Topic: Thinking of Settling with the Creditor? Read This.

[Flyingifr]

IF you offer to settle a debt with a creditor or Collection Agency    the terms will be "Payment for deletion of trade line. No agreement to that    no agreement at all."

With that in mind    there are lots of things you should look into before you offer to settle. These are:

1. Is the debt outside the Statute of Limitations for Collection in your state?
2. How close to the 7 year FCRA Statute of Limitations is it?
3. Are you Judgement Proof?
4. What does the creditor know about your place of employment?
5. Do you presently have garnishments on your paycheck?
6. What is your total financial picture? Are you just postponing an inevitable bankruptcy and throwing good money after bad?
7. Are there any FCRA    FDCPA or FCBA violations committed by the Creditor or its Collection Agency?
Let's discuss each of these    one at a time.

1. Statute of Limitations on Collections: This is a no-brainer. The Statute of Limitations on Collections (SOLC) starts with each payment you make    and ends after a set period of time where no payment is made. If you don't make a payment in a certain time    and the creditor has not started a lawsuit    the law states that the SOLC is an "affirmative defense" to any lawsuit that may be started after the SOLC expires. Why? The US Constitution guarantees a speedy trial. Over time    records get lost    witnesses die    move away or forget. The SOLC basically says to a creditor "Sue while the records are available    otherwise forget it". An Affirmative Defense doesn't mean you can't get sued    but it provides a good reason for the Court to refuse to give the creditor a Judgement. If the debt is outside SOLC    then the creditor cannot get a judgement    and you can stand firm in your offer of "no deletion    no money". NEVER try to negotiate a settlement if SOLC has not expired    ESPECIALLY if the creditor is not actively dunning you. Let the sleeping dog lie until it has no teeth left to bite you with. EXCEPTION - see #3 and #7 below.

2. The Fair Credit Reporting Act places a limitation on the time that derogatory information can be reported. I will call that the SOLR - Statute of Limitations on Reporting. This limit is generally 7 years. There are some exceptions (Chapter 7 Bankruptcy is 10 years and certain other types of situations have no SOLR). If the debt is near SOLR and SOLC has expired    there is very little the creditor can give you in return for payment    since you cannot be successfully sued and the law will remove the line from your credit file shortly. If you have a couple of years on SOLR and SOLC has expired    then you may want to see what you can negotiate. My rule of thumb is this - the debt is worth about 10% of its face amount for each year left on SOLR.

3. If you are Judgement proof (doesn't mean you can't get sued    means there is no way of collecting on the suit) you should explore how likely you are to become "not Judgement proof" before the SOLC expires. If you are not likely to become Not Judgement proof before SOLC expires (say you are a Stay at Home Mom for the next 15 years) then settlement is a possibility    whether the SOLC has expired or not. THIS SHOULD BE APPROACHED VERY CAREFULLY IN COMMUNITY PROPERTY STATES. Only treat non-community debt as outside SOLC. Community debt should still be treated as within SOLC. See my post "Making Yourself Judgement Proof"

4. It is very hard to garnish a paycheck you can't find. Contrary to popular belief    non-government creditors do NOT have access to Social Security files. Treat Child Support as a Government Creditor because of New Hire reporting requirements. So    if you recently changed jobs (and even better    residences also) then you are in a stronger position to negotiate a settlement. Obviously    do not disclose your new employer. It might be wise to let the debts lie for a year or so (and don't apply for any new credit - when you open a bank account    DO NOT GIVE THAT BANK YOUR NEW EMPLOYER - it will go STRAIGHT to the Credit Bureaus since most banks run credit checks on new depositors). A debt    like fine wine    gets easier to settle the older it gets.

5. A garnishment on your paycheck    as unpleasant as it may seem    can sometimes be a blessing in disguise. That's because for OTHER creditors to collect through Garnishment    they have to wait in line until all prior garnishments (in order received by your employer) are paid in full. Here's a true story. When I was a Credit Counselor for CCCS    I had a particularly intransigent creditor to deal with. The debtor    however    had enough garnishments on his paycheck to amount to about 15 years wait. I merely informed the creditor of this and said "I will pay those creditors who will accept the program and not sue. You have a choice - get paid now or sue and wait 15 years to get paid." You can adopt this strategy also. So    if you have    or will have    a large balance garnishment on your paycheck    and you can live with that garnishment    you have some powerful leverage with all the other creditors you may have. Take this now and be happy with it or wait a couple of years......

