Today a reader asked me how she should go about beginning the debt settlement process with collection agencies and creditors she’s avoided for three years. I thought it would be a good idea to give her a short ‘duty’ list of how to handle talking with bill collectors. Collection agencies thrive on debtors who don’t know their rights, don’t know the law, and therefore can easily be intimidated. Remember, the bill collector just wants some money, and if possible, they’ll do whatever they can to grasp that money today! Most bill collectors work on commission and know how to handle different types of debtors. You must understand up front that these collectors have a career on the phone talking about debt settlement and you do not. Therefore you must arm yourself with knowledge before beginning the arduous task of negotiation. Here’s my response to June on how to proceed with her debt settlement issues.

Remember to check out all my articles on collection agencies.

Hey June,

First a reminder that this is not legal advice but is my opinion on how I would handle this situation.

First you need to pull your credit report and look at it. Go to http://annualcreditreport.com and review your credit report since the collection agencies may be listed there. Next you need to create a list of your debts, how much the balances are, and who owns them. You must do this before you can make any settlement offer.

Once you know how much your balances are on each account, and who owns the account, then you can request validation of the debt. You can answer the phone, but you must be careful. You must know your rights and what you can afford to pay.

After reviewing my credit report I would start answering my phone… this is how I would do it.

1. Have paper and pencil sitting next to the phone.

2. Always assume the collection agency doesn’t have the legal right to collect on the debt.

3. Admit no knowledge of the debt.

4. Request validation of the debt over the telephone.

5. If they don’t know your address then hang up…. ignore them for now.

6. Wait on their validation letter, if they don’t validate, or refuse to validate, then tell them to call back when they are ready to mail you a validation letter.

7. Keep an accurate log of who you talked with, the name and address of the collection agency, date and times of the call, and the name of the supervisor on duty. To understand why this is important read Collection Agencies and Their Lies.

8. Once the collection agency validates the debt, if it looks correct you can begin to negotiate with them.

9. You can also opt to request a copy of the original contract (signed by you) that indicates you ever entered into any such contract with the original creditor. At the end of the day this is about contract law. Requesting the collection agency to produce the original contract that you signed is a reasonable request and your local judge will likely agree.

10. Since its been three years since you made any payment I’d start out by offering 20% of what they claim you owe, since what they claim you owe is heavily bloated with late fees and interest, and they only paid a few cents on the dollar for the debt.

11. I’d stick with whatever I could pay and nothing more.

12. Don’t make any promises you cannot keep.

13. Pay in lump sum if possible and get a letter from them in advance stating that this payment 100% satisfies your obligation to this debt and is considered ‘paid in full’ and will not be transferred or sold to another collection agency nor will they attempt to collect on the remainder of the debt. The devil is in the details and you can smother them with the details.

Remember, they are counting on you not knowing your rights!!! They will lie to you and intimidate you. If you sense this is happening just hang up and do some research, call a lawyer, or come back here and talk to me!

Discuss this article and meet new people at Debt Prison Forums.

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A reader at How to settle your debts on your own asks if she should file bankruptcy or try and settle her debts on her own.  She doesn’t have enough money to make minimum monthly payments and the collection calls have began.  They make too much to file Chapter 7 bankruptcy but not enough for a monthly payment plan.  They have $50,000 in unsecured debt.

I got behind on all my bills and took on a second job, then realized that even with the second job I couldn’t pay all the bills. I tried Credit Counseling and was told I don’t make enough money for a pay off plan. I was told I have to file bankruptcy. I make too much money (on paper) to qualify for a Chapter 7. Is there any thing I can do on my own?

A bankruptcy lawyer said I would have to do a Chapter 13 but to me that just seems like a payment plan with worse credit. I dont want a trustee looking over my shoulder for 3-5 yrs and taking tax refunds and christmas bonus. My husband and I owe $50,000 in loans and credit cards. All unsecured. We have a house and truck payment. Our house isn’t worth anymore than we paid for it and we pay $362/month in PMI. So theres no equity to tap. Our credit is in the 500’s since we’ve been behind on everything and the collection calls started this month. They’re non stop. We have no savings but a few hundred after mortgage, food etc, per month its just not enough to go around.

