Tips for Negotiating with Creditors By San Diego Bankrutpcy Attorney
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You may not want to talk with a debt collector trying to collect a balance you can’t afford to pay. But, there are reasons why you may want to answer those calls. Is the creditor willing to negotiate more affordable payments?
Note that collection agencies could be working on behalf of the original creditor or they may have purchased the original debt for pennies on the dollar. A collection agency is supposed to send you a letter within 30 days of the initial contact informing you that they have taken over the collection activity on an account. This letter must include their contact inforation along with other certain legally required disclosures. Collectors who purchased a debt from the original creditor don’t have to collect the full amount in order to turn a profit. There is a chance to negotiate a settlement. The original creditors may also sometimes be willing to make some adjustments.
Some Warning about the DIY Approach:
You could retain an attorney for negotiations. A bankruptcy attorney contacting the creditor could very well bend the ear of the creditors. Be aware that costly mistakes can be made here if this is attempted on your own. For example, making even a single payment on an old stale debt can reset the statute of limitation. Proceed with caution.
Here are some tips for negotiating with creditors:
1. Get Your Story Down on Paper:
Take the emotion out of the situation. This can be hard. Perhaps it could help if you look at it from the perspective of trying to settle a friend’s or family members account, not yours. We tend to be hard on ourselves but more forgiving with others. Sit down and describe in one sentence or two your situation. Be honest, brief and concise. Bad stuff happens to good people. The creditors don’t really want to hear what some in the industry coin as “hard luck story” but they do need to know that you have a financial hardship and that you are trying to catch up and get on track. Her are some examples:
– I was laid off 6 months ago. I’m looking for work but meanwhile I only get unemployment benefits and can’t afford to keep paying.
– Going on disability after getting sick caused my income to drop dramatically. I hope to return to work in a few months. I need assistance.
– My income has dropped dramatically or living expenses increased (family member illness, increased # of dependents) and I can no longer afford the payments. I was told by a bankrutpcy attorney told I qualify for relief but I would prefer to work something out.
2. Don’t be intimidated. Ask questions.
It’s a good idea to familiarize yourself with the Fair Debt Collection Act and any local state rules that may apply to debt collection activities. Here in CA we have the Rosenthall Act. Some creditors will act unlawfully and make claims that are illegal such as threatening to come over to your work, call your relatives or friends, have an officer serve you with a lawsuit. Beware of these collection agencies. There are bad actors out there and there also scammers. If the debt is old enough to have passed the statute of limitation and you have someone calling you and telling you that they are filing a lawsuit right now, ask for a case number. In California the case number should be something like 37, dash, year the case is filed, dash then 8 digits followed, dash and some letters. For example: 37-2018-00001234-cl-r3-ctl but typically the letter at the end aren’t mentioned so it would be 37-2008-00001234.
3. Be Organized. Stay on track.
Have a worksheet or a plain piece of paper with a drawing of a table on it. You will want to keep track of date, time, who you talked to, the phone number you called or they called from, gist of what was discussed. If there will be follow up, describe that as well. This is what an Attorney does typically when they are dealing with multiple creditors, it helps keep track of progress of negotiations. Each account should have their table chart.
4. Read Your Mail.
Don’t throw out what you receive. Create a space for it, a bin, a folder, a large envelope, keep the accounts separated. It helps to simply file it away in date order. Open the envelope, read it, file it away.
5. Know your Budget.
Take inventory of your stuff. Are there things you can liquidate to generate cash to make one time offer of settlement? There is no point whatsoever to make an offer to give a creditor something you don’t actually have and cannot get. One time chunk settlement typically offers better terms than payments. A dollar today can be more valuable than a promise of $2 tomorrow.
6. This is critical!!! Get it in WRITING!
When you come up with a settlement amount, get all the terms spelled out IN WRITING. It doesn’t matter if the person you talked to on the phone was super nice or the call was being recorded. Get it in writing. All the terms. If the creditor promises to remove negative history from the credit report get that in writing. Having this document is likely to be your only hope of resolving any potential problems should a few years later a zombie debt show up on your credit report. It happens more than one thinks. Keep this document safe, for example with your tax returns.