How to Deal with Debt Collectors Outside of Court

In a time of potential global recession and high inflation, many people’s finances may not be in the best place at the moment. Unfortunately, in these situations, debt collectors are at their busiest trying to recover as much as they can from debtors, while minimizing losses for their clients. At the end of the debt collection process, the worst case outcome for a debtor is a court case, potential personal bankruptcy, interest and penalties which make the payment obligation much higher than it originally was, and a lot of stress. However, what a debtor should understand is that this legal process is also an inconvenience for the collector. It costs money to hire a lawyer, and the wheels of justice grind slowly. It is often much more time and cost effective for a debt collector to reach a resolution with the debtor in the first place, and the debt collection process revolves around a compromise between the collector and the debtor in most cases.

So this week, we will take a look at some ways you can try to settle your debt outside of court, in more effective or efficient ways. Some of these strategies will hopefully save you time, money and prevent undue stress!

1. The Most Common Strategy: “I’ll Pay in Instalments”

Oftentimes a written agreement with a debt collector can be reached, whereby the debtor will agree to pay their outstanding debt via instalments. In exchange for regular payments of the debt, the collector may also be authorized to reduce some of the outstanding amount due. This is a simple strategy to employ with a debt collector, and if they get something in writing, along with the payment of a first instalment, this could help the debtor rearrange and organize their finances better, by giving them valuable time to accumulate more money to pay off debts. The downside of this approach is that the collector may want some assurance as to the debtor’s ability and willingness to pay. If the debtor has defaulted on past agreements multiple times before, trust between the parties may be low as well. Therefore, the collector may ask for higher instalment payments than the debtor can manage, and if there is an impasse between what the debtor can afford to pay and the collector’s demand, a court managed outcome may be on the cards in this situation.

2. “I’ll pay a lump sum…for a discount”

Another strategy employed by a debtor is to offer lump sum payments. For example, if the debtor can offer to make one or two large payments, they may be able to get up to half (if not more in some cases) of the debt cancelled by the collector. Oftentimes, debt collectors are authorized to reduce the debt amount by their client. This is because the client has already written off the debt, and is now just trying to minimize losses. However, the downside of this approach is that if the debtor’s offer is lower than what the collector wishes to receive as payment, another stalemate will be in the cards, and the possibility of a lawsuit will grow.

3. Offer Security

This is a more unorthodox strategy, and one that will not be recommended outright by legal or financial advisers. With this strategy, the debtor can offer the collector a security interest in some asset or personal property. For example, if the debtor has an old car that is not in use, a security interest on the value or ownership of the car can be offered to the collector, as collateral, in case the debtor defaults again. This may give the collector an opportunity to take ownership of the car and liquidate the asset in case the debtor defaults. In this way, the collector may be reassured that some of the debt can be collected, and will be willing to negotiate better terms with the debtor. However, most collectors will not be satisfied with low value personal assets, such as old vehicles. They may prefer to apply a lien (i.e. a security interest) on major assets, such as houses or land owned. In the United States, for example, under the Uniform Commercial Code, Article 9 (which is enacted by statute in most States), a creditor can register a lien with the State authorities. This lien will usually “perfect” (be enforceable), if the debtor has authorized it. Therefore, in the car example above, a creditor may be authorized to seize your car (with or without a court order) to recover the debt. In the case where a lien is applied to more valuable personal property, the debtor can suffer major inconvenience and personal loss in this process. Therefore, this approach has to be managed with caution.

4. Offer Transparency

The debtor can offer full transparency to the creditor, in order to build trust with the creditor and collector. For example, if the debtor has undergone a medical procedure, which has impacted their ability to pay, they could share hospital bills or proof of their condition with the collector. In addition, the debtor could make the condition of their financial situation clear to the collector, by sharing bank statements and details of their bank balance. This could be a way of notifying the collector that any efforts to garnish the assets of the debtor via court order, or to seize funds in the debtor’s bank account, may be fruitless, as the debtor’s resources are limited. This transparency could be provided under a written confidentiality agreement, and the debtor could share this information on a regular basis until the debt is paid. However, there are ofcourse severe dangers in this approach. For one, if the debtor provides bank details, the collector may know exactly where to look when trying to seize funds via the courts. Second, if the debtor is supporting dependents, like a child in college, the collector may try to prevent the debtor from sending funds to their dependent, and force the debtor to pay the collector instead. Therefore, this approach should be used with precaution as well.

Conclusion

The above strategies are not exhaustive, and each approach comes with risks and benefits. Therefore, careful consideration is required when considering any of the above approaches in a debt related matter. The consequences of debt can be severe, so if you need guidance in managing your debt related matters, the use of a legal professional can be very helpful towards resolving and negotiating the matter with debt collectors. Therefore, for further assistance, allow us to connect you to a professional from our network, get in touch with us at info@borderlesscounsel.com if you require any assistance today!

*Please note: no information above is construed to be relied on as legal advice. Readers may rely on the above information at their own discretion.