue when discharging debts in chapter 7, or when a portion of debts are discharged after completing the 3 or 5 year chapter 13 repayment plan.
Hi Michael,
Quick question. I have been in talks to settle my cc debt with B of A/FIA.
The women I spoke with today said they would take the lump sum I offered at 35% of my balance.
The problem I am having, is that they are telling me that they will not send me a letter stating this agreement in the mail. They will not give me anything in writing until AFTER I make the payment.
How can I trust this? How do I know they are not just going to apply that payment to my balance and tell me I still have to pay the rest. Or sell off the rest. I am very leery of this. I want to see it in writing.
They are also telling me that since it is the end of the month, they cannot guarantee that they will take the same settlement offer next month. Can you please give me some expert advice. I have a hard time sending them a cashiers check for a big sum of money without some written paperwork to back-up our agreement. They said that they do the ‘disclosure’ over the phone and they we have to “trust each other”. Just sounds so sketchy. One women told me that they don’t trust the mail service. I would really appreciate your advice.
Thank you, Rachael
Racheal – Set aside the “don’t trust the mail” talking points that recovery specialists and debt collectors at BofA or FIA card services may use. None of that is really what is going on. Bank of America (and other banks), developed a policy a couple years ago where they do not kick the letter loose until there is a payment set up in their system. More often than not I would recommend using a check by phone direct from your account and set the date of the payment draft for a week or more in the future in order to allow time for the letter to get to you.
They will do a disclosure call. It is recorded from their end. I recommend you record it from your end as well, and tell them that you are. If you do not record it, be sure to take good notes of what was said, by whom, and the date and approximate time of day. Those recordings will then be better identified in their system should you need to file a complaint with the CFPB for unfair and deceptive practices – if any mistakes are made with your agreement that lead to any future collection efforts by them, or a debt collector.
Here is some more detailed information about settlement letters and getting through your concerns: https://consumerrecoverynetwork.com/debt-settlement-letters-agreements/
Those letters have been getting released by BofA and FIA – as indicated – with very few issues.
Offers do change. FIA may not even have the account next month, so now is a good time to settle with them.
Thank you so very much Michael.
I’m just clarifing what you mean by doing a “check by phone”- is this the same as giving them my account number and bank routing number? Like an auto withdrawal? Can it be from my saving account or do you know if they want it from a checking account?
And in my conversation with them-I can set the withdrawal date for a future date? And they won’t take the money until then?
I just want to be as informed as possible. I truly appreciate your advice. And will follow your recommendations.
Rachael
Your debt settlement payment(s) over the phone can come from either account, using routing info etc. I do suggest using a different account dedicated to paying deals you negotiate. Read more about that here.
Yes, you can set the payment for a future date. Just let them know you need sometime to pool the money together, and will have it in the account by xx/xx/xx date.
I think and hope I am good now 🙂 with Capital 1 atleast. I just got the arrangement letter. It says:
Thank you for making payment arrangements for your Capital One account. As we agreed, your first payment of $50 is due by the 30th of each month beginning on 10/31/2013. Please continue to make these payments each month until you’ve paid your balance in full. You can always pay more than the amounts we’ve agreed on.
If you don’t make all the scheduled payments as we’ve agreed, we’ll take action to collect the balance you owe us. After we receive your final payment, we’ll send you a confirmation notice.
When mailing your payment please write your 16-digit account number on it and include the enclosed payment slip. If you have any questions, or if you’d like us to discuss your options please give us a call at the number below. If your account is being serviced by a third party agency, your call will automatically be routed to them,
Sincerely…..
Does this all look ok to you? It does to me.. but just checking
Shannon – I would move forward on payments with confidence with that agreement. I would be sure to get payments sent well in advance of the due date. Keep that document and record of your payments in a safe place. If any other collection action were to occur, but where you have been following the agreement, post an update here. There are steps I will recommend you take.
I am a huge fan of the rip the band-aid off approach to resolving collection accounts. Once you resolve the Midland account I would aggressively pay off this one with Capital One using all available funds (tax refund etc). Your credit will best heal once these older collections show a zero balance owed. You do not really get a credit bump from payment plans on charged off debts. But will benefit over time once the amounts are zeroed out.
Calling Midland Funding to arrange your solution should go equally smooth. If you had previously indicated some form of cease communication like with Capital One you may need to be prepared for them to bring that up as well.
Michael,
Thanks again for your advice and support. I called Midland and got the same deal as I got with Capital One. $50 per month and then I will call back and try to settle the balance once I get my income tax return. So happy to have dealt with them on my terms instead of them dealing with me via a summons.
