Posts Tagged ‘debt negotiation’

Living Paycheck to Paycheck, Debt Collector Wants Too Much to Settle

Monday, February 18th, 2013

Question: Like so many others in this economy, I can barely pay my current bills, so I had to stop paying the minimum on some of my credit cards. The phone calls and final notices for payment from the banks stopped about a year ago, but I just received a letter with a settlement offer from a debt collection company, which also says that I can dispute the debt within 30 days of receipt. What do you suggest? At the end of the month, there is still nothing left over, after regular expenses, living as cheap as we can. I cannot pay the settlement, but I am afraid their next move will be to sue me in court, like your website says. My wages are higher than the bankruptcy means test amount, so I need help.

My response:
As you know, you are not alone. Now, 41% of Americans live each week paycheck to paycheck, according to a recent survey by Allstate, covered in the LA Times Business/Money Section. After several months of no credit card payments, the bank charged off your account as a bad debt. A charge off is an accounting term to show that the debt is probably not collectable, so bank auditors will no longer allow this to be considered an asset of the institution.

At that point, the credit card bank reviewed its uncollectable accounts and sold many of them to a debt collection agency, known in the industry as a “debt buyer.” Either this debt collection agency or another debt collector is now contacting you to settle this debt, which now belongs to them. If you do not settle soon, they may refer the debt to a collection lawyer licensed in California, who will probably file a lawsuit in the Superior Court that covers where you live, if settlement arrangements are not made in writing. I explain the reasons in an article on my website, Understanding Why You Were Sued.

It can be less costly for the consumer to settle when no lawsuit has been filed and the lawyer has not been retained, because the debt buyer has not paid for those costs and fees. However, depending on the debt buyer’s policies, it still may be unaffordable or you may feel that they want too much to settle the debt, which did not cost them much to buy. Bear in mind, however, that if they sue you in court and win a money judgment, the amount will probably be the full balance on one of your last statements, plus accrued interest, court costs, and maybe attorney’s fees. The judgment may then appear on your credit reports and be secured as a lien on any real property (such as your home) by recording an abstract of judgment with the County Clerk or Recorder’s Office. There are numerous other ways that the collection agency’s lawyers can enforce this debt, such as by levying the consumer’s bank account and wage garnishment.

As painful as a settlement would be now, a worse alternative is having to pay this entire account plus interest and attorney’s fees on a money judgment that itself yields 10% interest per year and many costs can be added to the balance. By the same token, I would not accept any settlement offer that the consumer cannot ensure will be paid, exactly as promised. This would only put you in a worse position, as the discount that you negotiated in the settlement will be lost and the payments will merely be applied as credits towards the full balance due.

When agreeing to a debt collection settlement, you as the debtor should know that the collection agency will require you to acknowledge in writing the full balance due. If you miss one or more of the settlement payments, then they will have a much easier time enforcing in court the full unpaid amount of the debt. This would not limited by the settlement amount. This lawsuit would also not be limited by the fact that some debt buyers lack adequate documentation of their debts and it can challenging to obtain the full records for the account.

Your question also asked about a written dispute, because the debt collection letter states that you have the right to get it verified in writing or to dispute it. You may want to access the free consumer letters on my other web site, sample letter #1.1, which contains the language that I recommend for this purpose. Be prepared, however, for a simple letter back from the debt collection agency that says we have verified it. There are court cases that make this an adequate verification of the debt, so they can continue their collection efforts. I am not aware of potential harm from sending the dispute letter, but asking them to verify the debt in writing can make them more “aware” of you.

Robert Stempler
Twitter @RStempler


How do I know that I have received a legitimate offer to settle my debt?

Tuesday, August 28th, 2012

I received a debt collection letter from a company that is out of state.  The web contains many complaints against this company that it commits fraud.  I know that I did not pay this credit card a couple of years ago, so I would like to settle this, so that I would never be sued.  How do I know that if I accept their settlement offer, that they will stop bothering me and that I will not hear from any other company about this debt in the future? No debt collection lawsuit has been filed, as far as I know, but I am worried about all that I read on the web.

My response:
Unfortunately, whether you have a formal, written settlement agreement or simply a letter offering to settle and proof that you accepted the settlement and paid the amount demanded, there exists a few debt collection agencies which do nothing, but defraud money from unsuspecting victims without any finality on the debt.

