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Negotiating with collection law firmsMy article, “understanding why you were sued,” has preliminary information for this subject. Once you are familiar with the process leading to a collection lawsuit, this article will help you decide whether you should negotiate, which can help you avoid being sued or prevent the collection lawsuit from becoming a judgment, and how to negotiate.
People are under a notion that if they negotiate, those discussions can be used against you in court to prove you owe the debt. Not so. Settlement negotiations are “privileged” and not admissible to prove whether you owe the debt. The one thing to be cautious about is that if the statute of limitations is about to expire or has expired, you should not put in writing a promise to pay the debt, because then the limitations period may be revived from that point. A settlement– while it is in writing and essentially acknowledges the debt–also extinguishes the debt, once paid.
Caveat if this is not your debt. If the debt is not something that you authorized (including the fact that you are the victim of identity theft on the debt), you should not agree to pay a penny to settle or remove it from your credit report. Also, follow the appropriate steps to protect your rights, such as obtaining a police report for identity theft and preparing the FTC ID Theft Affidavit related to debts that you never authorized. Even a mistaken identity, where they sued you, because you have the same name as the person who incurred the debt, don’t agree to pay them a dime. Even if you are sued, hire a lawyer with experience in this area, because you may be entitled to claim damages and your attorney’s fees.
People also believe that they should not discuss their financial affairs with the debt collector related to negotiations, because if they don’t settle, that makes it easier to enforce the judgment against their wages or assets. In fact, if the collection attorney gets a judgment against you, the Court can order you to bring copies of your income tax returns, bank and investment statements, and evidence of any income and assets to court to show the attorney in an examination, where you will be required to answer almost any question asked. Thus, it may not make any difference when you discuss your income or assets, if you want to negotiate a settlement that is even better than the written offers received.
The absolute best time to negotiate a low settlement is before being sued. If the debt collector does not need to take money out of its pocket to hire a lawyer and pay various costs, that helps lower the amount they have invested in the debt, which is the price paid to acquire your account plus any additional costs. The debt collector’s biggest outlays, once it owns an account, are hiring a collection attorney and the court’s filing fee. Thus, both sides are in the best position to negotiate a lower settlement amount before the debt is referred to a lawyer.
Many times, the debt collection agency sends the consumer a letter, just before they hire the lawyer for a collection lawsuit. That standard letter normally proposes a settlement offer and clearly states their intent to refer the matter to a lawyer, if you don’t contact them with payment arrangements. If the date is well before expiration of the statute of limitations period, settling before litigation can keep the settlement price low. See expired debt caveat, below. However, if the statute of limitations has clearly expired is about to expire, you should not agree to settle, because they may miss the deadline, making it unenforceable in court. The exception may be if you can get the collector to agree (in writing) to delete the account from your credit report, before the 7.5 years has expired, and you really need to clear this collection off your credit.
Once sued, you have another opportunity to settle. Now that the collection agency has paid to hire an attorney and paid the court’s filing fee, you have an expensive decision with a limited time in which to decide whether to fight the lawsuit in court. If the amount of the debt is under $2000, the court’s appearance fees may justify settling, especially if there is more than one defendant involved (such as two spouses, or parent and child), as each must pay a separate appearance fee to the court. For debt that exceeds $2000 to $5000, the decision to settle depends on the offers being proposed.
Expired debt caveat. Always verify if the lawsuit was filed after the statute of limitations period has expired. If so, you have that excellent defense against the lawsuit. Also, the filing of an untimely lawsuit (or the threat to sue, after the time limit expired) gives the consumer certain rights under the Fair Debt Collection Practices Act, which includes an award for damages and attorney’s fees. Handling consumer claims requires an attorney with experience and can be filed incorrectly by attorneys who have not been around the block a few times.
Once you have hired a lawyer and paid the court’s first appearance fees, the court still expects that both sides explore settlement and discuss it “in good faith” at various times, including on the day of trial. Settlement should be explored, given any risk of losing by having a judgment entered against you and given the inconvenience of having a court case and keeping in touch with the attorney and having to appear for the trial.
If a judgment has been entered against you, either after you tried to defend the case or by a default judgment, this still an opportunity to try to settle. For instance, perhaps you can have a lawyer file a motion to set aside the default judgment for improper service, which would greatly improve your ability to settle on reasonable terms. Or, if the judgment cannot be set aside, the debt collection agency may negotiate, if they believe it will take a long time to collect the judgment from your wages and bank account, especially if you don’t own any real estate that has positive equity. More importantly, if the debt collector believes that you are considering filing for bankruptcy, they will accept an offer, rather than get nothing in bankruptcy.
If you have some funds available, take advantage of each opportunity to propose a settlement offer, if the debt is yours and the collection lawsuit can be filed within the statute of limitations period.
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