The term settlement or settle means: “to compromise”! Put another way, it’s a an agreement to substitute, for an existing debt or obligation, some alternative form of discharging that debt. The term, ” satisfaction” is the actual discharge of the debt by the substituted means. Compromise is an agreement to perform some action, while satisfaction is the actual performance. Satisfied means the fulfillment of an obligation or claim, such as the full payment of a debt. Using these definitions, we can clearly see that settling debts means that the original debt is not paid in full and that some lessor amount is accepted as a means of satisfying (or discharging) the debt.
BEFORE offering to settle ANY debt, ALWAYS check to see if the Statute of Limitations (SoL) to enforce the debt has expired.
If it has expired, and you do not wish to pay the debt, send the collector an “Expired SoL Letter. You must understand that this letter does NOT relieve you of responsibility for the debt. The letter only lets the other party know that you are aware of your rights. If the collector decides to pursue court action, then you must appear in court and raise the expired SoL issue, otherwise, you run the risk of the collector obtaining a default judgment.
If you wish to pay the debt consider the following information before doing so:
Many collectors add additional fees to the original balance that are not legal. Check out this page for more info: Interest charges
If the debt is more than seven years old then it can no longer be added to your credit reports however, collectors who buy old debts, often report these old debts to the credit reporting agencies (CRA) as new debt. Reporting inaccurate information violates the Fair Credit Reporting Act Section 623. Getting collection agencies to remove the inaccurate information from your reports is difficult at best. You can and should demand they comply with the FCRA but most will probably ignore you so, you’ll need to dispute the debt yourself directly with the CRAs. Use this link to learn how to dispute credit reports.
Finally, consider the number of times the debt has been sold. One way to determine this is by the number of collectors who have contacted you over the years. Every time a debt is sold, it loses value! For instance, an original debt of $10,000 is charged off by the original creditor and then eventually sold to a 3rd party debt collector for 75 cents on the dollar ($7,500). This first collector attempts to collect the debt but is unsuccessful and ends up selling the account for 50 cents on the dollar ($3,750). After several attempts this second collector sells the account for 25 cents on the dollar ($937).
This of course is an over simplified example but the concept is sound. For instance, when collectors call demanding $14,000! (the original amount of the debt plus his collection fees and interest (for interest – see above). Offering to pay the full amount would be a waste of your hard-earned money!
Maybe it’s been a few years since you incurred this debt and now you are in a better financial position. If you feel inclined to pay something, consider your offer carefully. Starting at 10 cents on the dollar for a lump sum settlement payment may not be far off the mark. Collectors have the choices of accepting your offer, providing a counter offer, or declining altogether.
If they accept your offer, put it in writing BEFORE paying!
If they counter offer STOP and consider the offer carefully before agreeing to it! A counter offer is usually the beginning of negotiating a settlement. Make a counter offer of your own and continue until you and the collector agree on a settlement. Again, if your offer is accepted, get it in writing BEFORE paying anything.
If they decline your offers, boldly ask what they will accept.