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In January of 2007, we filed for bankruptcy, and it was a mistake. We carried tremendous guilt, feeling we had left God’s will looking for an easy out, and the monthly payment for the Chapter 13 bankruptcy was still more than we could bear. We ended up contacting our trustee andleaving thebankruptcy early.
However, the debt remained. In fact, the collectors began demanding payment in full and they wanted it NOW.
Since we had received an income tax refund, we decided to do some research and chose to negotiate with the credit card companies ourselves. All glory to God… we were able to reducea five figure debt by 60% and pay it off in ten months.
If you are caught between phone calls from debt collectors and annoying “final notice” letters in the mail, consider these tips that might help you pay off your debts quickly.
Know the statute of limitations
First, researchthe statute of limitations on your type of debt for your state because your debts might be un-claimable by the collection agency.
Each state has a statute of limitations on credit card debt. In our state, if we had not made a payment in three years, the debt was considered un-claimable and it had to be forgiven. However, our bankruptcy trustee was making tiny payments to keep the debt active.
Know who holds your debt
Next, understand who exactly is claiming to own your debt. After several months of being unable to solicit payments on your account, a credit card company will sell your account to a collection agency. Some agencies are parented by the credit card company while others are third parties.
Once your debt is sold, the credit card company is no longer a part of the debt repayment process. They have sold the debt for a portion of what you owed (10% to 20%), writing off the remainder of the balance as “bad debt,” and received a tax credit for the unpaid balance rom the government. The collector is now in charge and will try to solicit payment for the complete balance… even though they only paid for part.
Have a plan before you negotiate
Negotiating with the credit card company
If you are within the statute of limitations and the credit card company still holds your debt, consider this plan…
1) Call the credit card companies and tell them you are under a financial hardship to see if they can adjust your interest rate. Then, pay the minimum payment. DO NOT tell them your plan.
2) Start saving cash in a sock. Not in the bank. Every deposit will be tracked should you need to file bankruptcy. Under bankruptcy, you will not be able to have a savings account nor pay a tithe or make charitable contributions.
3) When you haveaccumulated enough money, start negotiating with the credit card company. It is completely up to you whether or not you continue to pay them minimum payments or want to deal with the incessant phone calls for three to six months, but patience is your friend. You really want them to be ready to negotiate.
If you choose to negotiate directly with the credit card company, you need to have enough cash ready to pay off the amount you agree upon. Most will want at least 50%. The rest is written off as bad debt, and you have to pay taxes on the remaining portion but your credit report will state that the debt was cancelled as agreed.
Negotiating witha collection agency
If your debt has been sold to a collector, do not fret. We discovered negotiating with a collection agency was actually easier. Since the collector only paid the credit card company 10 to 20% for your debt, you can begin the negotiation process for a much lower rate. You can start by offering them 20% and negotiate back and forth.
If they act like that is ridiculous, make the agency aware that you know they paid a small fraction of what they are asking and request that they call back when they are willing to negotiate. You might need to press hard to speak with someone who has the authority to write a contract with you, but if you find the right person, the process can move quickly.
Once you reach an agreement, have the total amount and payments placed in a contract. They will then give you about nine months to pay off the negotiated amount. Again, the balance is written off and you have to pay taxes on it, but the deal is done. The debt is gone. Nothing remains but the ugly mark on your credit report.
Keep track of the details
As you work through this process, keep a log of each time you call the company or each time they call you. Write down the incoming phone number, the name of the representative, the time, and exact details about your conversation. Always write down what you offered and how they countered your offer.
Overall, if you are willing to negotiate and have a substantial downpayment to place towards the new contract, these companies will work with you. Their job is to make money. Your job is to pay them off with as little as possible and never owe them another penny for as long as you live.
