What Happens if You Decline a Debt Settlement Offer?

If you get a debt settlement offer from a creditor or collection agency, think carefully about your response. If you turn it down, the creditor may take you to court. However, you may also be able to work out a better deal for yourself. Always make sure that you verify that the debt is yours, that you are still legally obligated to pay it and that you get any settlement agreement in writing.

Debt Settlement

Creditors and collection agencies sometimes offer debtors the opportunity to settle their accounts for less money than currently owed. The settlement offers vary and may offer a discount of anywhere from 20 to 60 percent of a debtor's current balance. A settlement offer may require a single, lump-sum payment or may allow you to repay the discounted balance over time.

Declining a Debt Settlement Offer

If you decline a debt settlement offer, your creditor may take one of several actions. It may simply continue to try to collect the debt through letters and phone calls or may even lower the settlement amount. The creditor may also decide to take you to court over the debt. If the creditor successfully sues you, a judgment will likely appear on your credit report. Your creditor may also be able to garnishee your wages or seize your assets, including your checking and savings accounts. If you decline a debt settlement offer and you know the debt is legitimate, consider asking for some type of payment arrangement. If you honestly cannot afford to repay the debt, you may want to seek the help of a credit counselor or even a bankruptcy lawyer.

Making a Counteroffer

If you can't afford your creditor's settlement offer but have some cash available, make a counteroffer. Don't do this over the phone, but send a letter via certified mail. You may also want to ask that, as a condition of debt repayment, the creditor or collection agency remove your account from credit bureau reports. State in the letter that you will accept only written communication on this matter, to protect your rights. Even if the creditor refuses your counteroffer, by communicating with the creditor you show that you take the matter seriously. This may encourage the creditor to continue working with you on settling the debt.

Verifying the Debt

Before agreeing to a debt settlement offer, ask the creditor or collection agency for verification of the debt. This should be a written statement that lists the name of the original creditor, the actual amount owed (along with a breakdown of the original balance, interest and fees) and the date the debt went into default. You want to do this for two reasons. First, you want to make sure that the creditor or collection agency doesn't have you confused with somebody else with the same name or similar address. You also want to make sure that the debt has not passed your state's statute of limitations period on debt collection lawsuits. It is a good thing to pay debts, no matter how old, as a matter of principle. However, if it will be a significant financial hardship to repay the debt but you fear a lawsuit, you might as well find out whether a suit is even possible.