A collection agency is offering 40 cents on the dollar, but says the offer's only good for a day. Is it?

Question

A collection agency contacted my mom two days ago for a delinquent account. The person she is speaking to is offering a 40 cent on the dollar cash payout on a $13,000 balance, but says that the offer is only good until tomorrow. When asked why, this person says that it's the end of the month and that the collection agency has certain quotas and allocations that they have to work with. She says next month is a new month, and there is no guarantee that she could get the same deal. Is any of this true? How she got into this mess is a long, sorted story, but is there anything she can do to negotiate a lower cash payout? Is there anything else my mom should know? Needless to say this is stressful, so I'd appreciate any help anyone can provide. Thanks in advance.

Answer 1

Collection agencies use this presure tactict all of the time. So, before she does anything, you need to find out how old this debt is. She may not even have to pay it at all.

A debt can only be reported on her credit report 7 years from the date of last delinquency. So if it close to this date she may be better to let it just drop off. There is another term called the Statute of Limitations. This is the period of time that a creditor can come after her legally for payment. Depending on the state this is anywhere from 2-6 years from the date of last delinquency. If she is past this date they can no longer sue her for the money. Now, if she is still in the Statute of Limitations, she probably will need to attempt to pay it. For $13,000 there is a very good chance that they would pursue legal action.

Can she negociate a lower payout, probably not 40% is about the lowest most agencies will go. Now if she talks to them make sure she is not presured into giving any bank account information over the phone. She needs to make sure she has this offer in writting before she makes any payments. If they say that they can not send it in writting until she pays something, then have her end the conversation. They won't make it easy to end the conversation, so she may just have to hang up on them. A lot of times they will call it something like a "good faith" payment, or that they need a payment to "lock" in the offer. This in the long run could cause her more problems.

If they won't send her a letter then she can then send a letter to them with the same offer. They will most likey accept that offer. The key here is to make sure that what she is paying will settle the account, having it in writting from them is the best way to protect herself in the future. In her conversation or letter to them she should also ask for a deleting of the collection account once paid. However, if she is doing a settlement they usually won't also delete the information. But it never hurts to ask.

Answer 2

No, they are just trying to squeeze you.
What you need to do is find a local credit counselor through your local Better Business Bureau and discuss ways to pay off your debt. In most states, even a payment of one dollar a month is considered to be a bona fide attempt to pay a debt! A token payment of 10 to 25 dollars a month, while not the minimum payment according to some specific collection agencies, is enough to keep an account current and is also enough to show sincere attempt to pay, which is also enough to get debt collectors off your back. If you are making token payments on a debt, even in collections, you do not need to get more phone calls!
A credit counselor through a non-profit agency will help be your advocate and help keep debt collectors off your back.
You should, from now on, screen your calls by letting the answering machine answer the phone, and only pick it up if it is someone you know.

Answer 3

It is highly likely that this debt is past it's statute of limitations and the collections agency knows they cannot sue her to collect, so now they will try reducing the amount so they can get some money.

If they offered it this month tell her that they will probably offer it again next month. It is ridiculous to think that someone who has been unable to pay a $13k debt will now be able to come up with $5200 in one day. Tell her to try to make payment arrangments with them and ask her to get the deal in writing that they will not come after her for the deficiancy balance later (it is a common tactic for places like this to settle so they can get their money and then sell the deficiancy balance to another collections agency...see this site http://www.creditinfocenter.com/debt/CanCreditorSue4SettlementDifferences.shtml).

For more info on settling a debt and negotiating your credit score in the process check this site:

http://www.creditinfocenter.com/rebuild/

Answer 4

Oh hells no. They'll keep dropping it, you can actually negotiate with em on the phone. They probably bought that account for 5-10 cents on the dollar, so anything above that is profit for them. Say "I'll pay 25%" If they say no tell em to go to hell and hang up. They'll call back and take deal.

Answer 5

Hmmm this could go either way. Because a lot of collections agencies are scumbag companies full of sh.it, I doubt that this $0.40-on-the-dollar deal will be PERMANENTLY gone tomorrow. If they are offering her a "special deal" because it's the end of the month and they need to meet quota, then what's to say that they won't offer the same thing at the end of NEXT month?

