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INFJ Registered: 10/08/10 Posts: 3,277 Loc: United States Last seen: 1 day, 7 hours |
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I work in collections for one of the biggest banks in the world. I collect from customers, set up arrangements and negotiate settlements with customers and with debt settlement agencies that they hired. If you're not interested in the behind-the-scenes info and details, just jump to part VI
I. What is a Debt Settlement and Why is it Allowed? If you don't know, the majority of debts you owe are eligible for settlement. This means that the entity that lent you the money is willing to accept less than you owe. Why is this, though? We have to look at the life cycle of debt to understand this. Let's imagine that you open a hypothetical credit card with Chase with a $1,000.00 credit limit. If you use the card like most do, you might spend $400 on sudden and unexpected car maintenance. This $400 will gain interest each month (your APR divided by 12). Typically, you'll make minimum or above minimum payments until the debt comes down to 0. Now, let's imagine that you got the same credit card but have little financial knowledge and concern for credit/your future. You quickly hit the $1,000 credit limit. You make a few payments but soon forget about it, prioritizing more pressing bills like rent and car insurance. Once you miss that first payment, your debt changes status to past-due and you're hit with a fee. When you do this for 7 months in a row, your card enters into a new status called "charged off". A charge off is when the entity that lent you the money counts it as a loss. They can report this as a loss when filing taxes, despite the fact that they can continue attempting to collect what you owe. Once the charge off happens, two things occur. First, the debt is reported as charged off to the three credit bureaus. This looks terrible on your credit report. Second, a timer starts counting down. Seven years after the date of charge off, that debt will disappear from your report. This helps to explain why the lender would accept a settlement. They have already written the charge off as a loss and so 100% of the money collected is a win for them. Additionally, they have a limited time frame before they no longer have any leverage. Past that seven years, the only reasons you would pay would be a sense of duty or that you wish to continue your relationship with the lender. The banks are aware of this and become increasingly desperate as that 7 years draws closer. I can personally reach a settlement of 60% with any given customer but in the 5th or 6th years, the bank starts sending out letters to settle for as low as 25%. II. Why Settle? I don't hide the fact from customers that settlement is not ideal. I frequently get calls from irate customers who settled a credit card debt a few years back and are now being denied a mortgage because of it. This has to do with how the credit bureaus report about you. If you call me wanting to make a settlement on your credit card, I'm going to pull your credit reporting. I see how much you owe in total across all accounts with all companies, what payments you're currently making, if you're paying as agreed/delinquent/charged off/settled/paid in full. If you owed $1,400 on that Chase credit card, I see that balance until you pay it off. Let's imagine you agreed to settle for $850.00, though. What I will see is "Settled for less than balance owed" and I'll see an amount of $550 owed to Chase. Basically, it's still there. Settled looks much better than "charged off" and will raise your credit, but it remains a blemish on your record. I specifically picked $850.00 as the settlement amount because that would leave you owing only $550.00. Moving the numbers a bit, we end up with you facing tax consequences. If you settled for $799.00, the balance you didn't pay is $601.00. Because it's past that $600.00 threshold, you're going to get a 1099-C. If you've ever done gig work or worked as a waiter, you probably know what this is. That $601.00 is considered income which you have to report to the IRS. I also get tons of calls from people who never reported their 1099-C settlement amounts to the IRS and are dealing with a bunch of bullshit because of it. All of that being said, a settlement might be a good move if you know that your credit isn't going to be perfect any time soon. Paying a settlement will improve your credit score, especially if accompanied by you making consistent payments on other debts. To a lesser extent, you might just be annoyed by collections calls, but that's rare. Please, also be aware that you can tell them to cease and desist, in which case it's illegal for them to continue calling you. III. Negotiation Overview As we mentioned, virtually 100% of the money collected is pure profit for whoever lent you the money (since they already wrote it off as a loss on taxes). This would indicate that collectors should accept virtually any amount offered, but reality isn't so simple. Firstly, you can be sued and my bank absolutely will sue you if they think it makes sense. The more you own, the higher this risk is. That's our nuclear option, though. Another aggressive method is that we send the debt out to debt collection