Hi Michael. Hoping to get your advice on how to handle some debt I have. Looking at my credit report I have a charged of Credit One Bank card that was sold to Midland Funding showing a balance of $1300 and a charged off Capital One card that has not been sold off to anyone yet showing a balance of $2210. The last payment made on each was on May 2010. I would really like to deal with them before they deal with me ( sue me). What the best way to go about it. I don’t have a lump sum of cash. Is it reasonable to call and ask for payment arrangements with both for monthly payments? Or will they both only take a larger payment to settle on full? I really want to avoid the lawsuit. I haven’t been served yet but I have a gut ….or guilt feeling it’s coming.
Shannon – Either of your accounts could sue you (reputation of both). But both will work with you to resolve the debts, whether with a payment arrangement, or negotiating a lumpsum debt settlement, or a settlement with payment terms.
What can you budget monthly with confidence right now?
If you get a good settlement offer, what amount could you pool together given a month or two?
Thanks for rhe quick reply. Unfortunately I don’t think I could pool together too much until income tax return time. I normally efile and get it back pretty quick. .so I would have it the end of February maybe. In the meantime I can afford to pay them $100 each a month. I’m scared to call and open pandoras box with them if that won’t be an acceptable payment amout. Do you think they would both accept that? Are you saying they would work out arrangements with me now….or after they served me? How long do tbey each normally allow payments for ( is asking for $100 a month on a $2200 + debt asking for too much?)
Oops… I forgot one question. If I should decide to wait until I have a larger pool of money will there be any warning signs or notice that they are about to sue me? I know the SOL is up around May or so..but I have also read that Capital One specifically likes to wait to the SOL is near. I am not sure what the best course of action is at this point with my limited funds. I definitely want to avoid a judgment and a lawsuit if possible but I don’t have a lot of money to settle it right now. What would you do?
Thanks for doing this for everyone! Your posts and answers have been great to read!
Midland Funding is highly likely to work with you if you negotiate 100 dollars monthly payment, or even settle for less and with payments (though smaller balance accounts in general do not settle for the best savings compared to higher balances). As far as Capital One, I cannot really comment without knowing who the account is placed with for collection. Who was it that most recently contacted you collecting on the Capital One account – whether phone calls or letters?
Capital One hasn’t been placed with anyone yet. It was still in house. No one has called me or mailed me anything. I just know I owe the debt and that they have a history of suing so I wanted to get some sort of control over it. I actually got brave and called them this morning. I must have told them not to call me anymore a few years ago. They referenced having a cease and desist notice on my account. Anyway I called and they said I could pay $50 a month and that as longs as I didn’t miss a payment that it would remain in their office. I am still waiting to get a faxed copy of the arrangement before I make the first payment. That seemed a little too easy. Is there anything I should leary of? Can they still sue me if I am making the $50 a month payment?
Shannon – Yes, they can still sue, but I find that highly unlikely in today’s heightened regulatory debt collection climate. Most definitely unlikely depending on what that agreement letter says. Post an update when you get that letter and lets go from there.
oh, and yes, it can be that easy sometimes:)
Michael…. I’m wondering if you have been able to collect any hard data as to the average percentage of “savings” in settling a debt at the 6 month mark as opposed to settling in month 3 or 4 after the first missed payment. Once again, looking at the cost benefit of settling quicker, possibly sustaining less credit damage and getting back on track faster versus maximum savings…Thanks.
Richard – There is little difference or benefit to your credit, or limiting the damage to credit scores, by settling just after 90 days late, or just before charge off (typically 180 days late). The credit damage from late pays comes mostly from the 30, 60, 90 day late pays. The charged off is the next hard hitting event.
The savings from negotiating settlements at 90 days compared to, say 150 days, is stark. Several banks will not even engage in negotiations at 90 days. Most 90 day settlement opportunities were occurring at the height of the recession, and took the form of pre-approved mailed letters to delinquent card holders that met a specific criteria. Citibank did a good amount of this, Chase and Bank of America a little (but were willing to settle at 90-ish days when calling in to negotiate). You just do not see the 90 day pre approved mailed offers to settle much now. And calls to negotiate this early now often result in paying a premium of 20% or more than would have been the case had settlements been negotiated just prior to charge off, or with an outside collection agency after that.
My wife and I have a Chase Credit Card with about 4600 on it…my wife just lost her job out of the blue and we have exhausted our savings down to nothing. We are not behind on payments but barely making minimums. I was wondering if it would be possible to settle our debt for less and be done as I have already gotten rid of so much to pay off other bills and shes in a competitive field so I dont know how long we will be in this spot?
James – Settling your Chase credit card would make sense if you cannot afford the minimums. Assuming you could negotiate and get Chase to approve a settlement of, say 1800, how long would it take you to raise that amount of money?
