If you are facing an overwhelming amount of debt, you might have the option to settle for less than you owe. Debt settlement is a way to negotiate forgiveness on a portion of your debt by paying your creditors a large percentage of it upfront. For example, if you owe $12,000 on one credit card, you may be able to pay a lump sum of $6,000 in exchange for forgiveness of the remaining $6,000. So, how does this process work and what percentage should you offer to pay? What Percentage Should You Offer for Debt Settlement? There is a bit of strategy involved in settling your debts. Typically, you should offer to pay 30% of the total debt. Offering 30% leaves some room for your creditor to negotiate, and you should be aware that they might come back with a counter-offer of 50%.Settling for 50% is usually reasonable. However, if they demand more than 50%, it could be beneficial for you to explore other options.
Frequently Asked Questions
Why Are Creditors Sometimes Willing to Settle?
Legally, creditors are not bound to settle for anything less than what you owe. However, they might prefer to receive a large amount of cash at once versus collecting smaller payments over time. If they are concerned about your ability to pay in the future, it will further incentivize them to accept your offer.
When Should I Try to Settle My Debt?
A good time to approach your creditors is when you have a sizable amount of money available to put towards your debts. This money could come from an inheritance, a tax return, or another source. Or, it could be money that you have had for a while without knowing that settlement was an option.The amount you need to settle your debts might be less than you think. If you are considering this approach, talking with a lawyer can help you understand how you can best use your resources to your advantage.
When Are Creditors Most Likely to Settle?
A creditor is most likely to allow you to pay less than the full amount of the debt you owe when it is in the form of an unsecured loan. An unsecured loan has no collateral attached to it, meaning that the lender has few resources with which to cut their losses.Examples of unsecured loans include credit card debts and medical bills. Car loans and mortgages do not fall into this category because there are specific assets associated with them that can be seized if you fail to pay. Your lawyer can help you identify which of your loans might fit the settlement solution. Next, he or she can help you find alternative approaches for the unsecured loans.
How Can a Lawyer Help?
Making a Plan to Resolve Your Debt
If you have multiple unsecured loans, a skillful lawyer can help you make choices on how to distribute the lump sum you have available for your settlement. For example, if one creditor makes you an offer that exceeds 50% of the amount you owe, your lawyer might advise you to reject the offer and use your money to pay a different creditor who will accept less.
Negotiating With Your Creditors
Your creditors are not legally obligated to accept less than the full amount you legally owe. Therefore, your lawyer's ability to negotiate competently could play a big role in securing a competitive settlement offer. In most situations, it pays to work with someone who has developed their skills in law school and in the real world. When you work with a lawyer who has dealt with creditors in the past, you stand a better chance of making your offer attractive to them.If one or more of your creditors offers to accept less than the full amount you owe, your lawyer can make sure you get the terms in writing. Unfortunately, there have been past situations involving creditors that take lump sums of money only to turn the balance over to collections.
Coaching You Through the Process
When you choose to settle your debts, it is important to be aware of your deadlines and legal requirements. For example, if you agree on a settlement with a creditor and do not pay your lump sum on time, you may accrue additional debt on the late payment.You should also understand how the terms of your settlement will affect your taxes. Your attorney can help guide you through all of the fine print with the goal of settling your debts smoothly.
Responding When a Creditor Treats You Unfairly
Sometimes, creditors use tactics that are intrusive and even illegal. Your attorney can let you know when a creditor has overstepped its boundaries. Under the Fair Debt Collections Practice Act, collectors need to abide by regulations that specify how and when they are allowed to contact you. According to this act, they are not allowed to:
- Harass or threaten you
- Lie about the amount you owe
- Fail to provide you with essential information
- Contact you repeatedly
- Pretend that they are a government agent or a lawyer
- Falsely claim that they will have you arrested
- Publicly expose the details of your debt
Working with an attorney is the best way to ensure your legal rights are protected throughout the process of resolving your debt. Having legal representation is one of the best ways to make dealing with creditors more efficient, allowing you to free yourself from harassment as soon as possible.
Handling Creditor Lawsuits
Your attorney will make every attempt to help you resolve your financial situation before a creditor imposes a lawsuit on you. In that event, settling your debt can become more of a challenge. However, a reputable firm should have the legal resources needed to handle such contingencies when they arise.
Debt settlement is not a one-size-fits-all solution that will work for everyone. If you do not have a lump sum of money available, it could be more beneficial to try debt consolidation or file for bankruptcy. A qualified lawyer will be able to analyze the details of your situation and educate you on all of your options.Many people have the impression that if you file for bankruptcy, you will lose everything you have, including your home and your vehicle. In fact, many people who file are able to effectively get a fresh start without giving up all their assets. If you do choose to pursue bankruptcy, your lawyer can help determine whether to file for Chapter 7 or Chapter 13. Together, you can work out a plan that will get you through the process with maximum protection of your resources.
Providing for Contingencies
Many people are able to resolve their financial issues by settling with their creditors. However, settling debt is not something that is accomplished in a vacuum. A qualified attorney will recognize that life goes on throughout the process. If you experience a significant financial loss or an accident that causes you to incur new debt after you have made a commitment to your creditors, your lawyer should provide you with the legal advice you need to accommodate the new challenge.
It May Be Possible to Significantly Reduce Your Debt
Struggling with debt can make your financial situation seem bleak. However, you may have the option to get out of debt by legally reducing the amount you owe. Talking with an experienced attorney can help you uncover solutions that you didn't know were possible, guiding you towards a more positive financial future. To learn more about how to resolve your debts, contact the Thomas K. McKnight Law firm.