Many Americans face debt-related issues every day. The average American will likely face some form of debt-related or financial hardship in their life. It is important to know your options, one of which is a settlement agreement with your creditor or debt collector. Of course, the settlement is not your only option, but it is an option that could save you a lot of money overall. Creditor settlement agreements can apply to all types of debt, but credit card debt is commonly settled through a collector settlement agreement.
What Is A Collector Settlement Agreement?
A collector settlement agreement is an agreement between you and your creditor, lender, or debt collector, often to pay just a remainder or fraction of the original debt owed. The essence of the agreement is that you agree to pay a portion of the remaining debt (sometimes half or less), and the debt collector agrees they will not pester you for the remainder of the debt.
Usually, this payment is a lump-sum payment, meaning that you would make a one-time payment of a portion of the debt to the debt collector. This lump-sum payment is in exchange for the satisfaction of the debt. Alternatively, a payment plan may be set up with the creditor, but this is less common because not all debt collectors want to return to a payment plan when such payments did not work before. Lump-sum payments tend to be lower overall than a payment plan, but both will fully satisfy the debt once paid in full.
Can A Settlement Agreement Be Used In Court?
Under normal circumstances, a settlement agreement will be used before a case is brought against you or as a resolution to the case brought against you. A collector settlement agreement can be advantageous during both instances.
Why Would A Debt Collector Take Less Than The Full Payment?
Often, debt collectors want to recoup at least some of their money. In other circumstances, collection agencies buy debt from creditors at a low price and try to collect more from you to turn a profit. The idea behind a debt collector settlement agreement is that it is better to be paid some than nothing. This tends to work in your favor, as you can pay less than the original debt. It is not unheard of for the debt to be reduced by over 75%!
The reduction in the settlement can depend on a variety of factors, but three main factors are listed below:
- Who is the Judgment Creditor? Are they a bank? A debt buyer? A hospital? A former business partner? Understanding who is coming for your assets is critical to your success in resolving the amount at a discount.
- Who are YOU financially? For example, a retired person living in a nursing home on social security will get a better settlement than a person with a million-dollar home who makes $200K annually.
- How quickly will they get paid? A single lump-sum payment will always be a lower settlement than a five-year payment plan. We always tell people: OWE SOMEONE ELSE (borrow if you must to settle a judgment).
Getting a settlement that is adequate to your needs and your ability to repay the debt collector is critical. Consulting with an experienced attorney can help you determine your best options, whether a settlement or other avenues.
What Type Of Debt Can I Satisfy With A Collector Settlement Agreement?
The specific facts of your case may call for different solutions. Settlement may be one of those options, but consulting with a respectable attorney can lead you in the right direction. Just about any type of debt could be settled with a collector settlement agreement since the settlement agreement is just an agreement to terms between the debtor (you) and the debt collector.
One of the most common types of debt settled is credit card debt. Unlike car loans or a home mortgage, credit card creditors sometimes do not have the option to repossess your assets if you default on payments. Sometimes, the creditor can only ask you to pay your debts or file a lawsuit to get repaid. Creditors are even limited by the FDCPA (and Rosenthal FDCPA in California) in how they can ask for debt repayment. As a result of having limited options, credit card debt collectors are typically more likely to settle than those with interest in your assets. A collector settlement agreement is a powerful tool worth considering if you have credit card debt.
What Are The Downsides Of A Settlement Agreement?
Settlement agreements will show up on your credit history as negative marks. The settlement will be reported as accepted but less than paid in full. This likely will hurt your credit score. Some examples of the adverse effects are:
- Increased difficulty in future lending
- Problems with receiving a mortgage for a house
- Higher interest on future credit cards.
The difference between your settlement payment and your original debt may be taxed as a gift. In essence, you would have to pay a tax on the discount you got from your original debt because the forgiven remainder of the debt qualifies as income for income tax purposes.
How Do I Make A Collector Settlement Agreement Enforceable?
In addition to needing an adequate plan, negotiation skills, and strong resolve, you must also ensure enforceability against the debt collector. Sometimes, debt collectors will make repayment deals with you over the phone or through non-written communications. Creditors or debt collectors may try to go back on their promises to you and can avoid any type of written settlement agreement to avoid letting you pay less. Often, an enforceable written agreement will contain:
- The names of the creditor and the debtor (you)
- Signatures of both above
- Your name and account number
- The settlement amounts
- Terms of the settlement
- Such as a payment plan and relevant details
Make sure that your agreement is in writing. If your settlement agreement is only through conversation, it will often be your word against the creditor or debt collector in litigation.
Pending litigation could also be delayed after a settlement is reached due to a creditor not filing a “Satisfaction of Judgment.”
Creditors can be crafty; consider contacting us to assist with your debt-related issues.
California Collector Settlement Agreement Attorney
While it is possible to reach a settlement agreement with your creditor on your own, it is beneficial to contact an attorney. Fitzgerald & Campbell, APLC is home to many experienced attorneys who have drafted and executed countless collector settlement agreements. It is vital to have someone with experience who can consider your needs and finances while skillfully negotiating with creditors or debt collectors to get you the lowest settlement possible.
Please call (855) 709-5788 or contact us online for a free consultation.