Why Banks and Collectors Don’t Seem to Care When You Threaten Bankruptcy
I am 180 days past due with Capital One, and trying to work out a settlement, but they have not offered anything lower than the full principal balance. How long does it usually take for them to come down? The most I would be comfortable with is 50%, but also don't want to get sued.
They have been so difficult, even the people working for them are apologetic about stating the amount they want.
I have been able to settle with others for anywhere between 26% to 45%.
What is the matter with Capital One? I've told them the alternative is bankruptcy, but they don't seem to care.
When you are in debt deep enough to consider negotiating lower balance pay off settlements as a means to avoid bankruptcy, it is likelier you are a good candidate to file chapter 7. Filing chapter 7 bankruptcy means discharging your debts legally through the court. And, unless you have nonexempt assets in excess of what your state allows, creditors and debt collectors know they will typically get nothing if you file.
You and I would be right to think that debt collectors, banks, and lenders of virtually every type, would stand up and pay attention when we threaten bankruptcy. If not at the first sign you cannot keep up with payments, certainly when they have not been getting paid for some time already. They should be much more willing to accept a good settlement offer, than to risk getting nothing at all.
We’d be wrong.
Mentioning Bankruptcy Doesn’t Change Minds or Data
Banks, and seasoned collection agencies, have decades of experience with unpaid bills. Credit card banks know they are not going to get paid on the vast majority of accounts that go more than 90 days delinquent. Debt collectors know that they will never see a dime from the majority of accounts that land on their desk.
Many of those unpaid accounts end up in bankruptcy. If yours is going to be one of them, it is what it is. They just move on to the next account in front of them.
The more sophisticated and large the lender or collection agency, the more things have to scale. This means collection policies and procedures are developed to spend the least amount of time and resources in order to get the best recovery rate. And, as much as I rail against the seemingly silly collection practices I have seen developed, some of them actually make sense…for them.
That is not to say that some banks and debt collection shops, especially smaller lenders and agencies, are not willing and able to slow the collection process down in order to evaluate the threat that you may file chapter 7 bankruptcy. Depending on the situation, some can and do. Others leave decisions to debt collection software and collect-ability scoring models.
Capital One is not high on my rank-a-bank for debt settlement list, but they are really no different than other major credit card lenders in how they view losing your account to bankruptcy. They do not care if you threaten bankruptcy. They are willing to lose accounts and money from those who do discharge their debts, because it would not be cost effective, or scale well, to do otherwise. And with your credit card already past 90 days late, you fit a category that is even less of an advantage to make an exception for.
All of that said about how the reality of bankruptcy losses are not an impetus to get great settlements, you should at least be able to negotiate a settlement.
What Collectors and Banks Will Respond to
Negotiating settlements at different stages in the debt collection pipeline takes timing. Your account with Capital One is at the end of the first stage of collection. If you were not able to get them to agree to take less than what you owe, you will be looking for your next opportunity to settle in the 2nd stage of collection.
This will mean trying to negotiate with a debt collector working for the bank, a debt buyer they may have sold the debt to, or even negotiating a payoff with a collection attorney’s office. What rates you are able to settle at in the next stages of collection can vary. You can read up on what others are seeing with whoever is next collecting on this account by putting their name in the search box (upper right of this page). There is likely an active discussion on this site for most major collectors you could potentially hear from next.
Capital One accounts that they still own do not settle for less than 5o percent very often. Why they refused to settle with you at all could be based on known account usage flags for refusing to settle, or a policy change your account met the description for.
There is also the chance that their internal collection scoring model was triggered because of your recent settlements on the other cards you mentioned having resolved. I tend to caution people from mentioning bankruptcy, and instead focus on your willingness to pay, but that you are only able to raise a limited amount.
If you threaten bankruptcy to the next debt collector you speak with, it will probably go as well as it did with the bank. Try focusing on the debt collector timing tips and cues I suggest you look for. Some of the most common are:
- Calling to negotiate, rather than sending letters.
- Negotiating in the last week of the month.
- Making final efforts to negotiate a deal in the last days the collection agency will have the account (if you can glean that information from them).
- Leverage the fact that there are other unpaid debts you have that you can approach with the money you have available, but only when there are unpaid accounts remaining on your credit reports – debt collectors have real time access to your reports.
These days, a threat of bankruptcy as a means to motivate a collector to take a good deal, are just not going to work. There are exceptions, but that is not an exception you want to look for out of your particular remaining creditor.
Chapter 13 Bankruptcy is a Court-forced Settlement
I should point out that the chapter 13 variation of consumer bankruptcy is like a settlement. But here, it is the court telling your creditors what they will get. There really is no negotiation, per say. If the trustee says your credit card banks will all get 15 percent of what they are owed, that is what they will get, and over what is commonly a 60 month repayment plan. But if your income and budget suggests you can pay 100 percent of your credit card bills back over that same time, you could end up with that plan.
Chapter 13 bankruptcy has higher drop out rates of roughly 70 percent. Debt settlement is a good alternative to chapter 13.
Anyone with questions or concerns about how you use bankruptcy as a negotiating tool is welcome to post in the comments below for feedback.