Thomas K. McKnight - Bankruptcy Service Lawyer Irvine, CA
The Basics of Debt Settlement
Debt settlement is an agreement between a lender and a borrower for a large, single payment towards an existing balance in return for the forgiveness of the remaining debt. A person who owes $10,000 on a single credit card, for instance, may approach the credit card provider and offer to pay $5,000. In return for this one-time payment, the credit card provider agrees to forgive or eliminate the remaining $5,000 still owed.
Why would a credit card issuer willingly choose to forgo a substantial part of the balance it is owed? It is usually because the lender is either strapped for cash or is fearful of your ultimate failure to repay the entire balance. In both situations, the credit card issuer is trying to protect its financial bottom line-- a key point to keep in mind as you start negotiating.
Credit cards are unsecured loans, which means that there is no collateral your credit card company-- or a debt collector-- can take to pay back an unpaid balance.
While negotiating with a credit card company to settle a balance may sound too good to be true, it's not. Not surprisingly, lenders don't like to promote settlement, and although there are no independent statistics regarding success rates, the Federal Trade Commission (FTC) estimates that approximately half of debt settlement cases make it to completion. Still, if you're significantly behind on your payments and spiraling towards bankruptcy, your lender may be willing to take what it can get, providing you one last chance to get back on your feet.
The Negotiating Process
Begin by calling the primary phone number for your credit card's customer service department and asking to speak with somebody, ideally a manager, in the "debt settlements department." Explain how critical your situation is. Highlight the fact that you've scraped a small amount of cash together and are hoping to settle one of your accounts before the money gets spent somewhere else. By stating the fact that you have multiple accounts on which you're pursuing debt settlements, you're more likely to receive a competitive offer.
Offer a specific dollar amount that is roughly 30% of your outstanding account balance. The lender will most likely counter with a higher percentage or dollar amount. If anything over 50% is recommended, consider trying to settle with a different creditor or simply put the money in savings to help pay future monthly expenses.
Last but not least, as soon as you have completed your debt settlement with your lender, make sure to get the agreement in writing. It's not uncommon for a credit card provider to verbally agree to a debt settlement just to hand over the remaining balance to a collections agency. Make sure the written agreement clarifies the amount you have to pay in order to have your entire balance excused from additional payment.
For more information about chapter 7 and chapter 13 bankruptcy, or how to file your bankruptcy in Irvine CA, contact Thomas K McKnight LLP at (800) 466 - 7507 or visit our website at TKMLLP.com for a Free Consultation.