It’s sometimes hard to look for the positive in an economic climate like the one we’re currently experiencing. It’s all too easy to focus on the negatives and ignore the positives—positives like the low housing prices for those trying to buy, government assistance like the homebuyer’s tax credit, and the willingness of debt collectors to make unheard of deals.
I spent a lot of time in the collection industry; long enough to see many ups and downs, although what I considered the ups and downs while in the industry were probably the exact opposite of what I see as the ups and downs now that I’m out of that industry. Right now would be firmly in the “down” category if I were still in the business, but from the outside looking in I can certainly say this is a very “up” time for the rest of America. Debt collectors are making unprecedented deals right now, scrambling to collect pretty much anything to stay afloat. That translates into real savings and realistic repayment plans for the people who owe those debts. Companies that once would not consider dipping below 50 or 60% on settlements are now considering all offers, even in the 30 or 40% range. Collectors who wanted nothing but payment in full are willing to enter payment plans for the first time ever in many cases.
The dramatic drop in home prices has been the strongest driving force behind this change. Collectors in most cases no longer have the option of demanding that people draw equity out of their homes or refinance to pay off their debts. Equity has evaporated and refinancing is all but impossible for anyone with less than stellar credit, which people in collections obviously don’t have. The other popular collection method was for debt collectors to demand people pay off their collections with other credit cards, but chances are if you have an account in collections you don’t have another card with an available balance because the credit card issuers have already lowered your credit limits to your account balances in anticipation of the enforcement of the Credit Card Reform Act.
With all this in mind you might be chomping at the bit waiting for the next collector to call, ready to make a deal. Okay, I doubt you’d be chomping at the bit to talk to a collector, but hopefully it gives you some hope. Don’t get carried away though, there are still things that you need to keep in mind so you get the best deal possible. Remember the collector calling you has extensive training; they’re professionals, even if they often don’t act like it. It’s best to arm yourself with some knowledge before plunging into negotiations.
First, make sure you don’t give a collector information. Your first phone contact with a collector should be a fact-finding call for you, not for them. They’re going to ask you all kinds of questions about your income, your employment, etc., things that they will use against you. Don’t arm them, arm yourself. Take advantage of the call to get information about who is calling you and why they’re calling you. Some key information you’ll want is the name of the collector, the name of the collection company, the original creditor, and how much they say you owe. Don’t acknowledge anything, just ask your questions. If they’re a legitimate collector following the rules set forth for debt collections in the FDCPA, the Fair Debt Collection Practices Act, they’ll answer these questions, if they’re reticent to provide the information though, be wary. Once you get the information simply tell them you’d like them to send you a validation letter, a letter they’re required to send you by the FDCPA, then end the conversation. Don’t get belligerent, don’t tell them to stop calling, and don’t send them a cease and desist letter at this point. These are actions that will leave the collector feeling cornered with no options left but a lawsuit. Be sure you take notes during the call, writing down the date and time of the call and all the information you ask for as well as their responses.
Once you’ve requested the letter and ended the call you have some time. They’re not supposed to contact you for 5 days, time to receive the letter and respond to it. If they call you during this time period you can let them know that according to the FDCPA they may not contact you until you have received the validation letter. When you receive the letter you have 30 days to respond, disputing anything that you feel may be in error, such as an incorrect balance, or if you feel the debt is legitimately not yours. At this time you should also request written verification of the debt, verification such as a copy of your bill from the original creditor or a signed contract between you and the creditor. Collection activities must cease until they provide you with this information if you request it. Examine whatever documentation, if any, that they send to you. Keep in mind a collection agency often doesn’t have any of this official documentation, they may just have a list of debts and names, which is insufficient proof for them to collect the debt. Be sure you send your dispute or verification request back to the collector via certified mail. It’s simply amazing how many letters sent to collection agencies get lost in the mail… If the collector contacts you before you receive the verification you have requested you once again have the right to remind them that collection activities must cease until they have provided the requested information. Document any contact from them at this point because they are breaking the law, which could give you grounds for a lawsuit if they persist.
