Settlement on a credit card debt is a voluntary agreement between two parties. Because of that, no one can precisely predict settlement offers on credit card cases headed to court. SmartMoney reports that settlement offers on credit cards usually range from 20 to 70 percent -- but that is before the filing of a lawsuit. A lawsuit gives the credit card company or debt collector more leverage, making settlement discussions more challenging.
Timeline
Credit card companies usually close credit card accounts after they are six months past due. Some card companies close accounts even sooner. Also at six months, delinquent accounts are listed internally as charged off. That's an internal accounting term that indicates the account was not paid as agreed. It does not end financial responsibility for the former cardholder. The charge off is also listed on your credit report and has a very bad effect on credit scores.
Debt Collector
After charge off the account is usually assigned or sold to a debt collector that attempts to collect the full balance through telephone calls and the mail. If the attempts fail, the debt collector may assign the account to a debt collection attorney in the same state as the former cardholder. The attorney may then file a lawsuit in small claims court. The attorney files the suit in the county where the former cardholder resides.
Summons and Complaint
The lawsuit is official with the delivery of a document called a summons and complaint. The document is usually hand delivered by a courier, although some states allow delivery by certified mail or by leaving the document at the last known address. The summons is the notification of the lawsuit, and the complaint is the actual lawsuit. Appearing in court before the judge for a hearing on the lawsuit virtually always leads to a monetary judgment for the credit card company, according to Illinois Legal Aid. A judgment demands that that the former cardholder pay the full balance due on the debt, along with court costs and attorney's fees.
Settlement
Judgments, which are also very damaging to credit, are avoided by settling. However, the attorney for the credit card company can dictate the terms because of leverage. The attorney knows a judgment is likely in court, with bank or wage garnishment possible if the person sued does not pay. That allows the attorney to demand, say, 90 to 100 percent of the amount due.
Pushing Back
Those negotiating with debt collection attorneys should insist on the best deal possible, even if that means engaging in several conversations and reaching a settlement offer on the very day the case is set for court. If the attorney is demanding 90 to 100 percent of the amount due, the person sued should offer, say, 30 to 40 percent and negotiate from there. Offering to pay in a lump sum may offer greater incentive to settle. People uncomfortable with negotiating with a skilled debt collection attorney should hire an attorney of their own. This is often helpful when the person sued does not have money to pay the debt. The attorney can file legal motions to stall the case, providing time for the defendant to save money for a settlement.
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