Why Would a Creditor or Debt Collector Negotiate?

August 19, 2008

Why might a creditor or debt collector be motivated to negotiate a settlement of a past due account?

Bankruptcy. If a consumer is forced to declare bankruptcy, the creditor often gets little or nothing. This motivates creditors to negotiate with consumers who sincerely want to honor their obligations.

On the other hand, many consumers feel that bankruptcy is their only option. But, there are alternatives to bankruptcy. Keep this in mind if you decide bankruptcy is not for you or if you do not qualify for bankruptcy protection.

You are making the creditor’s job easier. If you contact the creditor or debt collector early in the collections process, you may be saving them the expense of a lengthy collections process. This may enable them to offer better settlement terms. But, one important caveat: Some debt collectors offer attractive settlement terms only on older accounts. So, this will vary considerably depending on the individual creditor or debt collector.

A lawsuit takes a long time and costs the creditor or debt collector money. Litigation can be a long and expensive process for the creditor or debt collector. Many will accept less money now rather than take a chance on losing in court and / or going through a long appeals process.

So, you may be in a position to negotiate with them before they file suit, and often they will negotiate even after they have filed suit.

And, you should keep in mind that debt collectors or creditors usually must get a final judgment before they can garnish your bank account or wages and / or file liens on your property.