6. Will this settlement make you able to pay all the rest of your bills or is it just to "grease the squeaky wheel"? If it's grease    then consider a Bankruptcy - it may be inevitable    and paying this creditor may be at best a preferential payment the creditor will have to share with the other creditors in a Bankruptcy    or at worst just throwing away good money that you can use to retain a good bankruptcy attorney.

7. One of the best ways I have found to arrange a settlement with an intransigent creditor where the debt is not outside SOLC is to COUNTERSUE when they sue. If the creditor (or CA) has committed any violations under Federal Fair Credit Billing Act    Fair Credit Reporting Act or Fair Debt Collection Practices Act    a countersuit for those violations changes the whole nature of the suit. If you don't have any of those violations    read the thread "Turning a Suit into a Settlement". The goal would be to drive your creditor's costs of litigation so high they will pay their lawyer more than the lawyer will ever collect from you. SOMEONE    SOMEWHERE in the creditor organization will eventually figure that out and agree to a settlement.
Settlements have their place in credit repair    but should only be negotiated when you are in a position of strength    not weakness. That is the way to obtain the most favorable results possible    or at least not to LOSE anything if a settlement cannot be reached.

A TAX TIP ON SETTLING DEBTS:

Tax Code says that cancelled debt is income taxable to the debtor    EXCEPT in certain circumstances. One of those circumstances is Disputed Debt. Make sure in the settlement contract that you insert a paragraph something like this:
"Debtor disputes    and creditor acknowledges as disputed    the unpaid and cancelled portion of the debt claimed. Debtor is only paying the undisputed portion of the debt claimed."

If you recieve Form 1099C Cancellation of Debt    here's how to handle it(from an Enrolled Agent):

1. IF the 1099C was as a result of the debt being cancelled in Bankruptcy    attach Page 1 of your petition to your tax return with a note that the cancelled debt income is excludable from income under IRC 108(a).

2. IF    after the discharge of indebtedness    you are still insolvent (liabilities exceed assets) then attach a simple balance sheet to your tax return and claim the cancelled debt excludable from income under IRC 108(a)(1)(B).

3. IF you followed the advice I posted on these boards many times and included in the settlement documents a statement that you are only paying the undisputed amount and the unpaid amount is disputed and the creditor acknowledges the dispute    then attach a copy of the Settlement agreement to your tax return and claim the cancelled debt as excludable from income under Zarin v Commissioner (916 F2d 110 - 3rd Cir    1990).

4. IF the debt is a purchase money debt and you were able to negotiate with your creditor a statement that the portion paid represents an Adjustment of the Purchase price of the goods bought    then attach that statement to your return and exclude the cancelled debt income under IRC 108(e)(5).

5. IF the cancelled debt is a student loan forgiven or partially forgiven because you worked in certain professions under an acknowledged forgiveness program    attach a note saying this and exclude the debt forgiveness income under IRC 108(f).

6. If none of these applies    include the cancelled debt as OTHER INCOME (Form 1040 Line 21).

[TonyJones]

I see this was posted some 5.5 years ago and wondering if it is all still relevant.

How exactly do you hold them to "Payment for deletion of trade line"? Do you have them write it up and fax it to you? Mail it to you? How exactly do you keep them honest in the settlement process?

While some of my accounts have gone roughly 15 months and through a few collectors, I'm in a position to begin paying them/ settling with them as they persist.

I am receiving offers of 70% off (off of huge interest additions, but the the settlement amount is just about where they were left off when I was unable to pay them) and want to repay my debt.

Thoughts? Should I involve a 3rd party? Is there one? I do not want to file bankruptcy and want to get my previously great FICO back to where it was before my income was interrupted.

Thanks.

[kevinmanheim]

I am receiving offers of 70% off (off of huge interest additions, but the the settlement amount is just about where they were left off when I was unable to pay them) and want to repay my debt.

