What to Say When Settling Credit Card Debt and Collectors Ask About Income
Will my creditors perform an income verification check? Do they ask what you make at your job? How should I answer if they do? I make decent money, but that is of course all relative. I cannot afford my bills due to circumstances (upside down mortgage, stacking medical bills, recent pay cut, no more bonus, and probably getting divorced). I am short cash at the end of the month.
Do creditors and collectors ask for, or even demand, income verification before settling a debt with me?
Bank collectors and recovery employees have real time access to your credit report, your credit card account behavior with them, information you provided when opening the account, and income details you gave to them along the way (like questions that may have been asked if you requested a credit limit increase). This information is can be reviewed when you are trying to get lower monthly payments, or negotiating a debt you haven’t made payments on.
When it comes to debt collection efforts, some banks and debt collectors will indeed seek additional income and expense information from you.
If you are trying to get your payments lowered after you fall behind, you may be taken through a litany of questions about income and expenses in order to determine how low your payment can be set in a hardship plan (generally you can expect a hardship repayment plan to be calculated at about 2% of your current balance as your new payment each month).
Not everyone will qualify for a hardship plan, or even a credit counseling agency debt management plan. Two reasons for this are:
- You have too little money left after typical living costs, they may not offer you a plan at all, even if it meant they were getting paid something rather than nothing.
- You have too much money after expenses they may not offer to lower your interest rate and thereby your monthly payment.
You’re Better Off Settling than Attempting a Hardship Repayment Plan
When settling with your original creditor before charge off (less than 6 months late), some creditors may take you through the above income/expense exercise because that is what they have been trained to do, even though you are not seeking lower monthly payments, but a lower balance payoff.
When taken through a litany of scripted budget questions with a creditor, how you answer the questions should be based on the facts. You are light each month, otherwise you would be paying the required minimums. What created the situation and/or continues to contribute to it, is your hardship.
With settlement, you may have to repeat the hardships several times before getting to a point of advanced delinquency where an income and expense and/or settlement discussions will occur.
If you are trying to settle multiple accounts you will have to repeat your hardship and be prepared with answers to budget questions more often than you think. Make notes in advance and stick to the script. If unable to settle some credit card debts directly with the creditor before they charge off the account, you will be sharing your hardship with collection agencies.
Be careful what you share with collection agencies when settling. Limit your comments with outside debt collectors to the hardship details and avoid going into income and expense details.
There are only rare instances where you will be asked for and should agree to send in documentation of your income and expenses. Documentation may be requested when negotiating business debts (P&L’s), when trying to modify a mortgage, offer and compromise on tax debts, attempting to lower payments and/or settle an SBA loan etc.
You should avoid sending in documentation when seeking payment or balance concessions on unsecured debts like credit cards. It is unnecessary in today’s collection climate.
If you have a personal checking account with a bank you are trying to settle a debt with, I would suggest moving accounts. A bank can look at that account you have with them. They will see what you have coming and going.If you are light each month you may think them seeing that type of detail helps. It doesn’t. You should keep money you are saving up to fund settlements at a bank you will not be seeking payment or balance concessions with.
If you are going about seeking lower payments and settlements for less than what is owed on your own – you are on the right path. There are some tips and targets that would benefit you to know. This site can assist you with maximizing your savings in your DIY debt settlement efforts. You also have access to our coaches and experts who can guide you through all debt negotiation phases, help you target better savings, and outline strategies that can limit your risks of being sued for debt. If you would like to learn more about the who is available to help you, see CRN Professionals.
The debt settlement process is not too difficult, but it does help a great deal when you have access to people who can assist you in navigating the twists and turns through your journey.
6 things on How Settlement Works Differently at Various Stages
- Who are your original creditor and what is the current trend with each?
- If an agency has the debt on assignment from your credit card bank, how long have they had it and was it placed with an agency prior?
- If the debt has been purchased, by whom? Just like dealing with original creditors, not all buyers settle debts at the same rates and not all buyers or agencies offer the same payment terms where the reduced amount can be paid over many months as opposed to a lump sum or shorter term payment duration (you can also save more with some creditors by paying in a lump sum as opposed to 3 month plans offered pre-charge-off).
- Have any of the accounts been placed with a collection law firm? If so, this fact would impact the priority given to each account.
- The state you reside in could change your debt settlement plan strategy. For instance, if you live in a state that has more advantageous consumer protection laws like North Carolina, Texas, Pennsylvania, Florida and some others, you have an element of time being more on your side than someone in New Jersey and other states lacking robust consumer protection laws.
- Then there is the number one ingredient that goes into baking a debt settlement cake; the amount of money you can pull together over a specific period of time in order to follow through with the settlement plan design.
You can post as much detail about your situation as you are comfortable with in the comments below. I can offer detailed feedback to help you further. You can also call in for a consult if you are uncomfortable posting too much about your income and expenses.
Anyone with questions or concerns about telling debt collectors too much is welcome to post in the comments below for feedback.