In Part 1 of his series, Mark explains settlement in full versus payment in full, the three ways a Canadian can settle a debt, and which kinds of debt can and cannot be settled.
Transcript
I have a warning for our viewers today. I'm accompanied by my dog Rosie. You may hear her sleeping, snoring, grunting and making other noises during the filming of this video. Today is Part 1 of a new series titled How to Save Money Settling One Debt. I'm Mark Silverthorn. If you owe money to a creditor and you pay your creditor 100 percent of the money owing, that is referred to as payment in full. If, however, you owe money to your creditor and your creditor agrees to accept a one-time lump sum settlement for less than 100 percent of the outstanding balance, then that is referred to as settlement in full.
Why settlement can save you thousands
You may or may not know this, but each weekday in Canada, creditors and their collection agents agree to accept a one-time lump sum payment for less than 100 percent of what is owing as settlement in full, and often these settlements are at significant discounts. This is a matter of negotiation. It might be possible to negotiate a one-time lump sum settlement where your creditor agrees to accept as little as 15 to 25 cents on the dollar as settlement in full. In some instances, it is possible to literally save thousands, and in some cases tens of thousands, of dollars settling an account.
It is not particularly difficult to negotiate a settlement where you pay less than 100 percent of the monies owing to your creditor. The real challenge is obtaining a very favourable settlement, where you get the best possible result and save the most amount of money. The goal of this series is to teach you how to obtain the best available settlement in your particular circumstances. During the series, I will be answering a number of key questions. What are the debts that a person can settle? When is it possible to negotiate a settlement? How is it possible to negotiate a settlement? And what are the most effective strategies for getting the best possible result?
Why I'm qualified to teach this
You may be asking yourself why I'm qualified to do a series on this topic. For 12 years I worked as a collection agency lawyer for four of the largest collection agencies operating in Canada. I then worked nine years as a consumer lawyer representing Canadians across the country struggling with debt. During this period, I personally negotiated hundreds of favourable settlements in which my clients made one-time lump sum settlements on favourable terms, in some instances for as little as 15 to 25 cents on the dollar. I am also the author of a book titled The Wolf At The Door: What To Do When Collection Agencies Come Calling, published by McClelland & Stewart.
Three ways to settle a debt
There are three different scenarios where a Canadian can settle a debt. The first option is to do it yourself, and that is the focus of this series. But there are two other scenarios. You can hire a debt coach. A debt coach is a person who provides advice to someone who wants to settle a debt, and I am a debt coach. The third scenario is to hire a debt settlement firm. A debt settlement firm offers one-stop shopping when it comes to negotiating a settlement. Debt settlement firms essentially do everything, including communicating with your creditor or their collection agent.
A couple of things about debt settlement firms. They typically will not take on a client unless you owe a minimum of $10,000 in debt, and they will not negotiate settlements in circumstances where the creditor has obtained a judgment against you. There are some creditors who will sue you once they learn that you have hired a debt settlement firm. These creditors take the position that if you can afford to hire a debt settlement firm, then you can afford to pay them. A last comment regarding debt settlement firms: they are not cheap. If you hire a debt settlement firm, you may be paying a significant fee in circumstances where there is no guarantee that you will be obtaining positive results.
Which debts can be settled
There are different types or categories of debt, and it is not possible to negotiate a settlement in connection with each and every type of debt. This means that the first question we need to answer is what types of debt are capable of being settled. I am now going to identify those categories of debt where negotiating a settlement is not available. The major category is monies owing to the government. This would include things like unpaid income tax and GST. It would also include student loans that are owing to the government, and any types of fines. Another category of debt where it is not possible to negotiate a settlement is child support and spousal support.
Let's talk about debts where negotiating a settlement is available. I would describe this category as consumer debt, which is any debt arising from a consumer transaction. This would include things like credit cards, personal loans, lines of credit, bank overdrafts and utility bills, so things like unpaid cell phone bills. All types of consumer debt are capable of being settled. This includes the situation where your creditor has sued you and obtained a judgment against you, and it even includes the scenario where your creditor has placed a lien on your home.
When a creditor will consider an offer
If you owe money to your creditor, then for the first six months that your account has not been paid, your creditor and its collection agent are going to insist that you pay 100 percent of the monies that are owing. It is only when an account has not been paid for six months that a creditor may entertain an offer for a lump sum payment for less than 100 percent of what is owing. A creditor or its collection agent is under no obligation whatsoever to accept a settlement offer. A creditor can take the position that it wants 100 percent of what is owing and has no interest in accepting a lump sum payment for less than 100 percent of what is owing.
One of the issues that I would like to address is settling a debt and instalment payments. If your creditor is going to accept a payment for less than 100 percent of your unpaid balance, then it will insist on a one-time lump sum payment. It is simply not possible to negotiate a settlement for less than 100 percent of what you owe and expect that your creditor will agree to accept instalment payments.