We owe 21 creditors not including truck payment, mortgage and regular bills like phone insurance etc. Please can you give me any advice? I have two children who keep asking why I won’t answer the phone. I understand I made this mess and must own up to it which I will – I’m just not sure how to and still live a semi-normal life.

TM

Hey TM,

You’re either need to make more money and get caught up… or make less and file chapter 7. Otherwise this sounds like you’re going to be stuck in the middle. You’ve probably already asked yourself this but…

Can you sell anything to generate cash?
Can you move in with a relative who charges no rent and then rent out your current house for income?
Can you sell the truck and drive a junker for two years?

You’ve either got to drastically lower your bills or generate more cash.

Your in the same position I was in… but your debt is higher. Another option is to not pay and try and settle with them later on. But you’ll need some cash available to settle with the original creditor or collection agency. I would also recommend changing your phone number and dealing with these collectors via mail. Many people stop paying, meanwhile they save up money (outside a bank of course), in hopes of settling the debt later on when the collectors are ready to accept 50% or less on the debt. Granted it’s very aggravating negotiating with these folks on the phone but the other option for them is to try and get a judgment against you to repay the debt. Even then there’s no guarantees that they can get the money out of you.

So if you can’t see anyway to generate more cash I would save money like crazy and try and settle the debts later on. To me, this seems a more intelligent choice since the bankruptcy police isn’t standing over your shoulder and your credit is ruined anyway. Meanwhile I would find a way to reduce my bills and bring in as much money to save as possible. These creditors aren’t going away and you (and your husband) need to decide on a plan and make it work. I hope this helps.

Best regards,

Barry

Discuss this article and share ideas at Debt Prison Forums.

Related Articles

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**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

I’ve been exchanging emails with one of my readers who has gone through a lot of financial peril recently.  But in particular, she has dealt with two different debt settlement companies.  I asked her to describe her experiences with these companies and explain to me whether or not she still thinks they are a good idea.  I’ll let you read for yourself what she says.  Feel free to leave questions or comments at the end of this article.

Hey Barry,
 
Sorry it took so long to get back to you. We are moving and I have been kind of busy lately.
 
My experience has not been a pleasant one at all. I guess when it comes to debt no ones is, but in particular I have found that these people are liars.
 
The first agency I used was Credit Solutions. I was trying to make a pro-active move, like when we claimed bankruptcy, taking care of the situation before the situation arises. Well, I signed up and they promised all sorts of crap. They promised that being enrolled in their program would prevent the collection agencies from obtaining a judgment against me, and it would give me protection. WELL, I signed up and soon found out that was a lie. After my first payment (the first 3 go right to their fee) I called to make sure the cease and desist letters went out. Well, they then informed me that I had to wait until the credit card debt went to collections before that company could deal with them.

They also informed me (after I signed up) that being in their program gives me NO protection – in fact it has been known to piss the creditors off when they find out that you are in a debt settlement company. In addition, their monthly payment was crap too, because they have a range that they figure they can settle your debts for like 60% to 40% lets say. Well, they base your monthly payment on being able to settle it down to the 40% to keep their quotes down. Well, basically that is great if all of your creditors agree to those terms – otherwise you are screwed (pardon the language) because you could find out after you have done this for 3 months that you dont have enough saved.
 
The second agency was GHS Solutions. This agency has pissed me off so much I am actually reporting them to TASC. They are a member of this group that regulates debt settlement companies. Well, they said all the right things right…..
 
1-  They started out by giving me some crap about how they cannot send out the cease and desist letters. They said that because I have 3 Washington Mutual Cards, and bank with Washington Mutual they (Washington Mutual) can run in and cease my bank account when they see that I am dealing with a debt settlement company. In theory that would be great for the credit card companies but VERY – EXTREMELY ILLEGAL! In reality it doesnt matter if they see that I am working with a debt settlement company because they have to go through the proper channels to be able to freeze my bank account. First, a judgment, then a court hearing for discovery, then if need be writ of garnishment and\or bank freeze. The procedure is the same no matter whether it is a card through your bank or not.
 