Hello Michael, Last week I was served a summons by the office of Rory W. Clark (located in Westlake Village,CA) on behalf of FIA Card Services in the amount of roughly $4700, for a cc that was initially issued by BofA. I live in SF, CA and understand that as it is a small claims matter, I am required to represent myself if the case goes to trial. I have 30 days to respond, and in the past week have been researching to figure out where I stand and see what my options are (and stressing out a great deal). I was recently laid off, and am currently collecting unemployment; I have no savings with which to offer a lump sum except for a retirement account. From what I understand it’s in my best interest to respond to the complaint, one way or another. But first, a couple things; I have two other cards with more or less similar balances that have been in collection for several years, that so far I have not been sued for; and, strangely enough, the amount I *am* being sued for by FIA seems low, by a couple thousand, compared to what I thought I owed. My question is, if I answer the complaint, should I request validation of the debt as a defense? Or do I answer hoping the case will be dismissed/dropped if I attempt to make a case? (FWIW, their office is 7 hours away, would they really travel that far??) Also, is cashing out a retirement account ever a good idea to pay off this kind of debt? I’m 36 and have some time to build that back up. At least then everything would be a clean slate, or, perhaps then the taxes I would owe on any reduced settlement amounts would be more than I could afford…Or at that point could I claim insolvency? I own no car/property/home, and am a renter. Do I sound like a candidate for Chapter 7, considering those two other lingering debts?
I know there were a lot of questions in there, thank you so much for your consideration in advance.
Leah
Leah – Many collection attorneys will pay a local attorney to make limited appearances. No, the attorney listed that is 7 hours away may not show, but does not necessarily have to. Cashing in a retirement account in order to settle can make mathematical sense in some limited scenarios. But with early withdrawal penalties and tax implications, there would have to be some extenuating circumstances (cannot qualify for chapter 7, other assets to protect etc.), to make sense of it. If you can simply borrow from a 401k, it can make sense for some situations, but more for someone who is very confident in their job security.
You can defend the suit to the best of your ability and keep your options open. FIA is not a debt buyer, so some of your best defenses are not on the table.
Chapter 7 is indeed an option. But let me ask:
What are the balances on the other 2 debts? Who is collecting on them now? When were payments last made on these accounts?
I ask because currently I would only consider the Bank of America account as the driver to bankruptcy. And filing over that amount is not attractive unless it came down to a wage garnishment that would create a domino of other problems.
Hi Michael, Thank you for the response. I don’t know if I would want to borrow the money from the retirement fund, since, as you said, I’m not too confident about my job security for any time in the foreseeable future. So who knows when I’d be able to start paying it back.
The two other debts are about $6000. The Citi card is collected by Capital Management Services, and I’m not sure who’s collecting on the Capital One card. I’ve been offered settlements from Capital Management Services for as low as 25%, which would be great to take advantage of, but like I said, the only way I’d be able to do that is to cash out my retirement, which I’m hesitant to do. But the question there is, is that worse than filing for bankruptcy? And who knows if FIA will be willing to come down low enough to make it worth it. There is only about 15K in the retirement account, and after the penalty and taxes, I’m guessing I’d see about half. Is it worth the risk? It’s been at least two years since I’ve paid either one. Does it make sense to get settlement offers from all three collectors, then look at retirement fund vs bankruptcy?
Thanks again,
Leah
Thanks for the additional details Leah. I see a couple of paths for you to take.
Given the limited unemployment income, and no assets, debt settlement on the BofA/FIA account, even when sued, can “maybe” see an optimized savings of 50%. Lets say that you settle for 2400.00. You still have the other 2 accounts out there. Capital Management Services is not high risk for suing, but Capital One is. You said the balances on those two were similar to the Bank of America debt. Assume you settle with CapOne for 2500.00 next (as you save up money, or tap other resources). Save Capital Management services for your last settlement for about half, so another 2500. Lets call it 7500 to settle all 3 accounts. You can early withdrawal your retirement and clearly avoid bankruptcy. Should you? I wouldn’t. But I completely understand why you would want to.
The total cost of chapter 7 would be between 1500 and 2k (national average is 1800 – but San Francisco tends to be on the high end of costs). Lets assume you you pay 2k – that’s all court costs, attorney fees, etc. You preserve your retirement fund, as most are exempt; you eliminate all unsecured debts; and all stress associated with the collections; have access to most credit products again within 24 to 36 months (access to student loans could be 3 years – FHA mortgage underwriting 24 months). You cannot file for chapter 7 again for 8 years, and may hinder some very limited options for employment (certain types of jobs would heavily scrutinize the BK).
As cash strapped as you are, I like the bankruptcy option from a purely dollars and cents perspective. If you were not currently laid off, I would have more to add to the debt settlement comparison, and some additional monthly budget and living expense questions, but that is not the case here.
