Logic says that most lenders would be more than willing to negotiate debt settlements with debtors in this time of economic turmoil; but the reality shows something different. Instead of becoming more reasonable, many lenders are becoming less reasonable and more desperate as more debtors fall into the trap of unemployment. Many of these debts are passing on to third-party bill collectors who only get paid if they can collect. While some may be willing to negotiate, many more are willing to do whatever they can to get as much money as they can out of debtors.
Below are a couple of tricks debtors should avoid when trying to settle debts with creditors:
Disclosing Financial Information
Unlike bankruptcy, debt settlement offers few financial protections to debtors. If a creditor has a judgment against you and you give them your financial information, it is highly probable that they will seize cash out of your bank account instead of negotiating a settlement. This is just commonsense. With a judgment in hand, they can get a lot more cash from you after they get your bank account information. Because debt settlement does not give debtors access to the bankruptcy automatic stay which would prevent this “smash and grab” behavior, debtors should think carefully before disclosing financial information to bill collectors.
Sending Cash With No Agreement
Don’t depend on the creditor’s word. If they say they will settle a debt, get it in writing BEFORE you send any money. Unless a debtor has filed bankruptcy, they have no power to release themselves from an obligation to pay a debt. This means that if a creditor takes your payment and reneges on their verbal agreement to settle the debt it will be nearly impossible to make that verbal agreement legally binding. Outside of bankruptcy, it is the creditor who has the most power when it comes to forgiving debts.