Negotiating with Debt Collectors

Although it is almost always better to avoid debt collectors in the first place by working out some sort of agreement with the original creditor, you have a negotiation advantage once the debt has been turned over to a collection agency.

Of course, this doesn't mean that a debt collector will not threaten to sue you.  Many debt collectors will say anything to get you to pay your debt, even if it is illegal.  They don't care if you borrow it from a relative, pay them instead of your mortgage, or pawn your wedding ring. They know that the odds are very high that they won't collect anything, so they try to intimidate you with threats and bullying in order to try and scare you into paying the debt as quickly as possible.  But consider the following before letting a debt collector intimidate you:

(1)  If the creditor is willing and able to sue you they will turn your account directly over to a collection attorney and bypass the collection agency altogether.  Turning an account over to an attorney does not mean that they will sue you; it only means that your risk of being sued is higher;

(2)  The fact that the debt was turned over to a debt collector means that there is a good chance you will never be sued over it.  This is particularly true if the amount in question is less than $1,000.  

(3)  Creditors do not sue debtors when they don't think that they can recover what are due them, all collection costs and attorneys fees.

Consider the above when deciding how to negotiate with a debt collector.  Do you have assets that can be seized?  Can your wages be garnished?  If you were the creditor in this situation, would you sue you?

In most situations, when a debt is turned over to a collection agency, you will begin to receive phone calls and collection letters for a two or three month period.  If you haven't persuaded you to pay or work out some sort of agreement by then, a decision will be made as to what to do with your account.  It will either be turned over to a collection attorney or it will be written off by the original creditor as noncollectable.

The best indication that they are about to give up collecting the debt is when you receive a letter offering   to accept 70% of what you owe as payment in full.  This is, by far, your best opportunity to negotiate the debt down to 50% or even as low as 25% since you know that they've given up on collecting the debt and are about to write it off as a complete loss.  At this point, if you offer them 20%, they would likely accept it.

Tips on dealing with debt collectors:

Don't let them scare or intimidate you.  Don't let a debt collector's threats scare you in to missing a mortgage or auto payment in order to send money to the debt collector.  If you can't pay the debt, then you can't pay the debt.  Don't go hungry or forego paying secured debt in order to send the collector money.  If they sue you, then they sue you.  If they get a judgment against you, then you will deal with that when it happens, but don't let them intimidate you into sending them money that you don't have to send them. 

Don't run and hide.  When you are contacted by a collector, face the problem head on.  If you can't pay the debt, then tell the collector that you can't pay and why.  If you can afford to send in X amount each month, then tell the collector that.  Any agreements reached over the phone should be followed up in writing, preferably sent to the collection agency by certified mail, return receipt requested.  Do this in order to protect yourself legally.   You can spend all day stressed out, jumping whenever the phone rings, or you can deal with the problem.  If you deal with it, they will stop phoning you.  They might just sue you!  So face them directly and work out an agreement.

When you are contacted by a debt collector, telephone them and offer to pay them X each month or tell them you can't afford to pay anything or perhaps offer them a reduced lump sum payment. Of course, at first, they will refuse to agree to anything other than 100% payment in full as quickly as possible.  If you can pay it, then do so, but if you can't, you should continue negotiating with them.  Any agreements you reach over the phone should be summarized in writing and sent to them certified mail, return receipt requested.  You need to put the agreement in writing in order to protect your rights. 

Adopt a professional attitude.  Shouting matches with the collector are counter-productive.  Making silly excuses for not paying the debt are also a waste of time.  If you legitimately owe the debt, don't deny that you do or make up excuses.  You didn't pay what you legitimately owe and now it's time to deal with the problem as a mature adult. 

The best way to deal with a collector is to adopt a professional attitude (behave as you would expect an attorney representing you would behave).  Your goal is to work out a resolution, not to insult one another.  Therefore, don't let the collector upset you.  Speak calmly and professionally to the collector and don't let him bait you. No matter what he says to you over the phone, even if you find it insulting or threatening, you will remain calm and businesslike.  For example:

Collector:  "Mrs. Jones, if we don't receive payment from you by the first of next month, this account is going to be turned over to an attorney for litigation.  You are going to be asked to pay thousands in attorney's fees and court costs in addition to the amount you owe.  Is this what you want?" 

Debtor:  "I'm sorry to hear that.  I wish I could pay, but I just can't.  I have cut back my expenses as much as I can and I simply can't find the money to send you a lump sum payment.  Could we work out some sort of payment agreement today?  I can send you $25.00 a month.  A few months from now, I might be able to send you as much as $50.00."

Collector:  "No, Mrs. Jones!  I need payment in full from you by next month or we're going to have to file suit.  Couldn't you borrow it from a relative?"

Debtor: "No, I'm sorry, but I just can't.  I have already borrowed a significant amount of money from my relatives just to pay my rent and living expenses these past six months.  I can't borrow anymore.  In fact, I'm thinking about filing bankruptcy because I just see no other way out.  I'm going to have to discuss my options with a bankruptcy attorney next week, particularly since you have informed me that I might be sued very shortly.  I'm going to have to take steps to protect what few assets I do have.  Are you sure there isn't a way we could reach some sort of agreement today that would make it easier on both of us?  I really don't want to file bankruptcy and I know this creditor doesn't want to go to the expense of filing suit."

Notice how the debtor has remained calm and managed to get in the one word that all collectors (and creditors) don't want to hear -- BANKRUPTCY.  The collector knows that once a debtor files bankruptcy all collection activities are stopped by court order and a suit cannot be filed.  If the debtor is insolvent, the amount due will likely be discharged in the bankruptcy.  Mrs. Jones has calmly threatened him back -- with bankruptcy -- and has put the ball back in the collector's court.  She didn't let him intimidate her.  Now perhaps, he will be willing to work out some sort of payment plan with her, and Mrs. Jones can avoid a lawsuit, possible wage garnishments and property seizures without filing bankruptcy.