A false debt collection agency, such as the one from Tracy, CA described by the Contra Costa Times on 8/27/2012, which called consumers threatening to arrest them, might have learned of an unpaid debt of the consumer in an illegal way, such as electronic dumpster diving or special websites maintained by credit thieves.  Then they place harassing collection calls from a boiler room to squeeze funds from many consumers, before the local authorities crack down.  A letter from such thieves is really no more assurance of getting the real debt settled than the collection calls, though a paper trail by mail may feel more reassuring.  However, this type of operation does not even rise to the level of a debt collection agency, if it is collecting debts that it does not have the right to control and settle.

It may also be that these very low life collection agencies are simply proposing a settlement offer as a bait and switch to try to get more, even after the full agreed settlement has been received.  These sorts of agencies prey on their victims by not putting anything in writing, then claiming that the settlement was not satisfied, and demand more. Another ruse used is that they make an offer, accept the settlement money, then sell the debt to another company, not mentioning the settlement to the buyer, which tries to collect the full balance.

Unfortunately, researching the web about the company contacting you, will only make you believe that every debt collection agency is low life and/or unscrupulous.  There are so many consumer complaints against most if not all debt collection agencies, that it is a daunting task to try to decide the category of the agency contacting you, so you know how to proceed.

One source of guidance is to see if this company is regulated in the state where they say they are located, although California does not license debt collection agencies anymore.  States such as Oregon, Texas, and Connecticut require every debt collection agency to register, to be allowed to collect debts from consumers within that state or face stiff penalties. A licensed debt collector in one or all three of these data bases is meaningful, though still no guarantee that that the agency will always behave honestly and with integrity.

Robert Stempler

Financial Columnist’s Advice on Old Credit Card Debt May Mislead Money Talk Readers

Monday, July 16th, 2012

Q & A Posted on LA Times Money Talk Section on July 15, 2012: Link to Money Talk

My response:
This question concerns a credit card debt that was charged off in 2007. That means that it has not been paid since 2006 or 2007, because banks usually charge off accounts 180 days or earlier, after not receiving any payment.

I agree with the columnist, Liz Weston, that contacting the bank that issued the credit card would not be productive.  Within one year of default and lack of payment, banks almost universally sell the credit card account to a debt buyer or sue in their own name.

However, this debt has not been paid for more than four years, making it almost certain that the debt is well beyond the statute of limitations, thus discharged under California law.  See my blog on the Don’t Pay a Dime Strategy, using California law at this DPAD Link.

Ms. Weston’s response should have explained that the debt is most likely discharged, because the statute of limitations had long since expired, so that the consumer has the upper hand on this and should not offer to pay much at all and should be clear in his or her communications that this debt is discharged by the already-expired limitations period.

My concern is that the consumer may contact the debt collector and offer in writing to pay the debt. Some debt collectors may potentially try to use this written offer or actual payment to claim that the consumer has revived the statute of limitations period on the unpaid balance, giving them another four years to file a debt collection lawsuit. I disagree with that possible position.

Some debt collectors incorrectly believe that they can report any payment received as “last activity” on the consumer’s credit, thus renewing the 7.5 year period for credit reporting.  I disagree with that possible position.

Thus, I hope that the LA Times removes this posting, so its readers would not be mislead.

Robert Stempler
Twitter @RStempler

Hospital Overcharges Discovered After Signing A Settlement with Debt Collection Law Firm

Saturday, May 5th, 2012

I was served with a debt collection lawsuit for an unpaid debt at a hospital. The amount seemed high, but I was not sure what to do and was afraid of having a default judgment entered against me, if I did not do something before my due date to respond to the complaint. I had not contacted any lawyer, so I did not know my rights.  I spoke with someone from the collection lawyer’s office and they sent me a stipulation agreement to settle in full, which I signed and returned, because the payments were affordable. I now learned from reviewing the hospital’s billing records that I was badly over charged and the amount that I agreed to pay was much more than I really should owe. What can I do about this?

My response:
Hospital overcharges and billing errors of uninsured patients are one epidemic that the medical profession has not done much to address. I have represented consumers sued on medical debts, including a couple of cases involving hospitals, which resulted in substantial billing adjustments for improper or excessive charges and errors.  Negligent or ineffective treatments may be one further area for adjusting excessive bills, when appropriate and timely raised by the patient.

