Negotiating with Creditors
Before entering any negotiation, always know your best alternative to this deal. Your best alternative could be paying full price, it could be purchasing an item from another vendor or not buying the item. Knowing the best alternative prior to starting a negotiation allows you to negotiate within your limits and know when you should walk away.
If you know you cannot pay more than $50 for an item and the seller said $75 is the lowest she will go, then you know to walk away. If you are having a fence installed and know it must be complete by next week, but the fence builder cannot start the project for two week, walk away and do not waste your time. If you have $4,000 to spend on a car and you find a car for $3,900, then you can negotiate to purchase this car.
The same principles are involved if you are buying a house, a car or negotiating with creditors.
If you have an old credit card bill that is in collections and you now owe $10,000 and you have $4,000 that you could pay to settle the account, then $4,000 is your limit for negotiations. It is very important to have limits when negotiating and to know the limits BEFORE negotiations start.
When negotiating with creditors it is important to know four things.
1. When is the last time you paid or contacted the company who has the debt?
In Texas, there is a four year statute of limitations to collect a valid debt, based on a breach of contract claim. If the account has not been active for more than four years, the company cannot sue you in court for the money owed and win in court.
2. Is the company collecting the debt from you actually owed the debt?
Debt is regularly bought and sold between companies. If you owed money to ABC Department Store credit card (ABC) and stopped paying it two years ago, ABC may pay XYZ Collection Company (XYZ) to collect the debt or sell the debt to XYZ. DO NOT pay the debt until XYZ produces proof that it either owns the debt or is collecting on behalf of ABC.
3. How much can you afford to pay to settle the debt?
If you have available money to pay the debt, you should be able to negotiate the settlement for 10-20% of the amount now owed. For example, your original credit card bill was $5,000 when you stopped paying it. Interest was accruing and fees for attorneys, late payments and anything else allowed under the credit card agreement was added to the $5,000. The total owed could now be well over $10,000.
XYZ probably bought your ABC debt for as little as 5% of the amount owed. You may be able to settle the debt for the $5,000 originally owed or even less. After verifying the company is the correct owner of the debt, negotiate the amount you will pay to settle the entire debt.
When you call XYZ, offer a very low amount to settle debt. In general, the first offer in a negotiation becomes an anchor point and the counter offer will be based on the first offer. Be prepared to send payment once the agreement is in writing from XYZ.
4. Is the settlement agreement in writing?
Do not pay XYZ Collection Company until you receive the agreement in writing. XYZ should send you something that is similar to “Payment of $1,500 is payment in full for the debt owed on the ABC Department Store credit card.” Once you have the offer in writing, send payment via check or money order. Write on the check, “Payment in full for ABC Department Store credit card” and include a letter. Click here for a sample letter.
Why should you not send payment until you receive the settlement offer in writing? To ensure XYZ stands by its word that $1,500 settles the entire debt. Without the offer in writing, XYZ could claim that was not the agreement. XYZ could cash the $1,500 check and still claim you owe $8,500. That seems unfair, but without the written agreement to accept less that the $10,000 you owe as payment in full, XYZ can cash the $1,500 check and state you still owe $8,500.
Do not allow XYZ to access to your bank account to withdraw the $1,500. XYZ could take more money than agreed. You should eventually receive the extra back, but it will cost you time and money. It is easier to send a check or money order.
Send the letter and final payment with a tracking number for proof it arrived. Keep a copy of the letter, the check before you send it, the cancelled check/bank statement showing the check cleared, and proof the envelope arrived at XYZ. Why? Because debt that is already paid may be sold to another collection company or the system may not show it as paid. You will want and need proof the debt was already paid.
If you need assistance negotiating with your creditors, contact 210-280-2686 or Jennifer@HastedtLaw.com today for your free consultation.
The information above is intended for education purposes only and does not create an attorney-client relationship. The laws above are specific to Texas, because that is the only state in which The Law Office of Jennifer Hastedt, PLLC practices.