There are always other considerations for choosing other alternatives to bankruptcy. But when there is a collection lawsuit that could result in a judgment (that can lead to later wage garnishment and bank account levies), it causes something of a time crunch for decision making. I would suggest consulting with a bankruptcy professional now, and then weigh what you learn in that consult with what you can expect from debt negotiation. You can call 877-278-8117 for the BK consult. If you learn something that would give you pause from pursuing bankruptcy, or have more questions about settling, or even doing nothing for a while (until your job situation changes), post to this comment string and lets go from there.
Hi, I was trying to settle a bank of america credit card. Its being charged off next monday and I have been in constant contact with them. They offered a 50% settlement last week but i was unable to come up with 50%. I contacted them today and they told me there was no settlement being offered at the moment. please advise. I can only come up with about 40%.
Jim – There are instances where BofA settles for higher amounts. We tend to see people we help through the process of settling with Bank of America on your own get between 30% and 40%.
You may not have an opportunity to settle direct with them at this point if the account is set to charge off the day after tomorrow. You may have to settle with the debt collector, or purchaser the account is placed with. BofA may keep the account for a brief period in an internal post charge off recovery unit, or with FIA card services, and settlements here can get done at 40%.
Also, you can often get the settlement amount split up into a few payments, so if you want to get the deal done, but are a little short, the additional time to pay can be negotiated.
So I should not even try to call them today, tomorrow or sunday and wait until they charge off right?
Jim – I would call and try to get the settlement done each day. The worse that will happen is that they will tell you the same thing. But there is a chance you can still knock the settlement down. I have seen settlements with Bank of America on the last day before charge off.
I was wondering if you guys deal with an outstanding balance on a mortgage after its been short sell. My remaining balance from a short sell was directed to a law firm and I have been repaying them monthly. I just got a letter from the lawyer stating that they are no longer representing the creditor and my account is now being managed by another law firm. Can I settle this debt just like a credit card?
Sam – CRN specialists can help you settle debts resulting from a short sale. They can also help you settle on your own. I would recommend calling in for a free consult to talk about your situation with one of them. Call 800-939-8357.
I tried to contact ARS regarding my Chase CC account from years back. I’m currently having them deduct a small amount from my bank account each month. When I asked if there was a settlement amount, the rep basically said if i settled for less than full balance, the bank will never let me reapply for anything/work with them again. This rep said she represents Chase. Is there such thing? And what other banks do this? I want to get some stuff paid off but now i’m afraid to do settlements because of this. I’d like to buy a home in the future and would be looking for home loans from banks so I don’t want to get blacklisted or anything. Thanks!
I’m sure you know but ARS = debt collection agency.
There are a couple of debt collectors with ARS for initials. What is the full name of the collection agency you are dealing with?
Tiffany – To my knowledge, Chase Bank does not black list people from future credit products if they had previously settled a debt with that same customer in the past. I have worked with people who have maintained Chase accounts (credit cards and otherwise), while settling other Chase accounts. Even if Chase were to do that, there are many other resources to obtain home loans from when you are ready.
American Express has maintained a black list where people who have not paid them have found it impossible to get AMEX cards again. That is the only confirmed example I can provide.
Settling a Chase account that went to a debt collector will often mean the account was already charged off. This means the credit damage is already done. Deciding whether to settle the debt at this point should be more about affordability and cash flow, not credit reporting.
Thanks Michael!
I’ve contacted ARS again and spoke to the Chase rep I’ve been working with. I’m confused because I thought ARS is a collections agency that buys out old accounts from credit card companies. But she said she represents Chase and Chase didn’t sell my account yet, they just go through ARS to try to get paid? When she asked if I wanted to hear the settlement disclaimer, she went through the whole 1099 deal and also stated that because i’m not paying in full, I will be restricted to ever get an account/loan with Chase again. Maybe this is something new? Which is fine, I don’t intend to deal with Chase again but just wanted to see if this applies to other banks and if you’ve ever heard of it. Thanks!
No problem. If that is the case it would be the first I have ever heard of Chase making that disclosure, whether through a debt collector or by an internal employee.
Chase does assign out to debt collectors while retaining ownership of the accounts (not selling to debt buyers) more in the last couple of years.
Got it.. Thanks! I’ll be returning to this site for more advice if I need any in the future. Glad to have found this useful site. =)
Thanks Michael, for your detailed explanation…and your question. Yes I have been doing research and trying to find the right path and I very much feel I’m doing a balancing act on this situation. I’m semi-retired and have gone through a rough patch with my business. However I do feel I have the potential to make sizable amounts of money in the future, as I have in the past. But until I get my business back on track, I will be utilizing much needed assets to resolve these debts. So I may have too many assets to think about bankruptcy but doing debt settlement will diminish them significantly. And of course, if I do a complete default thinking I’m judgement proof, will I end up getting sued for the assets I hoped to protect….which really aren’t that much.
