How to Negotiate a Debt Settlement in 5 Steps
The best and often most difficult thing you can do when you are in debt is to seek out a solution before a lawsuit results. One possible solution to dealing with your debt is to negotiate it down to a lower, manageable amount. Many creditors currently have so many defaulting borrowers that they are willing to negotiate a debt in order to recover some return on their investment. While it is possible to negotiate a debt settlement on your own, particularly if you only have one debt or a very low amount of debt, having an experienced debt negotiator do so on your behalf will yield a more advantageous settlement. Here is an introductory look at the process.
Step 1: Stopping Creditor Phone Calls
While it is a mistake to just ignore creditor phone calls, telling them over the phone you don’t have the money to pay or that a check is in the mail will not stop the calls either. There are two ways to stop the collection calls. First, you can write a cease and desist letter to the collection agency stating either your request for the calls to stop or your refusal to pay the debt. The second option is to obtain attorney representation. By law, once the collectors know you’re represented by an attorney, they may no longer continue to contact you directly.
At McCarthy Law we will solve this problem for you. From the outset, we send letters to your creditors informing them we represent you and to direct any communication to us only.
Step 2: Validating the Debt
Having your debt validated lets you know who you are dealing with and how much you owe. Under federal law, within five days of the collector’s first communication with you they must send you a written letter that includes:
- Your creditor’s name.
- The amount of your debt.
- Your right to dispute the debt within thirty days.
- Notification of your ability to send a written request for verification of the debt and/or the name and address of the original creditor.
If you make any of these requests in writing within the thirty-day period, the debt collector must cease collection efforts until the requested information has been sent to you. Debt validation is a crucial step because it may halt the collection process if the collector is unable to obtain verification on your debt. However, in most cases adequate verification is obtained and the collection process continues.
Once the amount of your debt has been validated, an experienced debt settlement attorney at McCarthy Law will analyze any defenses you may have and begin the process of negotiating a large reduction in the debt.
Step 3: Negotiating the Debt
After your attorney has helped you determine an amount you can afford to pay, they will begin negotiation with your creditors. During the negotiations, which can take anywhere from 6 months to 36 months, depending on the amount of debt and creditors you owe, you will have time to save up money to use towards settlement. In many circumstances, it is in your creditor’s best interest to negotiate your debt down. This is because when you declare bankruptcy (if you qualify) your unsecured debt is usually discharged, leaving the creditors with nothing. By negotiating a lower settlement amount, the creditor is able to recover at least some part of their investment in your loan.
This step is where an attorney’s thorough knowledge of the law and experience working with creditors can be particularly advantageous. McCarthy Law has successfully negotiated large reductions in debt for numerous clients and would love to help you do the same.
Step 4: Settling the Debt
At the beginning of the settlement process, an attorney will work with you to establish a savings plan based on your ability to pay. As mentioned above, you will have time during the negotiations to save up for a settlement. Unlike debt management plans where you make a monthly payment that is disbursed to your creditors, in a debt settlement your money is deposited into an account to be accumulated until the negotiated amount is reached and your creditors receive a lump sum settlement.
It is important to have a lawyer negotiate and review the actual settlement agreement to make sure you are fully protected and the creditor can’t come after you later.
Step 5: If Sued, Utilize Defenses – Why You Want An Attorney
Although creditors are almost always willing to settle your debts, sometimes a lawsuit is filed. Creditors do this to put pressure on the debtor. With McCarthy Law, this tactic doesn’t work. While court is something you certainly want to avoid, if a credit card company or bank does decide to sue, your lawyer can take immediate and appropriate action to defend you. You will have a stronger position if you have an attorney with debt negotiation and credit defense experience.
At McCarthy Law, we want you to get through this financial hardship with as little difficulty as possible, and are available to help you throughout the process. Give us a call today to schedule an appointment for your free consultation.