2-  I was begging them to send these letters out! My feeling was that I wanted them to see that I was in some kind of program and not just ignoring them. Every time I called GHS, I was telling them I was nervous, because by the time I got into their Company, ALL my credit cards had gone to collection agencies and had been there for months. I kept saying that because I havent been responding to the calls, letters (THE big rules of these companies is that you can not talk to the creditors or the collection agencies) like they told me not too, so now I have no idea what these companies are doing. They could be working towards a judgment against me or my husband as we speak. Well Dawn,( I get the same woman every time I call) she placates me and tells me that I am overly worried about my husbands wages being garnished, and that I am PROJECTING this whole situation on to myself.

Well, one night one of my husbands WAMU cards called and it was an attorney. She was actually a very decent woman, I explained to her that I was working with a debt settlement company. She said that there are two kinds of collections- 1- where the collection agency buys the debt and can then settle with a debt settlement company. OR 2- (her kind) where the agency doesnt buy the debt (the original creditor still owns the debt) – the agency just collects on it. She said when they (in this case WAMU) contracted her company they made her sign a contract giving her rules of how they want her to collect. For example, she can only try to collect the full payment at first, they after 30 days she can send me a settlement opportunity. BUT, she had to sign that she would only work with the debtor and NOT ANY debt settlement agencies.

She also told me that WAMU would never have worked with a debt settlement company most likely BUT had they only gotten a letter (perhaps the cease and desist letter I was begging for) she said it probably would never have gotten to her desk. They most likely would have just held back until they got a payment from me. Because at least they would have known I was trying to do something and not just ignoring them. But now that they paid for her there is not much I can do.
   
When I called GHS, Dawn, informed me that the woman was lying and wasnt really an attorney. I told her that I wanted out of the company, and that I am going to be claiming chapter 13. She then of course gave the speech as to how bad that is for your credit. I then explained we had claimed chapter 7 over 4 years ago, and it was the best thing that ever happened to us. We had no credit problems afterward. I told her I have no problems paying for my debts settled or in full. My problem is while I am working to pay everything off I want some kind of protection to assure me that these companies are not going behind my back and obtaining judgments. By the way it is against the law for a company to fire you for one wage garnishment BUT there is no precedent for multiple wage garnishments.

Also, when your employer garnishes your wages (even if they do not initiate it) they have to pay a fee. I told Dawn that I thought everyone at GHS was a bunch of lazy people, and that I knew that they were just holding off on sending the letters out until all of their fees get paid (over 5 monthly installments) and that since time is of the essence for my particular case I didnt know if it could wait that long.

So, in the long of it, I would NEVER recommend a debt settlement company to anyone! I hope this helps. If you have any questions please feel free to ask. Thank you for all your effort on the subject, and trying to figures things out for people.
 
Thanks
Jennifer

Here’s a few comments from other people who claim they used Credit Solutions.  You can read these comments from the source by clicking on this youtube video – which appears to be sponsored by Credit Solutions.

“DO NOT USE CREDIT SOLUTIONS!!! Credit Solution is the worst company!!! I signed up thinking that they would be able to help me and what they did is get my account in worst condition!! The collection company was able to sue me and put a lien on my account! Then I try to defer my payments with them and they continued to try to get their payment!! All this company wants is money!! They do not want to help you!! DO NOT USE CREDIT SOLUTIONS!!! ”

“DO NOT sign up with these people. This is such a hoax. I have been with them for over a year now and tryng to get out. This is a joke. Does you more harm than good. Trust me on this. ”

“the shadiest thing in the world…wake up people they DONT work with your creditors…they store your money in a escrow acct and wait to the accts are charged off and then they settle for pennies on the dollar, by then your credit is screwed..type in debt settlement in google ”

Discuss this article, share ideas, and meet new people at Debt Prison Forums.

Related Articles

* Reasons not to file Bankruptcy or Settle Your Debts

* Can you go to jail for not paying your debts?

* How to settle your debts on your own

* How to deal with collection agencies

* Sample Debt Validation Letter

* Information on Credit Card Balance Transfers

* How I Escaped Credit Card Debt

* What You Should Know About Credit Cards

* How to seek bargains for food and clothes