Debt Settlement
Debt settlement consists of negotiating with your creditor, collection agency or debt buyer a final lump-sum payment to settle your past due account. The lump sum payment is often lower than the current balance and often the creditor will let you split the settlement into equal amounts of 2 to 6 payments. Your original creditor may automatically present you with a debt settlement offer when your account is more than 90-days old; collection agencies that have been assigned your debt may present offers up to 50%-off the account balance; however, most offers will expect you to make a lump-sum payment within 30-days of receipt of the debt settlement offer.
Debt buyers usually purchase uncollectible debt (debt held by original creditors) between 2- to 16-cents on the dollar and the industry benchmark during the late 90’s to early 2000’s was to collect 3X the purchase price within 3-years; however, since the economic downturn, the benchmark has been lowered to 3X over 5-years or 2X to 2.5X over 3-years. For example, if your balance is $3,300, the debt buyer purchased your account for (7-cents on dollar) $231 and expects to collect (2X) $462 in the next 3-years. Unfortunately, a debt collector’s first priority is to collect 100% of the debt; second priority is to collect 100% of the debt over a period of 1 to 6 months; third priority is to offer a settlement up to 50% off the account balance. The last resort is to evaluate your account for litigation; a civil lawsuit will be filed against you.
The good news is even though the economic slump is hurting many businesses, including the debt buyer industry, it’s a great time for debtors to demand lower settlement offers payable by making monthly payments. Debtors need to let the debt collector know: their knowledgeable about the federal FDCPA, state debt collection laws, how to defend against a debt collection lawsuit and knowledgeable in their states attachment, garnishment and exemption laws, which will tell the debtor if their judgment proof. Based on your debtor rights, an estimate of the current value of your account to the debt collector and what the debtor collector needs to collect to remain profitable, a debtor should be able to offer the debt collector a reasonable settlement offer. The table below will help you estimate a good settlement offer to present to your debt collector (assuming your account was purchased by a third-party debt collector).
| Debt Settlement Offers |
| Number Months Past Due |
Settlement Offer to Debt Collector |
Example Settlement Offer on $3,300 Account Balance |
Monthly Payments (18-months) |
| 6-months to 12-months |
24% to 32% |
$792 to $1056 |
$44 to $58 |
| 12-months to 18-months |
16% to 24% |
$528 to $792 |
$29 to $44 |
| 18-months to 24-months |
10% to 16% |
$330 to $528 |
$18 to $29 |
| 24-months to 36-months |
8% to 10% |
$264 to $330 |
$14 to $18 |
| 36-months to 48-months |
6% to 8% |
$198 to $264 |
$11 to $14 |
| 48-months to 60-months |
4% to 6% |
$66 to $198 |
$4 to $11 |
| statute of limitations has expired on the account |
No Deal |
Send out a cease-and-desist letter to the debt collector and wait until the account falls off your credit report |
n/a |
Listed below are major debt buyers:
Sherman Financial Group,
Unifund,
Asset Acceptance Capital Corp.,
FirstCity Financial Corp.,
Encore Capital Group Inc.,
NCO Portfolio Management,
Portfolio Recovery Associates Inc.,
ASTA Funding Inc.,
Intrum Justitia Group,
Lowell Group,
New Century Financial Services Inc.,
Professional Recovery Systems LLC,
RJM Acquisitions LLC,
Resurgence Financial LLC,
The Sagres Company
and
Streamline Capital Partners LLC.
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