In this situation, courts typically enforce written settlement agreements, unless you have convincing evidence that the agreement was induced by fraud. The fact that you did not investigate the bill before signing the settlement agreement may not be enough to avoid the settlement afterwards. Before deciding to not pay the settlement, please consult an attorney with the documentation and any evidence of fraud.  Not paying a settlement usually allows the debt collection attorney to obtain a full money judgment against you, which may make a bad situation worse, as this will show up on your credit report, wage garnishment, and levies on your bank account.

Robert Stempler
Twitter @RStempler

Mandatory Settlement Conferences for Debt Collection Lawsuits in Riverside

Monday, April 2nd, 2012

Riverside County Superior Court now has a special settlement program for debt collection lawsuits, under $25,000. The program is activated by the court, once the court receives the defendant’s answer. At that point, the court sets a date for the Mandatory Settlement Conference (MSC). Here’s a link to the MSC program information.

Bonus: unrepresented consumers (pro per) are invited to attend a free workshop to prepare for the MSC. No need to RSVP for the workshop, but they suggest attending at least a week before, so that you know what materials they suggest you bring on the day of the MSC.

Before you file anything in court, I suggest you review the short videos on my home page, because knowing your options is crucial, before you “just do something,” because it sounds good.

Robert Stempler
Twitter @RStempler

Credit Card Lawsuit: A Money Judgment Is Not Inevitable

Thursday, March 15th, 2012

I know that I owe this credit card debt. I don’t dispute it, though I don’t have money to pay it. Is there any point to fighting the credit card lawsuit? Shouldn’t I just declare bankruptcy, so that my wages will not be garnished for many years?

My response:
It may seem bleak, right now. You’ve just been sued by a professional debt collection attorney.  You are not sure what your options are or how to best proceed. My web site’s homepage has several short videos which you should watch, starting with #1 on understanding your six options.

Bankruptcy is one of the options, but please give each of the six options your careful consideration, both with respect to the lawsuit itself and your overall financial situation. I suggest that you submit a detailed account to an experienced attorney to help you get a handle on your rights and options, so that whatever you decide to do, you will understand and possibly be happy with the decision and outcome.

The one thing about bankruptcy is that it often can be done later. Other options need to be considered right away and a certain process and timetable followed, but bankruptcy often can be done later, if necessary. Sometimes, bankruptcy is appropriate, and sometimes it is better to try an alternative and if that fails, then review bankruptcy later. Sometimes, in fact, bankruptcy must be delayed, such as when there are income taxes to be discharged or other issues to be handled before the bankruptcy can be filed.

Simply because the credit card lawsuit is for a debt that you stopped paying a while back, does not make a judgment against you in court inevitable.  One of the options discussed in the video is settlement. You can settle and not have any judgment or risk, if both sides agree to a settlement that you can afford to comply with. I have a legal guide on Avvo on documenting settlement agreements.

Also, if you defend this lawsuit, it is entirely possible that the plaintiff will not ready to take the case to a judgment and may dismiss their claims. I have defended many cases in which this was the result. Maybe it is me or the way that I take care defending my clients.  Or, perhaps the debt was not that easy to present in court or there was something in the paperwork that may have been challenging.  Plaintiff collection agencies and creditors have the right to dismiss before trial, even on the day of trial.  Sometimes they dismiss at trial when they see an experienced debt collection defense attorney show up to defend the case, with papers for the judge to read.

Or, perhaps after the trial presentation. the court determined that the plaintiff’s evidence was inadequate or improperly presented. Perhaps the plaintiff fails to satisfy the rules of evidence for key evidence.  Perhaps the debt collection lawsuit was filed after the statute of limitations had expired or some other defense to the lawsuit was available, such as a prior settlement or illegible or lost documents.

There are so many reasons and possibilities that can occur in any debt collection lawsuit, which can take several months to more than a year to get from filing to trial.  With an experienced attorney defending his or her client against a debt collection lawsuit, a positive outcome is more likely, making bankruptcy or a money judgment not inevitable.

Robert Stempler
Twitter @RStempler

Tips to a Former Small Business Owner, Now Trying to Settle Remaining Debts

Friday, December 30th, 2011

I had a small construction business that went under a couple of years ago when housing took a nose dive.  Some business debts remain and I am getting calls from a manager of one of my suppliers, who wants me to settle up on a $2500 account, but I have nothing to pay them. They are now threatening to sue me for the debt.  Any suggestions? Should I call the manager?

