Thursday, October 5, 2006

Will the Creditor Settle for Less on a Judgment?

Due to the long-term and damaging effects of a credit judgment, you want to avoid a judgment on your credit report at all costs. Creditors go to court to acquire a judgment against you, and judges make the decision to issue the judgment after reviewing the facts and determining whether you owe the money in question.

What is a Judgment?

    After months of debtor nonpayment of a credit card bill or loan, creditors and lenders can file a lawsuit and take a debtor to court to receive payment on an outstanding balance. Both parties can bring proof to support their claim. For example, a creditor may bring loan documentations as evidence, and debtors may supply copies of canceled checks if they paid the debt in question. If a judge sides with a creditor, the judge issues a Notice of Judgment and gives debtors 30 days to resolve the debt, says Bankrate. Failure to pay the debt can result in a creditor returning to court to seek a wage garnishment or lien.

Explanation of Debt Settlement

    Debt settlement is a method of satisfying a debt for less than the balance owed. Some lenders and creditors will not consider a debt settlement, while others are open to the idea because something is better than nothing. Debt settlement makes sense if you don't have cash to pay off an outstanding balance, and you want to avoid further problems such as having your creditor freeze your bank account, garnish your wages or place a lien on your property.

Negotiating with Creditors

    Contact your creditors immediately after the court date to discuss a debt settlement option. But before picking up the phone, look at your own finances and see how much you can afford to send. Some creditors accept a debt settlement and then allow debtors to make monthly installment payments. Other creditors may only accept a debt settlement if debtors can make one lump sum payment to satisfy the debt. If you owe $7,000, offer to settle the debt for $3,500 with a cash payment or monthly installments. A creditor may reject your first offer, and then reply with another dollar amount. Get all agreements in writing as proof before sending your payment.

Considerations

    Creditors can reject your request for a debt settlement. But if you're contemplating bankruptcy due to overwhelming debts and personal finance issues, mention this when negotiating with your creditors. If creditors know this information, they are more likely to negotiate a debt settlement because filing bankruptcy can potentially wipe out your outstanding balances, and your creditor will never recover the funds.

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