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Author: Sergei Lemberg
How Do I Negotiate a Debt Settlement?
![Negotiating Debt Settlement]()
General Rule: You can negotiate a debt settlement by offering a reduced price to resolve an outstanding account. A debt settlement can be new monthly payments or a lump sum.
Whether the original creditor or collection agency, sometimes you have a debt that you cannot feasibly pay off. Sometimes, you just recognize there is a good opportunity to settle a debt at a fraction of the amount you owe. For both situations, it’s important to understand how to negotiate a debt.
Debt settlement negotiations are not black and white. For instance, the collection agency may have recently violated the Fair Debt Collection Practices Act (FDCPA). Or, they may have warned you that they plan to sell your debt to a collection agency. How you approach a debt settlement negotiation depends on your current situation.
After reading this article, you will be able to recognize when you should consider entering negotiations to settle your debt. You will also learn how to settle a debt and what to do if a collection agency violates your rights during this process.
Is it Time to Settle?
The first question is determining whether now is the right time to settle. Here are a few popular reasons you should consider negotiating a debt settlement:
- Original Creditor Plans to Sell Your Debt. If the original creditor plans to sell your debt, they will likely take a large loss. This is a great time to offer to settle your debt at a discount before they sell it to a third-party debt collector.
- Payment Amount. Whether it’s the loss of a job or some other factor, you may not be able to afford your monthly payments. When this happens negotiating is a better option than ignoring the problem.
Note: When a person cannot make payments, one option they consider is filing for bankruptcy. If you inform the creditor about this possibility it may kickstart negotiations.
- The Collection Agency Violated the Fair Debt Collection Practices Act (FDCPA). If the debt is with a third-party debt collector, they must follow the requirements of the FDCPA. If they violate the FDCPA you can take them to court. You can also use the violation as leverage in debt settlement negotiations.
What Should I Do During Negotiations?
Usually, you will start the process informally with a phone call. You can ask the company if they are willing to discuss a negotiation of your debt settlement.
How do I strengthen my negotiations? If you have a strong basis for your negotiations, notify them of that. For example, you can let them know that you may have no other option but to file bankruptcy. Or, you can let them know about evidence you have of an FDCPA violation.
How much should I settle for? There is no exact amount. The key is to start lower than what you are willing to settle for. Depending on the strength of your case, a debt collector may settle your debt for a very low percentage.
Does a settlement have to be for a lump sum? No, you can agree to a debt settlement with installment payments at whatever time period both parties agree to. However, offering a lump sum payment may result in a greater overall discount.
We have come to an agreement. Is there anything else I need to do? Yes. Make sure that whatever the settlement terms are you have them in writing. It will also help to have the debt collector sign the written agreement.
Note: If you are uncomfortable with debt settlement negotiations, you have the option of hiring an attorney to represent you.
Is the Collection Agency Violating the FDCPA During Negotiations?
FDCPA violations can happen during negotiation settlements as well. For example, a collection agency may threaten a lawsuit to speed up the negotiations. Or, they may even try to manipulate the amount owed to gain an advantage in negotiations.
If this happens, you should put them on notice in writing. If their behavior continues you may have to file your own lawsuit. You can also report them to the Federal Trade Commission (FTC) for FDCPA violations. Lastly, you can submit a general consumer complaint to the Consumer Financial Protection Bureau (CFPB).
Conclusion
Depending on your situation, negotiating a settlement of your debt may be a great option. However, you need to prepare and make sure a debt collector does not take advantage of you.
If they violate the FDCPA or you just want assistance in negotiations, contact a consumer rights attorney. They have negotiated many of these cases and can work to get you the best possible settlement terms.
Additional Resources
About the author:
Sergei Lemberg is a consumer rights attorney, practicing since 2006, whose practice focuses on consumer law, class actions and personal injury litigation. He is known for a United States Supreme Court case (Facebook v. Duguid) defending consumers from autodialers under the Telephone Consumer Protection Act of 1991 to send unsolicited text messages. He is also the author of Defanging Debt Collectors, a book that teaches consumers how to battle debt collectors and win.
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