how come creditors won't settle?

[hopeful316]

I was wondering why wouldn't creditors settle for the amount you offer. Here's an example, if you have 15000 worth of credit card debt and they tell you to pay 8000 upfront and it would be settled, but you can't afford that and you offer them 1000 bucks which I know is low or why can't they take installments on the 8000 over a period of time? Isn't it that creditors would rather get something than nothing instead of you filing for bankruptcy where they would get nothing at all?

[mountanddo]

I'd look at it from their point of view. If someone owed you 15k and you said "ok, you can pay me 8k" and they turned around and offered you 1k what would you think? Not everyone files for Bankruptcy or qualifies for it. I'm pretty sure they would rather take their chances on the people that might file rather than take 1k on a 15k debt. In the meantime some get default judgements before people file and they get some of their money that way.

The reason why they don't take installments is because you didn't pay your installments on your credit cards so why would they think you would pay on a settlement? Creditors couldn't care less what you can afford, they just want their money and while this might be an unpopular thing to say especially from someone who just filed Chapter 13, they really are entitled to it.

[keepsmiling]

I think it would be interesting to see what percentage of people who default wind up filing bk. Obviously the creditors are playing the odds.

[tobee43]

I think it would be interesting to see what percentage of people who default wind up filing bk. Obviously the creditors are playing the odds.

i bet it is high and most people don't make their payments as dew points out. shoot, if they could, they wouldn't be there in the first place, right?

also by this time the original company has most likely written off the debt to bad debts and just take their losses. believe it or not most large corps have a bad debt calculation in their budgets. sometimes their losses help them with their tax liabilities. nice! we should be so lucky.

[mountanddo]

If creditors started offering to settle for 6-7% of the debt on a regular basis how long do you think it would take for that information to get around? How many people would spend 15k if they knew they could settle for 1k do that. That's a great deal! Not everyone cares a whole lot about what is right or legal. I can assure you there are more people in the world out that would take advantage of this than you think. Most people that try to beat the system aren't posting on bkforum.com asking for advice on what is the right and legal thing to do.

I remember when my kids were little kids, my daycare woman went out and racked up probably 150k worth of unsecured debt when they lived in an apartment buying everything in sight to furnish a house. They filed bankruptcy and the next month went out and bought a new house and 2 brand new cars. They made no effort to keep the fact that they were doing this delibertly a secret and told everyone and anyone who would listen "their strategy". I know the laws have changed since then probably due to these types of people who do this. It's these people that helped change the bankruptcy laws to what they are today. I don't know where these people are today but my bet would be that they are living in debt and have nothing to their name now. That's just the type of people they were.

So you can't really blame creditors for going after their money. It's people like the above that make people that legitamately run into hards times due to a job loss or medical issues etc. that have made them that way.

[GoingDown]

I would feel differently if it was the original creditors who were pursuing old charged off debts and trying to get back the actual amount of money they allowed the debtor to borrow, but in a lot of cases, it is junk debt buyers who paid about 3 or 4 cents per dollar of the debt, and are now demanding 100% of the principal balance plus interest, and many times even additional late fees and various collection costs.

I would like to see the laws changed to make it illegal for original creditors to ever sell a debt for anything less than 100% of the balance owed at the time of the sale. It would put the junk debt buyers out of business. It would also make original creditors a little bit more careful about who they extend credit to, and how much credit they gave me. I remember how I was making nothing but the minimum payments for awhile, and yet they kept bumping my credit limit higher and higher, over and over again, when it should have been obvious to them that I couldn't pay back the amount I already owed them. They should have some sort of protocol in place to stop raising the credit limits for debtors who don't pay off their debts at the end of the month, or at least in a reasonable amount of time, like say a 3 or 4 months. That would keep a lot of people from getting in too deep.

And now, for the original question... In general, the longer you go without making any payments on a debt, the more likely they are to settle for less. The older a delinquent debt becomes, the less it is worth, because it becomes less and less likely to ever get paid at all.

Please do yourself a favor and do a search on this forum for information about 1099-C forms which they have to file with the I.R.S. for the amount of the debt they cancel or forgive when they settle the debt. You may be hit with a huge tax bill next year if you settle this debt.

Bankruptcy is usually a much better way to get out from under this debt.

I would only use debt settlement as an absolute last resort.

[747LUVR]

50% of something, is better than 100% of nothing.

[keepsmiling]

50% of something, is better than 100% of nothing.

I agree, as is even 1%.
I'm sure there is some statistical protocol in place for who settles for what and in which cases.
Actually tried doing a google search for this info- ie, what percentage of defaulters file bk (vs, say, paying the full amount, getting garnished, settling etc) but couldn't find anything.
If anyone does, it would be very interesting indeed.

[mountanddo]

I don't know anything about what happens on the creditor side but is it possible that they are better off writing off debt due to BK than due to settling. Is this an advantage to the creditor? That could help explain it.

[bcohen]

Just as TransUnion offers a "collection triggers" service for creditors to use, they (and perhaps other credit bureaus as well) offer a "bankruptcy triggers" service which guages an individual debtor's likelihood of filing for bankruptcy protection. If a person seems like a good candidate for Chapter 7, the creditors will usually offer a heavily discounted settlement since they know that if they push to hard, the person will file BK, and the creditor won't get anything. On the other hand, if the credit reports show that the person is unlikely to file BK, then the creditor won't offer much in the way of settlement.

It's the same thing with lawsuits. Most creditors don't sue unless they see information which suggests that the person could pay but is refusing to do so, or that there are assets which can be seized/liened/garnished to pay a judgement. If they see no job, no income, and no assets, they most likely won't bother to sue.

For example, as I have no secured debt, don't own any real estate or vehicles or investments, and defaulted on ALL my debts at the same time, I would appear a prime candidate for BK. Therefore, even creditors such as Discover Card and Citibank who usually show no mercy offered me settlements in the 40%-50% range! And this was while the accounts were with the OC's. Once my Citibank account got sold--most likely for pennies on the dollar--the JDB sent a letter offering to settle for 85% of the balance. Yeah, right! But other than pulling my credit each month, nothing has happened, and now I am nearing the SOL on these debts.

[HHM]

The answer to why they don't take installments (or very long installment plans are two fold)
1. Money now is more valuable than money over time. ($5,000 now, is more valuable than $200 per month over 25 months, has to do with the present, discounted cash value, of a cash flow stream, side note, this is the same concept behind why the cash payouts of lotteries are much lower than the jackpot. The one time cash payout of the powerball lottery is equal to the amount needed to buy an annuity to pay the 30 year payment option).
2. As was pointed out, you already defaulted on payment plans, why bother putting the resources to taking payments when the debtor already proved they couldn't do it.

[lotsahats]

I would feel differently if it was the original creditors who were pursuing old charged off debts and trying to get back the actual amount of money they allowed the debtor to borrow, but in a lot of cases, it is junk debt buyers who paid about 3 or 4 cents per dollar of the debt, and are now demanding 100% of the principal balance plus interest, and many times even additional late fees and various collection costs.

I completely agree! It makes me mad that this practice is even legal.