Settling debt is the process of negotiating with your creditors a payment less than the total amount owed. Often times people feel that as a person who is struggling to pay your bills that you are negotiating from a weaker position – after all you owe money and likely aren’t in a position to pay it. But think of it from the debt collectors view – they are trying to get money out of a person that likely doesn’t have much money – no easy task.
You have more leverage than you think in settling your debts and in this article I will give you three strategies that can help you get the lowest settlement possible.
#1 – Delinquent Taxes and Child Support Can Help You Settle Your Credit Card Debt
Not all debt is created equal. Certain debts are given special treatment over other types – they are given priority. Two types of debt that get priority over debts like credit card bills and medical debt are taxes and child support.
While it is no fun to owe delinquent taxes or be behind on your child support payments the fact that you owe these debts can be used in negotiating a lower settlement. The reason is even if you were to get sued on the credit card debt and they got a judgment against you, the IRS and your child support will have priority (and thus get paid first) in any given wage garnishment situation.
When a creditor understands the reality of that situation they will likely be willing to take much less in the form of a settlement because they know it will be a very long time before they get paid if they ever get paid anything at all if they keep pushing for a higher amount.
#2 – Know When the Statute of Limitations Expires on Your Debt
If you owe someone money there is only a set amount of time in which they can file a lawsuit against you. Here in Arizona if you borrowed money from a person or a bank (including a credit card) and you had a written agreement in place then the creditor has 6 years to file a lawsuit against you. If they don’t they are barred forever from doing so. This is known as the statute of limitations.
The other day in my office I had couple come in and show me a recent letter they had received from a debt collector. The collection letter was for a very old debt and the collection agency was offering to settle the debt for pennies on the dollar. The reason why they were willing to settle the debt for so little is because the statute of limitations had expired and they could not longer sue the consumer to get the debt paid – however that was not entirely clear just by reading the letter.
If the statute of limitations has expired in most instances you shouldn’t pay the creditor a penny. They slept on their rights and can no longer come after you through the courts. There isn’t much reason to pay them at all.
However, if the statute of limitations has not yet expired you should find out when it will expire and then you can either wait it out or use that as leverage to get a lower settlement deal. After all, if the statute of limitations is near the creditor will understand that if they don’t get something from you now they may be out of luck for getting anything from you in the future.
So, how do you know if the statue of limitations has expired? Here are four steps:
- What kind of debt is it? Depending on what kind of obligation you have there may be a different statute of limitations. For example in some states there is a shorter statute of limitations or an oral agreement as compared to an agreement that is in writing.
- What state do you live in? Each state has different statute of limitation periods for different types of debts. If you live in Arizona come see me and I can help you determine what the applicable period is for your case. If you don’t live in Arizona check out Google and then call a lawyer in your state.
- When do I start calculating the time? This happens when the account goes into default and your creditor could have sued you. In most credit card cases this is usually when the account is 30-60 days past due.
- Has the Creditor Filed a Lawsuit? Once a creditor has filed a lawsuit, so long as the statute of limitations hadn’t already expired, they have met the requirement. If they haven’t and six years has gone by they are forever barred from suing you.
#3 – Don’t Threaten Bankruptcy
The idea behind threatening bankruptcy to your creditors makes sense – I mean if you file for bankruptcy they will likely get zero, and if they agree to settle they may only get a small amount but it is better than zero, right? The problem is everybody threatens to file bankruptcy when they are talking with debt collectors. While logically it makes sense to threaten it, it likely won’t influence the creditor to lower the settlement amount. They know that while everyone threatens bankruptcy most will not file so it isn’t much of a motivator to take less on the deal.
Your better option to settling your debt is to fully understand what things you have in your favor and use them to your fullest advantage.
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John Skiba, Esq.
We offer a free consultation to discuss your debt problem and help you put together a game plan to eliminate your debt once and for all. Give us a call at (480) 420-4028