Realities of Debt Settlement
You receive a call from a collection
agency one morning claiming you owe $15000 in debt.
While you may really owe this amount, a call from collection
agencies stresses out many consumers into deep panic. Creditors
do have the right to sue you in court, and perhaps order the
commissioner and his gang to come into your house and confiscate
all your assets. What's the chance of this happening? Very
small! This is because it will cost the creditor thousands
of dollars to sue you in court and order collection agencies
to confiscate your property.
Another reality of debt settlement
is that many consumers feel so overwhelmed about their debts that they think bankruptcy is their only option. Many consumers
get scared with the thoughts of property confiscation and
wage garnishment. What does the collection agency NOT want
you to know? The collection agency that calls you does NOT
want you to know that in order for them to garnish your wages
or confiscate your property, they will have to take you to
court and win the judgement. As mention above, this is a long
overdue process and will cost them tens of thousands of dollars.
Bankruptcy should be your last resort to settle your debts,
not your first! In this section, we will give you some debt
settlement tips.
Debt Statute of Limitations
Debt collectors have a limited amount
of time to collect debts owed. Check the debt
collection statute of limitations in your state.
If your debt outstanding has passed the # of years of debt
collection statute of limitatations in your state, you have
nothing to worry about! When the debt collectors call you,
tell them the statute of limitations is over and there is
no damn thing they can do to you (other than sue you in court,
which is highly unlikely).
| Note: Most people confuse the Statute of Limitations Period
for Debt Collection with the Statute of Limitations period
for Credit Reporting. For instance, consider you live
in Arizona where the statute of limitations period is
3 years. After 3 years, you can totally refuse to pay
that debt and the court will rule in your favour. However,
according to the rules defined in the Fair Credit Reporting
Act (FCRA), your delinquent debt will be shown for upto
7 years (since your last delinquent or missed annuity
payment) on your CREDIT REPORT. |
After 7 years, you can challenge the listing
of this debt on your credit report and the credit bureau will
erase it 100%. This means your credit score will be back on
track!
Debt Settlement with a Collection Agency
If the debt collection statute of
limitations period is not over, and you are not willing to
go through the process of Debt Validation, there
is another solution for you. This solution is called Debt
Settlement. Before I explain the process of debt settlement,
lets define what a collection agency really is:
-
Firm who purchases debt from other
companies (also known as junk debt buyers)
-
Firms hired to collect debts owed
on behalf of the original debtor in return for
a fee or a commission
- Lawyers sending you debt collection
notices
There are certain types of debt that
can be settled relatively easy. These debts are known
as Unsecured Debts. Types of unsecured debt include:
- personal loans, student loans
- dishonored checks
- credit card debt, medical bills
Why are unsecured debts relatively easy
to settle? This is because as opposed to secured debts
that have some sort of collateral attached to them (the debt collector
can confiscate your house, car, boat or other personal assets),
unsecured debts have NOTHING attached to them. This means the
debt collector cannot come and take over your boat and your car
to recover his debt. He will have to settle the debt with you.
Debt Settlement Tips & Advice
Its natural that you are at an advantage
when negotiation a debt settlement with your creditors. This is because they are after YOUR money, not the other way around.
At first debt negotiation efforts, the collection agency might
just say NO! Do not get angry with this, keep cool. Make sure
all your communication with them is in letters format, and not
by telephone. This is because with letters, you will have a record
of all communication which will help your case.
Debt Collection Statistics
The following data we present is from the Source: Sean McVity, Portfolio Broker (Keefe, Bruyette & Woods). Collection agencies usually receive pennies of debt to
each dollar. The # of pennies received to each 1 dollar of debt
depends on the age & type of debt:
- Recently Charged Off Debt: 6-7 cents
on the dollar
- Older accounts: 1.5 - 2 cents on
the dollar
- Debt on which statute of limitations has
passed: 1 cent or less
Thus when negotiating a debt settlement, do NOT offer more than 20% of the original debt owed. Say
you owe $5000 of debt. With the above data, the collection agency
would collect 0.06 x $5000 = $300. With your original offer of
20% x $5000, the agency would collect $1000! This is a profit
of $1000 - $300 = $700 for them!
Successful Debt Negotiation Tips
To successfully negotiate all your debts
with collection agencies, use the following tips &
advice:
- Talk to the agency via letters &
correspondence. Do not communicate
with them via the phone!
- If you settle a certain percentage
with them (say 20% in the above case), make sure you
get this in writing. Draft an agreement and make them sign it.
Never expect your creditors to verbally meet an agreement, you'll
probably end up getting screwed at the end.
- Keep a copy of every letter you send
out.
- Send all your communication letters
via registered mail and keep your receipts. This only
costs $5 anyways!
- If you ever make a phone call, write
down the name of the person you talked to and the time.
- If the collection agency calls you,
return their communication via a letter and not a phone
call.
- The longer the debt matures, the
less likely is the collector to call and harass you.
This means you have more chances of reaching a good settlement.
The creditor might just write off the debt as "bad debt
expense" in order to receive a tax write-off. This does
not necessarily mean your debt will be forgiven. The creditor
may take you to court, press for a wage garnishment plan against
you, etc.
- Never be desperate to settle your
debts. Never ever tell your creditors that you want
to settle their debts because you need a mortgage loan for a
new house, or a car loan for a nice car! If you do that, forget
to ever reach a good debt settlement! The creditor will think,
"hey if he has money to buy a house, he has money
to pay off my debts too!"
Comments
Keith Comments on August 7th, 2007
Bank Of America has a collection agency call
me daily. The original CC amount was $ 1,400. With interest it
has grown to $ 3,200.00. I can not afford to pay this. I live
in california. Can they garnish my pay check? It has been 2 years
now. I want to just ignore them. I'd pay the original amount but
3200 is crazy.
Thoughts? |