Another thing that you’ll want to do when you receive the documentation from the collector is make sure the debt is still within the statute of limitations. You can find a state by state list of the statute of limitations by clicking here. If the debt is beyond the statute of limitation you can let it go. The collector has no recourse at this point but to sue you, but if they do all you have to do is show up at the hearing and point out that the debt is outside the statute of limitations. You must show up at the hearing though, if you ignore it they’ll get the judgment, the statute of limitations will renew, leaving you be no better off. Also keep in mind that you can often reset the statute of limitations by verifying the debt, which is why I said earlier that you should not provide any information to the collector lest you do this unknowingly.
If you’re still within the statute of limitations and the collector is able to verify the debt you have a few options. First off, if the debt is significant you might want to contact a bankruptcy attorney. They’ll be able to tell you if you qualify and the pros and cons. If that’s not an option for you though, you’re going to need to deal with the collector. When they call back you still want to be extremely careful what you say, making sure you don’t give them anything to use against you, but you also need to establish a bargaining position. Let them know as simply as possible why you cannot pay, or cannot pay the full amount. Don’t give them your life story; just give them the bare minimum of facts as though you’re on the witness stand. A simple “I’m out of work” or “I got divorced and lost part of my income” or whatever your situation happens to be is all you need. If you don’t have the ability to pay simply let them know that you will contact them when your situation changes, then end the conversation. This won’t stop the calls, but it’s all you’ll need to do when speaking to them. Repeat that your situation is the same, you do not currently have the ability to pay, and you’ll contact them as soon as you do.
If you do have the ability to pay though, this is the time to open negotiations. You’ll get the best deal if you can afford to pay a lump sum. I would suggest starting at 25 to 30 cents on the dollar, which still allows the collector to turn a profit since they’ve probably paid between 4 and 18 cents on the dollar for the debt. Let them know that due to your loss of income/job/disability/etc. that you cannot afford to pay anything more than that. They’re going to do everything in their power to negotiate you to a higher amount, but stand your ground and only give in if you can truly afford it. Don’t put yourself in a situation where you make an agreement that you cannot keep. A couple words of caution here. If the debt is outside the statute of limitation this will reaffirm the debt and allow the statute of limitation to renew. Also remember that this is the time to negotiate the deletion of any negative reporting they may have done on your credit report. Be absolutely sure you get this from them in writing before you pay them anything, otherwise the chances of it actually happening are pretty much zero. You can’t make them remove the reporting done by the original creditor, only the reporting the collection agency has done, but even that can help your credit score. Another word of caution, the money you save by settling an account can be considered taxable income, so don’t be surprised if you get a 1099 for the $700 you saved on the $1000 debt.
If a lump sum isn’t an option for you, try to work out a payment arrangement. The collector will probably try to tell you that if they do allow a payment arrangement it must be on the full balance, but don’t fall for it. Get them to make an opening offer then counter with less than what you can afford. It’s often said that the person who makes the first offer in a negotiation is the one who ultimately loses, so start the negotiations off on the right foot. If you can get them to agree to what you can truly afford as well as reducing the balance by at least 40%, you’ve done well, but if not you might want to just let them know that they’re asking for more than you can afford and let them know you’ll contact them when your situation changes, then end the call. Don’t give them information as I stated before, you don’t want to give them any ammunition. Once again, this won’t stop the collection calls, but if you stick to your guns chances are very good that they’ll eventually offer better terms. Also, as I said before, get any agreement in writing before you pay them. The agreement must state what you’ve agreed to pay, that the amount agreed upon will be considered payment in full for the debt, that the remainder cannot be sold to another collector, and that the negative reporting will be removed from your credit report if you were able to negotiate that.
This entire process will probably take at least a month, so keep your eyes and ears open for violations of the FDCPA. The debt collection industry is highly regulated, so if you are being harassed, or threatened, if you’re being denied basic or false information about the company calling you, if they’re misrepresenting themselves as attorneys, police, or other government agents, or if they’re frivolously threatening to sue you when they have no intention of doing so, you might want to contact an attorney. The government takes these suits seriously, and if you have a case you can easily see the debt wiped out and possible be awarded damages as well.
Good luck with your negotiations!