5 tips for negotiating a settlement with a debt collector
October 27, 2011 by Todd Murray · Leave a Comment
1. If possible, negotiate a lump sum settlement. The best way to get a good deal from a debt collector is to offer a lump sum settlement. Debt collectors usually have blanket authority to settle debts for between 40% and 80% of the full balance if you pay the settlement in a one-time payment. If you’re unable to afford a lump sum payment, the debt collector usually has the authority to agree to smaller monthly payments, often over a couple of years. But in exchange for the flexibility of a low monthly payment, you’re probably going to have to pay the full account balance.
2. The last day of a month is the best day to get a great deal. Debt collectors have monthly goals that they must meet and there are significant consequences if they don’t meet those goals. If a collector is short of their goal on the last day of the month, they may be willing to accept a lower settlement amount than they normally would. To take advantage of this, however, you’ll probably have to make the settlement payment that day. So plan accordingly.
3. Insist that the debt collector confirms any agreement in writing, before sending them any money. Once you’ve reached a verbal agreement with the collector, ask them to send you confirmation of the agreement in writing before turning over your money. Read the agreement carefully to be sure that it actually contains the terms that you agreed to. Any reputable debt collector will be willing to confirm a payment arrangement in writing, so be wary of one who won’t.
4. Keep a record of your payment. If you’re paying with a personal check, get a copy of the canceled check from your bank. If you’re paying with a money order or cashier’s check, make a copy of the check and either note the date that you mailed it or, better yet, use certified mail. If you pay in cash or make the payment in person, be sure to get a receipt. Along with the collector’s written confirmation, your proof of payment may be needed in the future to prove that you settled the account.
5. Be sure to get the proper follow-up documents. The appropriate follow-up documents vary depending on what point in the legal process you are when you settle the debt:
- If you settle the debt before you get sued, the collector’s written confirmation of the agreement, plus your proof of payment, should be sufficient.
- If you settle the account after you’ve been sued, but before a judgment is entered, the collector should send you (and the court if the case has been filed) a dismissal WITH prejudice. A dismissal with prejudice means that the claim is fully resolved and can’t be brought against you again. Don’t accept a dismissal without prejudice if you’ve settled the account in full because there’s a possibility that you could get sued again for the same claim.
- If you settle the account after you’ve been sued and after a judgment has been entered, the collector should send you and the court a satisfaction of judgment. And if your wages were being garnished at the time you settled the account, the debt collector should quash the garnishment.
The Chief Judge of the Court of Common Pleas in Delaware has issued an administrative directive that requires debt buyers to submit detailed proof with each collection lawsuit. The order mandates that debt buyers include the name of the original creditor, the last four digits of the account number, the name of the debt buyer purporting to currently own the debt, a complete list of every prior owner of the debt, and an itemized breakdown of the balance sought. Debt buyers are also required to attach a copy of the original contract and the complete chain of assignments from the original creditor to the current debt buyer. If a debt buyer fails to include the required information and documents, the directive gives the court the power–on its own initiative–to dismiss the debt buyer’s lawsuit.
These requirements may seem like common sense, but debt buyers often obtain judgments without submitting any proof that: (a) the consumer owes the debt; and (b) that the debt buyer is the rightful owner of the debt. This usually happens when the consumer fails to properly respond to the lawsuit, which happens in the majority of debt buyer lawsuits.
The Minnesota legislature has flirted with bills that require debt buyers to submit similar proof with their lawsuits, but as far as I know, Delaware is the first state where the judiciary has taken this matter into their own hands.
According to Consumerist and the Wall Street Journal, Chase has dismissed a bunch of debt collection lawsuits against consumers nationwide. Several of my consumer colleagues have speculated that this move is spurred by the recent robo-signing scandal. I’ve even heard (unsubstantiated) rumors that there has been some housecleaning in upper management of Chase’s credit card litigation department. In any event, this is good news for consumers.
Chase Drops Thousands Of Debt Collection Cases Against Borrowers | Consumerist | July 1, 2011
Lender Drops Pursuit of Debt | The Wall Street Journal | June 24, 2011 (subscriber content)
The anti-consumer bills that I wrote about here and here have passed the first hurdle at the Minnesota legislature. The bills cleared the Senate Judiciary committee last week and are headed for the Republican-controlled Senate floor. Supporters of the bills claim that they will lead to more job creation by lowering the cost of doing business. To me, though, the key point was made by Jim Carey, the President of the Minnesota Association for Justice:
On the heels of the biggest economic downturn since the depression…our legislature wants to reward these wrongdoers by passing legislation that will allow companies to cheat consumers; hurt small businesses by shifting costs to private health insurers and remove Minnesotan’s constitutional right to remedy when harmed by negligent wrongdoers and fraudulent business practices.
4 tort reform bills pass committe, head to senate floor | MinnLawyer Blog | April 29, 2011
Yesterday, Minnesota Attorney General Lori Swanson sued Midland Funding, one of the nation’s largest debt-buyers, over robo-signed affidavits. Here’s more from the press release:
The Attorney General alleges that Midland aggressively filed thousands of lawsuits against individual citizens for collection of old, purchased debt, often supporting those lawsuits with “robo-signed” affidavits generated at its St. Cloud offices. Midland filed the robo-signed affidavits in state courts in Minnesota and around the country to obtain judgments against individual citizens.
“Robo-signing” is the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process. In recent months, the mortgage industry has come under intense national scrutiny for supporting mortgage foreclosures in court with “robo-signed” affidavits. Like the mortgage industry, some debt buyers, including Midland, have used false, robo-signed affidavits to support their debt collections lawsuits.
Although robo-signing is widespread in the debt collection business, all of the attention until now has been focused on mortgage lenders’ use of the practice. It will be interesting to see whether Midland capitulates early or whether they engage Swanson’s office in lengthy and drawn-out litigation.
Press Release | Office of the Minnesota Attorney General | March 28, 2011