Yes, I have always had good credit and would prefer to keep it in the best shape that I can but I realize I can’t have it both ways. If I understand you correctly, it sounds like settlement is a faster recovery than completely defaulting, which could drag on for a long time.
So again, I’m just trying to balance out all the apparent options in front of me….realizing that I can’t afford my current debt load, aware that at my age I can’t afford to give up needed assets and also knowing the importance good credit, even if it is not for borrowing money….
I did do an initial consultation with your company and will most probably follow up on that….Thanks
You are going about this in the best possible way. I so very much wish more people would be methodical, deliberate, and committed to researching all of their options and getting questions answered along the way. And there are times where not paying, not settling, and not filing bankruptcy can be considered an option. But it should be viewed as a temporary one by most.
Negotiating and settling credit card (quicker the better), will absolutely be better for your credit than defaulting and leaving debts unresolved. An exception would be if you took 4 or 5 years to settle, get the credit reports updated that far down the road, and add a 12 to 24 month recovery time afterward.
Glad to hear you connected with a CRN specialist. They are here if you need or want one on one support, or a direct service.
Hi Michael,
If a person is “judgement proof” is there any purpose to doing debt settlement, as opposed to doing a complete default. My assumption is that debt settlement would put a resolution to everything, for a cost, and alleviate the lingering potential to get sued with resulting collection judgements that could be executed in the event of future monetary good fortunes. Is this correct and are there other considerations within this framework?
Judgment proof can be short or long term. If someone is judgment proof today, but with a reasonable expectation they will not stay that way, taking advantage of early settlement opportunities makes more sense. My comment here is based on years of experience. All those files later, I would estimate less than 100 could say the money they used to settle debts turned out to be regretful because they could have simply stayed judgment proof. Judgment proof files are often better off moving straight to chapter 7 bankruptcy and discharging debts, rather than negotiating settlements.
There are other considerations, but they are not all monetary ones. The stress and bother of collections is often left out of the equation. Debt collectors calling a relative, employer, former employer (whether violating fair debt collection laws or not), are the types of considerations I am referring to. Length of time to be approved for fairly priced credit products again are another consideration. Negatives fall of the credit report 7.5 years after the first missed payment. But a judgment 4 years from now adds another 7 years (now a total of 11) to credit concerns.
I could actually roll through a litany of things that become part of the equation when forced to dodge debt rather than resolve it when possible. But after I reread our comment exchange on this page, I have a question for you: What happened between your first post about credit concerns, to this one about being judgment proof? I completely support what I assume is simply your having continued your research, and reaching a reasoned and logical conclusion that your credit is far less a concern than being able to provide for and support yourself. But I am curious.
Reading question #5, if there is no settlement offered to the creditor and quitely waited till the 7 year timeline expired, will the debt still fall of without any repurcussions, or can the creditor come after you later in life?
YA – If a debt remains unpaid for 4 years in California it passes the statute of limitations for your son to be sued. But the debt is still out there and collectable. Debts like credit cards fall off the credit report typically 7.5 years from the date of the first missed payment.
Michael,
This is a really great website – thanks! I am in Virginia and have two credit card judgments against me totaling about $30k including interest and fees. Both are about 6 years old. I have no garnishments, levies, liens, etc. and never did – it seems the law firm never bothered to try any of this, but I have also been careful not to leave myself vulnerable to any of these. A few questions:
1. When you talk about negotiating a reduced payoff (say 40-60%), is that 40-60% off the original amount or the amount with accrued interest and fees?
2. Based on the age of these judgments, what would be a realistic settlement amount?
3. In another post you suggest offering 50%. Why not just ask them what is the least they’d take? Or start off offering 10% (or 1%) and letting them go up from there? Is there a downside to offering too little, other than more back-and-forth before a payoff amount is agreed on?
4. I have the cash to pay off in full, but don’t want to part with that much money, especially considering I don’t absolutely have to settle at all – I’d rather clear up my credit, but don’t need it right now. If I do settle for less than the full amount, when the settlement is recorded in the public record will it show that I settled for a reduced amount or will it just say that it’s been satisfied? I don’t want it to show on the public record that I shorted my debt, but if it doesn’t indicate what I settled for then I’d want to settle for as little as possible. Also, if I do settle for less and the public record only shows that the judgment is settled, can anyone from the public call the law office and find out how much I settled for, or is this confidential?
5. My credit reports from annualcreditreport.com indicate that the judgments are set to be removed in another year or so. If I settle, and the settlement is updated on the credit reports, is the 7-year clock re-set, or will they both fall off after the 7-year limit? By this I mean is the 7-year time frame from the date the judgments were recorded (regardless of subsequent activity like payments plans, partial payoffs, full payoffs, etc.) or is it 7 years from date of last activity (meaning it would stay on my report for 7 years after I settle, regardless of how long ago the judgment date was)?