My response:
If you can borrow the funds from family and friends to settle the entire debt for less than the full balance due, then that is a good reason to negotiate with the manager.  I would not propose that you simply borrow the full amount from your friends and family, so that you would owe the same amount of debt to them. When your pockets are empty, that is the time to negotiate with your creditors to settle for much less than the full amount, such that you reduce your debts to something that you can pay off quickly to your friends, when things turn around for you.

In settling any debts, be sure that you have written confirmation that the amount you are paying will settle the full balance.  It is not unusual for a debtor to believe that they have negotiated a very good settlement, then learn later that the money paid was applied merely as a credit towards the balance, and the creditor still demands payment on the rest (or files a debt collection lawsuit) or has assigned the unpaid balance to a debt collection agency.

I have posted on three legal guides on how to negotiate a debt, including specific information on the documentation that should be prepared to ensure that the debt is considered fully satisfied by both sides.  Link to Avvo.

Robert Stempler

Advice for Retired Couple with Paid Home and $100,000 Debts

Saturday, February 26th, 2011

Several Questions:
I am retired and my wife works part time, due to her physical limitations.  Our home mortgage is completely paid off and we have a rental house with a mortgage, but positive equity, so we would not qualify for a Chapter 7 Bankruptcy. Considering this, how likely is it that we will be sued and can they collect?

We have about $100,000 total in credit card debts and I have been able to negotiate a lower interest rate with almost all of them.  There was only one credit card company (HSBC) that would not negotiate, but I have avoided all contact with them so far in the hope that they will leave us alone.  If sued, should we keep our checking account balance to a low “operating” level to pay bills? Should we take money out of a 401k employer retirement plan?

My response:
Thank you, sir, for your thoughtful questions and background details.  Avoiding contact with a company, such as HSBC, does not mean that they will leave you alone and not pursue you in court for the unpaid balance.

In my experience representing consumers, the five companies most likely to directly file a credit card lawsuit within a year or two of not receiving payments are:
HSBC / Beneficial
American Express
Citibank (which also operates the Sears credit card program)
JPMorgan Chase Bank
Capital One Bank.

Of these five, Chase sells many of its accounts to debt collection agencies (known as “debt buyers”), rather than sue in its own name.  Chase also has its own department of lawyers in Los Angeles and in Northern California, which they use for filing many credit card lawsuits in California to enforce their credit card account agreements against California residents.

With the real property recorded in your name, the companies that I mentioned are likely to sue you. Whichever lenders or debt collectors that sue you, they will probably not accept low settlement offers, because they can secure the judgment on your real property, if they prevail in the credit card lawsuit.

The debt collection lawyers cannot touch your retirement or Social Security benefits, unless you leave it to accumulate in a bank account, above certain levels.  If you take money out of an employer’s 401k, that money could then be attached in a bank or investment account.  Thus, take money out only as needed to settle a debt or for other critical needs.  Please do not take out your full retirement balance and leave it in an account like a sitting duck.

I don’t know how much your wife makes in her part-time position, but she could be sued on this debt, too. If the creditor wins a judgment, the debt collection lawyers would attempt to garnish her wages.  The amount below the federal minimum wage for a 30-hour work week, after taxes, is exempt from garnishment.  Above is not exempt and can be garnished, though you can seek a claim of exemption from the court. Please see my article at this link:  Making Garnishment Bearable.

Typically, debt settlement companies advocate a program where you pay them a monthly payment, while you stop paying your accounts.  After a while, these debt settlement companies will try to negotiate a settlement with your creditors or debt collectors, hoping that they can settle the debt for a fraction of the balance owed.  I would not suggest you try this strategy, because you have so much exposure with your home and other real estate.  Also, avoid debt settlement companies, as the U.S. GAO did a report to Congress that these companies make people worse off than if they were before.  See my article on Avvo at this link: Debt Settlement Ripoff

As far as your checking account, I would not leave any account open if you lose and a judgment is entered, because the debt collection lawyer will levy any open account on the hope that you may have made a big deposit recently. Your own bank will charge you a processing fee for handling the levy, which can be very expensive.  Any outstanding checks you wrote on the account will bounce, once the sheriff shows up at your bank with the levying papers.

