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Author: Sergei Lemberg
Will a Debt Collector Settle For Less?
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General Rule: Yes, there are certain situations when a debt collector will settle a debt for less than what you owe.
If you are dealing with a debt, there may be times when you cannot make your monthly payment. If the debt is with a collection agency, you may now have to deal with aggressive and stressful collection practices. You considered discussing settlement options with the collection agency but you feel it may be a waste of time.
Well, that is not always the case. In many situations, a collection agency is willing to work with you to settle a debt. However, there are other collection agencies that may choose to harass and coerce you into making a payment. When that happens, you have protections under the Fair Debt Collection Practices Act (FDCPA).
You may even have the opportunity to use a violation as leverage for a settlement of your debt. Read on to learn about the debt collection process and how you may settle your debt for less than what you owe.
Why Would a Collection Agency Settle for Less?
There are a few different reasons why a collection agency would settle for less than you owe. Here are some common examples:
- Fee Structure. A collection agency often gets paid based on how much money they recover from a past-due debt. If they can get a person to agree to a settlement they can guarantee some payment on the account.
- Avoid a Loss. When a debt is sent to a collection agency there is a risk that the debt is uncollectible. For example, a person can file for bankruptcy and eliminate the debt completely. Or a collection agency may get a judgment but the person does not have assets to collect on it.
- Avoid a Lawsuit. In some situations, a collection agency is aware that they violated the FDCPA. To avoid a lawsuit, they may agree to a discounted settlement of your debt.
Ways To Settle a Debt With a Collection Agency?
If you are looking to settle a debt you must first determine what you can afford to pay. There is no point in agreeing to a discounted amount if you still cannot pay the debt. After you determine how much you can pay, consider specific settlement terms. Depending on the amount agreed to you may consider one of the following options:
- Lump Sum Payment. In this option, you pay the entire agreed amount all at once. This is an enticing option for a collection agency as it guarantees they get the agreed amount right away.
- Larger Installment Payments. Another option is to agree to make larger installment payments for the agreed settlement amount. For instance, you may agree to settle a $10,000 debt for $8,000. However, the settlement terms are 4 monthly installment payments of $2,000.
If you choose, you can begin negotiations directly with the collection agency. However, you may receive a more favorable result if you seek assistance from legal counsel. An attorney can often negotiate a better deal depending on your particular circumstances. For instance, if the collection agency violated the FDCPA, an attorney may use that as leverage to secure a heavily discounted debt.
Other Factors to Consider
There are other factors to consider when settling your debt. First, you want to make sure the debt collector is being honest with you. Collection agencies may change the amount owed to trick a person into a more favorable deal for the collection agency. If a collection agency misrepresents your debt or harasses you during settlement negotiations, they violate the FDCPA.
Second, make sure the statute of limitations has not expired on a debt. If it has, the debt is no longer legally enforceable. When this happens you will not have any amount of the debt.
Third, consider the impact of a debt settlement. You will want to know how the collection agency will report this settlement to credit reporting companies. You may also need to prepare to report the canceled debt as income for your next tax return.
Conclusion
Most people want to get a debt paid off as quickly as possible. In some situations, consider discussing a potential settlement of the debt with a collection agency. You will never know your options if you do not ask.
If a collection agency is not treating you fairly, they may be in violation of the FDCPA. Answer any questions you have by requesting to speak with a consumer rights attorney.
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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