Who is the OC?

70% is laughable.

I can think of one OC. Their name begins with "B". They settle for 20% at 170 days before charge off.

[coltfan1972]

15 Months and through several collectors?  Yes 70% is not a good deal.  Pay for delete (PFD) has many threads on this board.  I would use the search function at the top right and that should give you tons of reading on the subject. 

But to quickly answer your question, you want to get all terms of the agreement in writing from somebody authorized to enter into settlement agreements.  Also you would want a liquidated damages clause in the agreement. 

[TonyJones]

Who is the OC?

70% is laughable.

I can think of one OC. Their name begins with "B". They settle for 20% at 170 days before charge off.

70% OFF (meaning they want 30% paid of what they claim is owed).

OC, does that mean original creditor? If so, then it is Citibank (actually it was a Home Depot card).

[coltfan1972]

O.C. is Original Creditor.
30% for settlement is more like it. 

[TonyJones]

15 Months and through several collectors?  Yes 70% is not a good deal.  Pay for delete (PFD) has many threads on this board.  I would use the search function at the top right and that should give you tons of reading on the subject. 

But to quickly answer your question, you want to get all terms of the agreement in writing from somebody authorized to enter into settlement agreements.  Also you would want a liquidated damages clause in the agreement.

OK, 70% off (they are seeking 30% to settle). Will look into PFD.

So, you get this in writing prior to payment? I know that is probably the only way to ensure it is settled. Who should I ask for when settling, simply someone who is authorized, but how would I verify if they are?

Thanks for the response!

[coltfan1972]

It needs to be an officer of the creditor.  In other words not the person that comes once a week to change out the water coolers.   

[flacorps]

There is a concept in agency law (the law of who can bind a company) called "apparent authority" ... If the person signing has a title better than "administrative assistant" they've probably got enough apparent authority to make the document enforceable.

As for PFD, I am attempting to popularize its uglier (but easier to bed) sister, "TLF" or "trade line freeze" which is the creditor's agreement not to report anything else (especially the settlement you're making) to the CRAs and to also decline to respond to any CRA disputes you may file at some point down the road. This leaves you in control of the tradeline's appearance on your reports, and you can leave it in place until it's safe to get rid of it, rather than have it show "paid" or "settled" and attract the other vultures.

[JDBStick]

What are your thoughts when you say leave in place till it is safe to remove? Sol is up? Is this just in case they wont do a PFD? Isn't pay for delete a better option if you can get it?

[flacorps]

What are your thoughts when you say leave in place till it is safe to remove? Sol is up? Is this just in case they wont do a PFD? Isn't pay for delete a better option if you can get it?

Three problems with PFD:

1. Creditors are real chary of doing it because it makes the CRAs mad at them ... perhaps mad enough to cut them off, which contractually they can do. TLF can be more easily disguised or dissembled as an error of omission rather than an act of commission in defiance of the CRA contracts.

2. Some of the larger JDBs my be able to detect PFD using their vast computer capabilities ... I don't believe they're supposed to store credit reports, but I don't think that stops 'em, and the non-obsolete derogatory TL that vanishes between one report and the next only has a small handful of explanations: file-mixing, identity theft, and PFD being the salient ones. If a JDB detects what appears to be a PFD, they will conclude that the debtor is voluntarily putting out, and their collection efforts will intensify accordingly.

3. Enough PFD and you're a ghost locked out of the credit system by a too-thin file.

[CleaningUp]

PFD also opens a door to Credit Repair Organizations Act violations that they would rather not have to face.

[CleaningUp]

Kenny, just because an urban legend is loose on the world doesn't make the urban legend true.

When one encounters something like the legal tender issue, it is best to do the research FIRST.

[cgoodwin]

PFD also opens a door to Credit Repair Organizations Act violations that they would rather not have to face.

SEC. 403. - Definitions of the Credit Repair Organizations Act-, excludes those to whom you already owe a debt and all federal financial institutions.

[flacorps]

SEC. 403. - Definitions of the Credit Repair Organizations Act-, excludes those to whom you already owe a debt and all federal financial institutions.

Somewhere on this board there is a small with that exclamation did not hold up.