6. When negotiating with the law firm, should I negotiate by phone or in writing? If by phone, and if a payoff amount is negotiated, what is the procedure for getting them to give me a written, binding commitment that if I send the funds they will release the judgments as satisfied?
7. Once the judgments are paid/settled, do they notarize and record the Release of Lien document at the courthouse where the judgments were recorded, or do they send me a notarized document that I then use to get a Release of Lien recorded myself?
8. Presumably, the credit reporting agencies will be notified by data miners about the settlement once recorded. Will this bring down my credit score? I ask because I would like to apply for a secured credit card through my bank, and I’m thinking I might want to wait until after the debt is settled but before it’s recorded in the public record – the one credit agency my bank uses to decide about credit cards doesn’t have either judgment on the credit report, but this might change once the settlement is recorded in the public record.
Thanks again for putting together a great website!
1. Negotiating is generally going to start with the current balance owed, so inclusive of interest and fees.
2. A realistic settlement on judgment debts this old can be 50%, but there is more to negotiating at this stage. There are variables such as:
a. Who the creditor or debt owner is?
b. Who is the attorney collection firm you may have to negotiate with?
c. Does your credit report or other information sources available to a debt collector show you as more collectable (paying other unsecured debts, home, cars)?
3. There are certainly instances where you can start with an extremely low offer. But starting off negotiations with something unrealistic is a waste of time, and can lead to some reverse gamesmanship. In your situation, if you are sincere about wanting to settle, you will want to try to go from initial contact to debt resolved inside of a few weeks. These debts being judgments could still lead to attempts at wage garnishment and bank levy.
4. You will want your settlement agreement documented. With your situation you will want the agreement to outline the judgment creditors responsibility to file satisfaction with the courts. The court record, and thereby the public record section of your credit report, is typically not going to show this type of debt as settled for less. Just satisfied. I am not sure why you would get hung up on this though. Is there a special circumstance?
5. If you settle these now they should still fall off the credit report 7 years from date of entry, so next year as you indicate. You do want to monitor your reports to see that this happens, and dispute the entries as older than 7 years if need be.
6. Negotiating the deal is best done over the phone. Getting the settlement outline in writing is pretty standard. You would simply request everything verbally agreed to be sent to you in writing, including the fact that the court record will be updated to reflect the debt as satisfied. You can request that be mailed or faxed to you. I am seeing more written agreements being emailed as attachments, but not all collectors do that.
7. Typically the judgment creditors filing is all that is necessary, but different jurisdictions have their own protocols. I would run this question by an experienced consumer law attorney in order to get a definitive answer. This is also the type of procedure question that court clerks are a great resource for.
8. It can take a month or two for the newly updated court record to be reflected on your credit report. But then again, it could take less. I cannot say what your credit score impact will be without looking at your entire report. Even then I would be making an educated guess at the impact. You can expect the recency to have some impact, but it should be negligible. I completely agree that you should look to resolve this before submitting any credit applications or applying for anything that would result in a hard inquiry.
URGENT QUESTION :
Hi, Michael! Thanks for all the great answers!
I was able to make a payment schedule with TD Bank Group (Meyer & NJUS P.A.) for $259 each month until December… Now the problem is that my husband lost his job and We can’t make the payment this month (15TH) and We are going to close our bank account since them take the $$ automatically … What should I do? Call the lawyers?
Melina – Was your payment arrangement part of a negotiated settlement? If so, how much was the original balance? What did you settle for?
The payment arrangement was because TD bank USA was suing my husband for $1316.63 + fees (Total: $1553.63) Target debt.
If you are paying back the full amount than missing the payment will not cause you to lose out on any savings negotiated as part of a settlement. But did you sign a stipulation to judgment when you set up the payments? Was there a judgment entered in the court, and then payments set up?
Missing the payment if you signed a stip would likely lead to the judgment then being entered and enforceable. If the debt is not recorded in the court already, this could lead to that, which will further impact your credit report.
Calling the attorney to let them know you are not able to make the payment is fine, but it generally will not impact the chain of events that occur as a result of missing the payment date.
My husband call the lawyers office (Meyer & Njus, P.A.) and They confirms the arrangement of $259 for 6 months (Ends in December) He already paid 2 months. They sent my husband a letter where He signed a AGREED ORDER TO DISMISS WITH LEAVE TO REINSTATE to not go to court.
The court records show this:
07/31/13: ORDER ON MOTION FOR INSTALLMENT PAYMENTS BY AGREEMENT – ALLOWED – $259
07/31/13: DISMISS BY STIPULATION OR AGREEMENT
Thanks Melina. You do need to be concerned about the suit progressing when the payment is missed. You could try to negotiate a lower payment now that your personal finances have changed. I have seen mixed results with that after collection reaches the courts.
