Mark covers settlement issues that arise once you know who is collecting your debt: avoiding restarting a limitation period, offering 25% of the balance, being patient, and expecting collectors to demand payment in full.
Transcript
Who this video is for
If you would like to learn how to eliminate your debt for significantly less than what you owe, then you should be watching this video. Depending upon your situation, we may be talking about hundreds, even thousands, possibly tens of thousands of dollars.
My name is Mark Silverthorn. I spent 12 years working as a collection agency lawyer for four of the largest collection agencies operating in Canada. I then changed sides and worked nine years as a consumer lawyer representing Canadians struggling with debt. During this period I personally negotiated hundreds of favourable settlements. In some instances we were able to eliminate an individual's debt for as little as 15 to 25 cents on the dollar. A few years ago I wrote a book titled The Wolf At The Door: What To Do When Collection Agencies Come Calling, published by McClelland & Stewart.
The purpose of this video is to teach you how to save money settling one debt. You can do this yourself. You do not need to hire a debt settlement firm to represent you. If, however, you would like some assistance, you may want to hire a debt coach. I am a debt coach, and if you would like to take advantage of my three decades of experience in both the debt collection and debt relief industries, I would invite you to get in touch with my firm, Debt Coach Silverthorn.
A recap of the first two videos
Let's do a quick recap of the first two videos in this series. If you have a consumer debt, then it might be possible for you to eliminate it for significantly less than what you owe. Your creditor or its authorized collection agent might be prepared to accept a one-time lump sum payment as settlement in full, provided no payment has been made on your account for a minimum of six months. Obtaining a favourable settlement is typically a matter of negotiation. Your creditor is going to insist that you make a one-time lump sum payment. It is not possible to settle your unpaid account by making installment payments.
You should not start settlement talks until you have sufficient monies to fund your settlement. I recommend that you have an amount equal to 25% of your outstanding balance before you commence settlement talks. It might also be prudent for you to eliminate any available credit appearing on your credit report beforehand. Your creditor or its authorized collection agent will typically have access to your credit report, and it will not be inclined to entertain a settlement if your credit report reveals that you have enough available credit that you can simply pay your account in full by taking a cash advance on a credit card or a line of credit.
If you are currently making payments on an account and your goal is to eliminate this debt by way of settlement, then there are two issues you should be aware of. Number one, the harm that this will have on your credit score, and a variety of adverse consequences. Number two, the possibility that you may become a victim of your creditor's exercise of its right of set-off.
If you are going to negotiate a settlement, then you will need to identify the organization that is currently attempting to collect your outstanding account. The simplest method is to call the main telephone number for your original creditor, identify yourself and your account, and ask for the name of the organization that is currently attempting to collect it. One of the issues that may arise is who owns your debt. Either your original creditor, the firm that originally provided you with goods, services or credit, or a debt buyer, a firm that has purchased your account, owns your debt. The firm that owns your account may use its own employees to attempt to collect it, or it may hire a collection agent. There are two categories of collection agents: the major category is collection agencies, and in some cases creditors use law firms to collect their unpaid accounts.
Avoid restarting the clock on a limitation period
I'm now going to talk about issues that arise once you have identified the organization that is attempting to collect your account. As noted earlier, this is the organization you are going to attempt to settle your account with. It is helpful if you do not do anything that is going to restart the clock on a limitation period.
In your communications with your creditor or its authorized collection agent, it is important that you do not make a written acknowledgement of your debt. It is okay if you make an oral or verbal acknowledgement of the debt. However, if you make a written acknowledgement of the debt, this may restart the clock on your limitation period and prejudice you. It is possible to make a written settlement offer to your creditor or its authorized collection agent if you start your written communication with the phrase, without admitting liability. Furthermore, it is helpful to insert the phrase WITHOUT PREJUDICE in capital letters in the top right-hand corner of your communication.
Offer 25% of the outstanding balance
The single biggest mistake that individuals make attempting to negotiate favourable settlements is offering too much money to settle an account. As a rule of thumb, I recommend that individuals offer to settle an unpaid account for an amount equal to 25% of the outstanding balance. There are a couple of exceptions to this rule of thumb. If you owe your creditor less than $1,000, then your creditor will not be inclined to accept a settlement offer of 25% of the outstanding balance. Your creditor, however, will be more inclined to accept an offer somewhere between 25% and 50% of the outstanding balance.
Furthermore, if your creditor has sued you or has obtained a judgment against you, then your creditor is probably seeking an amount equal to 75% to 90% of the outstanding balance. If your creditor has sued you and obtained a judgment against you, then they have a number of extraordinary remedies to recover monies from you. It can put a lien on your property, and this is essentially a GIC: your creditor will be in a position to recover its monies from you when you go to sell the property or to mortgage it. Your creditor can also do a wage garnishment.
I would like to give you an example where I was hired to provide advice to an individual in circumstances where the creditor had not only sued my client but obtained a judgment against him and placed a lien on his home. I suggested to my client that he offer a lump sum payment of 25%. The creditor, who was a debt buyer, agreed to accept a one-time lump sum payment equal to 30% of the outstanding balance. In this particular instance, the debt buyer essentially wrote off $14,000 in debt and settled this account for only 30 cents on the dollar.
Be patient
The second biggest mistake that individuals negotiating settlements make is impatience. As a general rule, the longer that an account remains unpaid, the more generous a creditor is going to be when it comes to negotiating a settlement. It is important for you to be patient, because more generous settlements should be available in the future.
Expect collectors to demand payment in full
When you offer to settle your outstanding account for less than 100% of the outstanding balance, you should not be surprised that your creditor's representative is going to insist on receiving payment in full. In the collection industry, collectors employed by your creditor, by collection agencies and by law firms are trained to demand payment in full. It is very rare, however, that at some point a creditor will refuse to accept a one-time lump sum payment for significantly less than what you owe.
It is helpful for you to think of this process as a poker game. It is also helpful for you to think of your unpaid account as a piece of fruit at a grocery store. Your account, like the piece of fruit, loses its value over time. Creditors know that the longer an account remains unpaid, the more the odds of them recovering a penny are reduced substantially. If a collector informs you that a creditor will only accept payment in full, then you can simply inform the collector that you will try again in six months.