How far will a bank negotiate to avoid writing off a credit card debt?

Question

My mother's friend owes $16,000 on a credit card and the bank has been charging her 30 percent interest. Eventually she just refused to pay.

After months of threats the bank relented and offered her a five-year plan to pay off the debt at six percent interest.

She says that will simply be paying back the bank its 30 percent (in the total accrued so far) over a longer time. Plus, she can hardly afford the $325 monthly payments.

Her debt is more than 10 years old and she's payed back so far more than twice what she borrowed on the card.

She offered the bank 10 percent to call the account settled but they scoffed. She wonders, given that they did finally quit threatening her and made her an offer, are they likely to soften further if she holds her ground and prepares for bankruptcy?

Would the bank be likely to accept a counter offer from her of their five-year-plan on a lesser total amount?

How much would the bank get if they wrote off the account and sold the debt?

Answer 1

The bank can't sell the debt. They eat it and claim it on their corporate IRS tax return as lost income from an uncollected debt. And your friend will receive a parallel filing notice in the mail from the IRS of this new "income" to her that she will have to pay taxes on in the year that occurs. And the IRS will not cut her a deal anywhere close to what the bank will-don't let that happen!

If she's "collectible" in the eyes of the bank (high income producer) they will not be easy to deal with. If she appears uncollectible for the whole amount the typical industry offer is about 40% of the total in a lump sum. Their monthly payback offer is generous and certainly better than what the IRS will do after she receives the 1099 lost debt income statement.

In summary, I suggest she work out a slow payment plan with the bank or maybe a relative or friend to help her come up with 30-40% of the debt total and make an offer in compromise.

Good luck! Tell her, in the future don't use credit cards to buy things you couldn't otherwise afford-ever.

Answer 2

Well first of all she made her bed now she needs to sleep in it! If you are that retarted to spend 16000 in credit card money you need to figure something out. Because new bankruptcy laws set into affect a couple years back does not cover credit card debt under bankruptcy. So even if she files it will not help her. The best thing she can do is shut her mouth and listen to what they are offering her. Most banks wont go less than 75 percent of money owed.

Answer 3

First of all - While I personally think credit cards are a scam and rip-off, which is why I don't have any, I do believe this woman made her own bed, so to speak. $16,000.00 on one card is a heck of a lot of shopping!!

Regardless, I think she should come up with a fair offer and tell her bank, this is what I can do. If they agree, awesome. However, her threatening them to file bankruptcy is kind of stupid. It hurts her in the long run far more than it hurts the bank. No, they do not like to see bankruptcy, but they do have the means to cover their losses. She doesn't. Tell her, the best thing is to try negotiate them removing some of the interest she has already accumulated, then go from there. If she keeps up with her payments, she can still spare her credit rating. In the long run. It's a lot tougher to bounce back from bankruptcy these days than it used to be. And a lot tougher to file. I would tell her to try and avoid that route at all costs.

Answer 4

If you are drowning financially and can no longer pay your debts there is always a legal process you can do to avoid creditor’s calls and harassment, one of those is debt agreement, a negotiation between you and creditors to reduce your interest for you to pay the debt. The other one is debt consolidation in which you can consolidate all your separate debts into one for a lower interest and long payment term, and most of all is filing for bankruptcy in which you can clear all your debts and start fresh in a period of time. For further details in Australian context, visit our website now.

Answer 5

It would probably be more profitable for the bank to charge the debt to profit and loss. The would get a tax break on the writeoff from the IRS. After that, they are free to sell it to a JDB (Junk Debt Buyer).
Banks rarely accepts low settlements. She could probably negociate a settlement with whoever JDB buys the debt if the bank does not take her to court first. A JDB may accept a 25 cent on the dollar settlement.

Answer 6

If this is still the original creditor and not a collection agency, I'm surprised they are still working with her and haven't sued her.

You could probably negotiate a settlement if you offered 70% to 80%. But that would have to be a cash now no installment.
If she does settle the account for less that full amount, the forgiven potion would be considered taxable income.