Michael – Just curious if my new set of questions ever posted to the link you sent me?! I am not sure I presented the question correctly. Let me know if you ever received that. Thank you !
Melissa
No, I did not get them. If you used the ask Michael feature, it should have created a draft page behind the scenes on the site, and I would get an alert and go answer those. None of that happened. Rather than risk that happening again, go ahead and email all of that to me and I will create the page.
Michael-
Is there an email address to contact you directly or would you like me to try the Ask Michael feature one more time? Thank you again!
Melissa
It would be great if you tried the ask a question feature again. But if it does not complete the submission you can email back to the address I just sent you. Be sure to copy your efforts in the ask a question page so you can paste that into an email if necessary.
Hi Michael:
Use the ask feature again today, any luck?!
All set Melissa. Came through no problem. I will not be able to publish the new page today. When it goes live tomorrow you will get an email that your question has been answered and we can participate in the comments of that new page on those topics.
My husband and I have been with a debt settlement company the past 2 years. So far, we have had great success with settling 6 of our accounts. However, we recently received warning that Discover Card has commenced legal proceedings. When I called our settlement company to instruct them to start negotiations, they stated that we had no funds in our escrow account and were unable to start discussing settlement. They advised me to hire an attorney through them at a reduced cost. The attorney would only be able to advise us on how to proceed and not appear with us in court. Am I better off communicating with the lawyers representing Discover Card directly or stalling until my escrow account grows or hiring a local attorney to represent us personally. I’m looking for a number to make this lawsuit go away. I can afford payments over twelve months but I think it will be hard to get them to agree to these terms. Any advice would be much appreciated. I know Discover is aggressive and has a reputation for winning in court. I’m frustrated on my own lack of knowledge on how to proceed. Our escrow account will not start accumulating funds until January as the DS company is currently settling another of our accounts. Thank you again for any advice.
Jules – 2 year debt settlement programs are a stretch when you want to avoid being sued. Ideally you would look to pool together whatever resources you can to settle the suit with Discover.
A couple of ways to manage this could be:
1. Work with an attorney to answer the lawsuit with the intent to buy a few months time in order to complete the other deals that have been negotiated. Once you free up the monthly cash flow, dedicate those funds to settle the lawsuit. It is possible to do that over payments. What is the balance on the Discover debt? What are you sending to escrow monthly?
2. Pool together whatever resources you can that are separate from what you send to escrow and settle with Discover. It can work to your favor to file an answer to the complaint prior to negotiating a settlement, but that is not always the case. Can you get your hands on additional funds quickly?
Your strategy should take into consideration any remaining accounts that have not been settled. You want to be aware of other accounts that are higher risk to sue for collections. What are your remaining account balances? Who is collecting on those balances at this time?
Thank you for the quick response. Discover Card has a balance of $7,100. We have 4 remaining accounts waiting to be settled. Wal-mart $4800, 2 Chase cards totaling $2600, and a Dell account $1600. We pay $525 per month into our escrow account. We have no extra resources available to us at this time. However, I recently took on a second job. This will bring in an extra $600 per month. Discover card had sent me a settlement offer when we first started the program for a one time lump sum settlement of $5800. I believe the settlement company we are working with was trying for $4600 over 6 months. This was until another account settled so nothing was ever agreed upon. I was thinking of getting a lawyer, then stretching things out. However, should I continue to let our settlement company negotiate or try to resolve this on my own. I keep thinking they must have a number, and I’m anxious to know what is. I’m scared what a judgment in their favor could mean for us. Thanks again for your input. You’re extensive knowledge is very much appreciated.
Jules – The number for settling a lawsuit with Discover in a single lump sum payment can range between 50 and 80% depending on the circumstances. If you have sincere hardships and limited or fixed income, you could target the lower range in negotiations. Without that you are looking at the higher range. None of which applies given the fact your short of resources to negotiate with. You can get relief from a monthly payment agreement. That 600 a month you are adding to your monthly cash flow will get you there, but do not expect a negotiated balance reduction with the longer term payments of 12-ish months.
I do think you can set up the payments on your own. You may be asked to sign a consent or stipulation to judgment now that you have already been sued. See this post for more about options when being sued for collection. You should consider taking this debt out of your debt settlement plan (and the others frankly), in order to keep from being charged a percentage of your enrolled debt fee by the debt relief company you are working with (if the fees are not based on a percentage of savings). You can settle all of your remaining debts on your own. I can help you do that right from this website. This would save you money in fees. You could then use a pro only if you hit a brick wall on some accounts. But I understand why you may opt to continue working with the company you hired. Who is it that you are working with?