The advantages of settling for $0.40-on-the-dollar, are:
1) You pay less money on the debt. This is especially helpful if you cannot honestly afford to pay the full $13,000 BUT you can afford to pay $5200.
- I read a few finance/credit articles stating that if you're going to settle on an old bill, make sure you are paying 50% or less of the original amount. If you pay >50%, then you are not getting a very good settlement that is worth the credit hit you'll get for settling.
2) It will settle the debt, which will prevent the chance of getting sued by the collections agency in the future.
- There's always a chance of a collections agency pressing civil lawsuit if the debt is big(>$1000), and in this case the debt is BIG. Getting sued can result in wage garnishment and/or seizure of assets.
- The fact that your mom has already talked to collectors about possibly paying on this bill, means that the collectors are aware of your mom's existence, which means that they are now more likely to hound your mom for payment and/or to sue.
3) True your credit score drops if you settle for less than full amount on a debt, but the difference in scores b/t paying in full, and paying a settled amount, aren't that significant. If you can afford the full amount, go for it; but if it'd be a hardship for you to pay the full amount, then it's overall more worth it to save $7800 and take the, say, additional 20pt(or so) hit to your credit(by the way, 20pts is NOT significant).
4) If your credit score is already pretty darn low, then the extra 20pts(or so) that you'd earn by paying in full will not be enough to make or break you. If I could choose between paying $13,000 and a FICO of say, 510...or pay only $5200 and have a FICO of say, 480...I'd rather pay less money and have a lower score, because EITHER of the two low scores would be too dismal to qualify for darn near anything.

The disadvantages of settling to $0.40-on-the-dollar are:
1) If you're trying to push your FICO score as high up as possible so you can qualify for a loan or mortgage very soon, paying a settled amount won't raise it as high as paying it off in full.
2) If the debt is old(i.e., >3yrs old), it probably won't be worth paying on. Paying an old debt will make the debt appear more "recent," which in turn will result in a FICO score that will actually DROP. Yes, it is possible that paying an old bill can actually HURT your score. The "drop" will only last for 6mos. or so before starting to rebound, but if you are applying for a loan product and this collection bill is old, then you might harm your score more than help it by paying it. If this collection bill is old, then you might be better off just waiting for the bill to drop off your credit report(this occurs 7yrs after the date of the bill's first delinquency)...and then you'll be saving $13,000 instead of just $7800.
3) The $7800 savings that you'll experience by paying only $0.40-on-the-dollar can be reported to the IRS as "income." This means you will have to pay taxes on it at the end of the year. Therefore, you should roughly estimate how much tax money you'd have to shell out, and add that on top of the $5200 to more clearly calculate how much this debt settlement will actually cost you.
- If your income generally falls in the poverty bracket, then you probably won't have to pay as much of a tax rate as someone that makes a good solid income.
- But if you make good money(i.e., enough to afford the $13,000 bill and enough to also qualify you for paying a lot more in taxes), and you are concerned about that $7800 "savings" pushing you right over the edge and into the next higher up tax bracket, then perhaps it wouldn't be worth it(from a tax perspective) to take the $7800 savings and result in paying extra taxes and taking a less-than-potential FICO score.

Therefore, it is up to your mom's decision. It is based on your mom's income, affordability, tax situation, age of the collections account, and credit situation. I think that if your mom can afford to pay the $5200, then she should do it. It'll close the debt once and for all, and $0.40-on-the-dollar is a pretty good settlement.

Answer 6

Personally, I would take the deal. Your mom ran up $13,000 in debt, and they're going to allow her to get out of it with only $5,200. That seems more than fair to me.

Answer 7

Why is it stressful? She owes money, they are giving her a chance to pay it off on a discounted rate. Take it or leave it; they may or may not be next month with a discounted offer or a filing for judgement.

Answer 8

Find out what the statute of limitations is in your State.

If it has passed (I'm thinking it has) tell them to pound sand.

If the S.O.L. has passed there is nothing they can legally do to your Mom. The only way they can collect is if she agrees to pay them.

Answer 9

They can do anything they want, including a one day offer.