Many individuals considering bankruptcy have gone to great lengths to reach a more secure financial footing before they took that last step and obtained a bankruptcy attorney. One of the many options that can be useful for those attempting to avoid filing for bankruptcy is settling debts with creditors. This is the process by which the debtor contacts each creditor and offers them a lump sum amount (substantially less than the total amount owed) in order to “settle” the debt. This means that the debtor agrees to pay the amount agreed upon and the creditor, by accepting it, agrees to accept the lesser amount as full payment for the debt. In some cases, debtors can run up against the problem of determining the validity of the settlement deal they are making.
How Can You Protect Yourself From Creditors Who “Agree” to a Settlement, But Won’t Offer Proof of the Agreement?
While it seems outlandish that the agreement could be put in place without a written document outlining the terms, debt collectors have been known to refuse to document terms. If this is the case, you are right to worry, but you don’t necessarily have to walk away from the offer. You can actually create the requisite paper trail. Debt collectors who renege on settlement offers frequently find themselves going head to head with energetic consumer law attorneys just waiting for them to make this mistake.
The keys to successfully completing a settlement with a creditor or debt collector are:
- Have evidence that you reached an offer.
- Verify that you are dealing with a legitimate debt collection agency.
If you are ready to complete the terms of a settlement agreement and you want to protect yourself, start by getting documentation that the collection agency you are conversing with has the right to collect on the debt. While collection agency may not be willing to provide documentation of the settlement agreement, they must at least provide proof that they are legally able to collect on the debt. The document they provide should include the name of the original creditor, the account number and the outstanding balance.
You also need to make sure to contact the creditor directly. Once you’ve received proof of the debt and you have the original creditor’s name, contact them to confirm that the account was sold to the collection agency attempting to collect the debt. It’s possible that the account (or debt) was sold a number of times so you may end up following a chain of transactions down to the final collection agency.
Next, send a letter with the first payment (according to the settlement agreement). If the collector doesn’t provide you with anything in writing, you can simply create your own settlement letter. Once you’ve confirmed their legitimacy in handling the debt, send in a cashier’s check or money order. Avoid sending in a check since your checking account number would be on that check.
On the cashier’s check or money order, write the terms of the settlement. The letter you include will state the terms in full: the settlement amount you reached with the debt collector and the due dates. The check could simply reiterate the agreement by listing, “payment one of three,” etc. reflecting the specific terms you agreed on with the collector.
For other useful tips on bankruptcy, common options to avoid bankruptcy and California bankruptcy law, please get in touch with a southern California bankruptcy attorney at Westgate Law.