I would suggest working with your own attorney to answer the complaint in order to buy a little time. You can arrange a payment with the collection law firm now or later. If you are able to buy enough time to save up the 600 you have just added to your budget, maybe even do your taxes early (if you get a refund), add the 525.00 to your savings starting in January, you could knock this out.
Hello Michael, I am 19 years old with a few small debts but one in particular that I must pay off early next week in order to move forward in life. Jan 2011-July 2011 I was in my own apartment until things got ruff and I had to break my lease. :-/ with that I owed my apartment complex. Since I couldn’t pay, it was sent to a collection agency. They said my debt is around $2,200 but they offered to settle at $1,786 which is somewhere around 20%. I have saved around %40 of the total debt and will have more soon but I want to know if they would possible settle for 40% due to the debt being over a year old with no payment and the fact that I want to do a lumpsum payment. I can’t apply for a apartment until this is complete and I have a small time limit. Can you help with what I should do?
Thanks-Rodney
Rodney – Settlement is situational with something like this. Is it possible to settle a collection account like this for 40%? Yes, but it is not a gimme. Read more and watch the video about settling with a debt collector here.
I live in VA. Original cc debt was sold to Velocity Investments and the law firm representing them is Dominion Law Associates out of VA Beach. Judgement was awarded to them almost 2 years ago for 16,000.
No further action from them since judgement. Debt and judgement only in 1 spouses name. Spouses name that the judgement is against is not main income earner and basically works part time for extra money. Steps have been taken to protect bank accounts and cash, and home and autos are titled as “Tenants by the entirety” so I think they are safe. I went to local courthouse and pulled file and all papers/procedures seem legit. Judgement is for real. However, Judgement itself is not showing at all on credit report, but the original cc issuer file is still there saying CLOSED in March 2009 with comments of PURCHASED BY ANOTHER LENDER. There is not a separate account from Velocity, just the original cc account with last activity March 2009. A few questions seeking your opinion:
Why do you think they have not tried to levy bank account and garnish wages post judgement?
Why does this issue (Velocity and judgement) appear to be non existent on credit report?
Assuming from previous posts I should negotiate with Dominion Law and not Velocity. In your opinion and this current situation, do you think Dominion Law Associates will settle for less than the judgement amount? Considering its been 4 1/2 years since they purchased the debt.
Tim – It is difficult to speculate about why the creditor or Dominion has made no attempt to garnish or levy. Collectors have to economize time and resources. Many will use software that spits out a collect-ability score – spending energy only on those who score over a certain threshold.
I cannot say why Velocity, as the debt owner, would not report the collection account to Experian, Equifax, or TransUnion. But neither Velocity nor Dominion Law would be reporting the judgment. Judgments are reported to the bureaus by court record data miners. The judgment was either missed, not correctly associated with her credit profile, or some other reason. That does not mean it will not appear later.
As far as who you may be negotiating and settling with, I would start off by calling Donimion Law and targeting 50% as a realistic settlement amount. In my experience, the longer a judgment goes unpaid, the more negotiable it becomes, and the more favorable the pay off. Ideally you will be ready to fund the settlement in one payment.
After more than 4 years you may find that Dominion is no longer on file, or that Velocity no longer owns the debt – there is a market for judgment debts to be bought and sold.
I have a question ? My husband has an old credit card debt which was about 5000.00 now it has gone to two different creditors . The one who has it now is Tate & Kirlin which they told me that there client is LVNV Funding …which i had read bad thing about them. But anyway the credit card company wont deal with this and i want to settle for the original amount which was 5000.00 but now its up to almost 11000. 00 would i be able to do this and who do i speak to the credit card company or tate & kirlin about the settlement? They would even tell me the interest rate!
Pamela – LVNV is a debt purchaser. Once your creditor sells the rights to your debt you cannot resolve with them. You will be working with Tate and Kirlin or LVNV direct.
The balance doubling suggests this debt has gone unpaid for quite while. When did you last make a payment on this debt? What state do you live in?
The interest rate on collection accounts will often be a high due to the credit card companies default policies.
You can settle this, and perhaps for less than the 5k you are targeting. But before you target an amount for settling, post answers to my questions. I will have more feedback to offer from there.
Hi Michael, I hope all is well. Thanks again for all of your help. I’m moving forward as you suggested previously and I have one more question. Is it safe to pay a creditor with my bank account information? Or does it make more sense to use a Cashier’s Check (considering it won’t have my bank account number and they can’t make unauthorized transactions). This could be me overthinking but I certainly don’t want them drafting my account without my consent. Thanks in advance
TS – Making electronic payments does not raise the same level of concern it did a few years ago. I do recommend that if you do authorize this type of payment on settlements you negotiate, you do it from a separate set aside account you set up specifically for the purpose. See this report.
If you make payments via cashier check, it is best to get those from your bank and drawn from your account. This provides better tracking and access to the information about the payment being cleared should you ever need that later.