Thursday, November 10, 2011

Factors Affecting the Success of Consumer Debt Negotiations

Factors Affecting the Success of Consumer Credit
Card Debt Settlements & Negotiations


More and more consumers are bogged down by overwhelming debt. A large portion of this debt consists of unsecured consumer debt – mainly credit card debt. The huge amount of debt and the high interest rates have resulted in a drastic increase in consumer bankruptcies. However, bankruptcy is not suitable for all consumers, either because they don’t qualify or they choose not to file. As such, more and more consumers are turning to bankruptcy alternatives in order to manage or resolve their credit card debt issues.

One such potentially viable alternative is known as debt settlement or debt negotiation – the process whereby consumers or their advocates actively negotiate with the credit card companies and collection agencies to pay a portion of the total debt and have the debt considered paid or satisfied (whether such settlements can still negatively affect a consumer’s credit rating or credit score is a discussion beyond the scope of this article). However, consumers need to be aware that there are many factors that can affect the success of credit card settlements and negotiations. The following are a few:

1. Consumer Hardship: Creditors will often look at consumers’ ability to pay when determining whether or not to settle and at what amount. Obviously, creditors are less likely to make a great settlement offer to consumers that have enough income and/or assets to make their minimum monthly payments. Likewise, creditors may be more likely to file a lawsuit against such consumers (see factor number 3 below). A good debt negotiation attorney can help consumers accurately and strategically communicate the hardships the consumer is facing to the creditors.

2. “Maturity” of the Debt: Creditors may be less willing to work with consumers who are currently paying their debts or who recently started to miss payments. Therefore, consumers may receive better offers after they have been in default for a considerable amount of time (i.e., their debt has “matured”). However, consumers need to be aware that the likelihood of being sued by creditors also increases the longer consumers fail to make payments. As such, it is a good idea for consumers to consult with good debt negotiation attorneys to determine what strategies, and their associated risks, are best for them.

3. Ability to Collect on Judgments: Creditors may be more willing to negotiate with consumers instead of filing lawsuits if collecting on court judgments may be difficult or expensive. For example, consumers in states where the laws prohibit creditors from garnishing wages or levying bank accounts may receive more favorable offers than consumers in states with laws more favorable to creditors. Again, it is advisable for consumers to consult with an attorney to help them understand the collection laws in their states.

4. The Negotiator: Who is conducting the negotiations may be the factor that affects the success of credit card settlements and negotiations the most. Those experienced in this area will likely be able to negotiate better settlements due to their knowledge of the applicable laws, understanding of the policies of each creditor, and expertise in negotiation. For example, a good debt negotiation lawyer can assess all of the above-mentioned factors, as well as the vast number of other factors not discussed here, so that a customized strategy can be developed that gives each individual consumer the best chance of achieving positive results with respect to credit card debt settlements and negotiations.

McGrath & Spielberger helps consumers by providing viable, personalized solutions to their debt problems.