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Debt collection

What is the best way to negotiate a settlement with a debt collector?

Be prepared by knowing your monthly expenses and income so you are aware of how much you can afford to repay each month.

Any debt collector who contacts you claiming you owe payment on a debt is required to give you a written notice that includes the amount owed and the name of the creditor, unless the debt collector gave you that information the first time you had contact. It is a generally good idea to get this written notice before you pay the debt collector or try to negotiate.

We have prepared sample letters that a consumer could use to respond to a debt collector who is trying to collect a debt along with tips on how to use them.  The sample letters may help you to get information, set ground rules about any further communication, or protect some of your rights.

You may want to consult a credit counselor. Credit counselors are organizations that can advise you on managing your money and debts, help you develop a budget, and usually offer free educational materials and workshops. Credit counselors are usually non-profit organizations.

When you talk to the debt collector, explain your financial situation, and see if you can come to an agreeable plan. You may have more room to negotiate with a collector than you did with the original creditor. You might also wish to work through a consumer credit counselor or attorney to come to an agreement.

If you agree to a repayment plan, get the plan – and any promise to end the debt if you comply with the plan – in writing before you make a payment or pay a fee. Be wary of companies that charge up-front money to settle your debts for you.

TIP: Figure out what you are able to pay before negotiating with a creditor or debt collector.

It will help you to know your income and expenses before negotiating a settlement with a creditor that will allow you to pay off your debt. Try to summarize your monthly take-home pay and all of your monthly expenses (including payment amounts you are able to make) on a piece of paper.  Try to be sure there’s some income left over to cover unexpected expenses and emergencies. Then see how much you can pay each month towards the debt.

Tip: Learn when the statute of limitations on your debt expires.

Under state laws, if you are sued about a debt and the debt is too old, you may have a defense to the lawsuit. These state laws are called “statutes of limitation.” These can be two years or longer; you may want to consult a lawyer to learn long how this period is calculated in your state and when the period may have started with respect to your debt. If the statute of limitations is close to expiring, a creditor or debt collector is more likely to negotiate with you on favorable terms.

In some states, a partial payment on an old account may restart the time in which you can be sued.

Tip: Don't make a partial payment on an old debt until you talk to an attorney.

Partial payment can restart the time periods for when you can be sued and also restart the time period for how long the negative information continues on your credit report. To find an attorney, you can contact a lawyer referral service in your area and ask for an attorney with experience in consumer law, debt collection defense, or the FDCPA. Some attorneys may offer free services, or charge a reduced fee. There may also be legal aid offices or legal clinics in your area who will offer their services for free if you meet their criteria. Servicemembers should consult their local JAG office.

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