Robert Stempler

You are Summonsed to Court for an Unpaid Debt: Your Next Steps Count

Thursday, December 23rd, 2010

There’s a knock at the door.  You don’t recognize the person through the peep hole. The person persists, so you open the door to find out what they want to deliver.  The person hands you ten pages of legal papers stapled together. It’s a summons and other documents for a lawsuit concerning a debt that you had hoped was forgotten.  It’s seems like years since the last time you sent a payment on it, but the day of reckoning has arrived. The person leaves, after mumbling something about being “served.”

If you recognize the debt as one that you had and the lawsuit filing date is within the statute of limitations period, then as soon as possible, call the law firm on the papers to see what they want to settle.  The summons in California Superior Court provides for 30 days from the date you are personally served, and you will probably need as much time as possible to decide what direction you want to pursue.  Ask the total amount they require and what payment arrangements they would accept.

Find out if they can offer you a hardship waiver and what they need for you to obtain that. Also, how much discount they would offer for your hardship. At this point, you are exploring your options.  Do NOT set up a payment plan when you call the first time and do not give them any of your personal account information in the first call.  You need time to review your options and consider your finances, before you start giving out the keys to your bank vault.  Review your finances carefully, to know what you have and can afford.

They will probably ask you some questions. You need to be truthful, but that does not mean you need to answer every question asked.  They will ask questions about your finances. If you want to try to negotiate with them on the balance, you will need to give them basic information about you, such as your income and ability to pay.  They have probably seen your credit report, so they may already know your debts and payments, almost as well as you do. If they ask you to admit you owe this debt to them, you can truthfully say that you are still researching that and would appreciate them sending you documents they have proving their claim that you owe the debt.  You want proof in writing from this company.  A lawsuit itself is not proof, unless they attach exhibits to the complaint, which may or may not be sufficient.

If you are not sure that they have acquired this debt from a legitimate owner of the account, you should follow up any request by phone with a letter that you send by certified mail, return receipt.  A sample letter for verification of the debt within 30 days of first receiving a letter or other written communication from a debt collector is sample letter 1.1 at

Sending the letter does not resolve the lawsuit and it may not even stall for time.  If you have decided that they are demanding too much and you want to fight, then you or your debt collection defense attorney must file papers with the court and pay a filing fee to respond (usually hundreds of dollars for each defendant, even both defendants are married).  Timing is important, because if you fail to file the papers timely, the collection attorney for the debt collection agency will try to take advantage of your delay and request entry of a default judgment. That means a judgment may be entered soon thereafter, without a court fight.  To review the timing of when you must respond to a collection lawsuit, please see my blog posting: “Deadline to Respond to a Credit Card Lawsuit, Do Not Confuse with Hearing Dates.”

For a big picture review of all likely options, please visit:

Robert Stempler

You Are Ordered to Appear in Court on a Debt

Thursday, November 11th, 2010

Imagine a sheriff’s deputy coming to your home or workplace, asking for you, and handing you a legal document that summons you to appear in a courtroom on a debt collection lawsuit for a hearing or deposition. You show up at the building at the appointed time, enter the courtroom, and are sworn in by the bailiff. Then the judge or someone else asks you questions about a debt you did not pay and why you have not settled it. You provide your credit card number or sign over title to a vehicle, so that they can settle the debt, then you leave.

It’s all true, except that the sheriff’s deputy, the bailiff, the judge, and others involved are all employed by a debt collection agency, not the government. The courtroom was a mock courtroom in office facilities rented by the same debt collection agency. This happened recently to hundreds of consumers in Erie, Pennsylvania, according to charges brought by the Pennsylvania Attorney General.

The news story and video are at this Pittsburgh News site:

Yet another low for debt collectors trying to collect credit card debts in a tight economy. Who could have expected that they could go any lower than the automated phone calls that debt collectors place day and night to consumers, the calls about the debt to family members and friends, and the over-the-top harassing calls from debt collectors based outside of the United States? But, they managed a new low!

This conduct violates several provisions of the Fair Debt Collection Practices Act and may also violate laws against impersonating an officer or a government official. Don’t let this happen to you. Any document or calls to collect an unpaid debt should be carefully vetted using reliable websites or direct contact with a consumer attorney, with expertise in defending debt collection lawsuits and credit card lawsuits. And, don’t waive your rights. Ask for written verification of the debt in writing, as stated in letter 1.1 at .

Robert Stempler