agencies (we no longer sell debts because it was barely profitable, other lenders probably still do, but it makes more financial sense to temporarily send it to debt collection agencies.) While my co-workers and I who work directly for the bank were hired for empathy and mathematical competence, debt collection agency associates are hired for being intimidating, forceful and callous. They only make money when they collect so they're extremely pushy and will do anything to get a payment. But, let's assume your debt is still with the bank. All of us have a lower limit that we can offer (in my bank's case, that's 60%). We have to justify a decision to settle this low and can only potentially go a bit lower in extreme circumstances (50% being that lower limit and requiring manager approval and scrutiny of your story and credit report). On a similar line of logic, we're individually judged by how much we collect. Even if it's apparent that you're the ideal kind of person for a minimum settlement, someone who hasn't collected much that month will be personally incentivized not to bend, their job depends on it. A bit broader and speaking only for my own bank, we heavily prioritize payments in month (I expect other banks operate the same way, though). Lump sum in month = best possible settlement. Year-long settlement with first payment out-of-month = worst possible settlement. The time factor isn't typically a major factor for individual associates negotiating settlements. As mentioned at the start, the bank itself will send out offer letters/email based on the age of your debt. If you owe $300 and you're being offered a settlement of $70, check when your account charged off. We probably only offered you that settlement because the debt is about to fall off of your credit report. You're better off just not paying and waiting a few months. IV. Negotiations II: What We Will & Won't Accept You call in and I pick up your call. You owe $1,000.00 for a charged off credit card and you want to make a settlement. I'm not going to come out of the gate with an offer, I'm going to pull up a hardship form. This is absolutely key to settlements with any bank. You must provide a reason that you cannot pay the full amount. It has to make sense. There are three key metrics that virtually any company working with settlements will want to find out: your hardship, your current income and your current disposable income. If I run through the form with you and find that you have $800/month disposable income, I'm definitely not going to offer you any kind of settlement on that $1,000 debt. You could easily pay it in 2-3 months. It's also important not to overdo it. I've had people call in who legitimately have -$300 or worse monthly income. I won't offer them any kind of extended settlement because it's extremely likely that they'll break it (meaning not pay on time and go back to owing the entire balance). Once you break a settlement, you're much less likely to get another, so I'm not just being an asshole, I'm really operating out of concern for you. There is one circumstance in which I will make a settlement with this kind of disposable income, though. My concern about you missing payments or going hungry is totally removed if you offer to pay in a lump sum. Other videos explaining how to get a settlement will make the same suggestion. Tell me that your mom, brother, boyfriend etc. might be willing to loan you the money to just pay the settlement in one go. I know this is the method taught to make settlements, but it's irrelevant if I believe you or not. As long as you make a single payment, my numbers look good, your stress is reduced and I'm not worried about your well-being. It's a win for everyone involved. V. Negotiations III: We're Economic Detectives So, you know you have to show that you've experienced some kind of hardship and that you're barely making ends meet. We're not limited to having to take you at your word, though. We have a variety of ways in which we're going to check your story with your actual history. Firstly, we're going to look at your relationship with the bank. On one of the first settlements I ever made, I agreed to something around 70% on a $2,000 debt. My manager double-checked my work and with one click, saw that she had more than $20,000 in an account with us. He denied the settlement before I could send the letter. Not only can we see the money you have in accounts with us, we can see the average balances. Even if you took all of your money out before calling me, I can see that you had an average balance of $800.00. This tells me that you're not living paycheck-to-paycheck. We're also going to look at your credit card statements. I can see what what you spent your money on and when you spent it. If you're telling me you've been dealing with medical expenses related to cancer since February 2021, I can look at your statements and see if that's visible. If your purchases are from CVS, Amazon and hospitals, I know you're telling the truth. If I see plane tickets, AirBnB charges and theme park tickets, I know you're full of shit. If I offer you any settlement, it's going to be extremely unfavorable, though I probably won't offer you a settlement, at all. Similarly, if your balance is almost totally cash advances or balance transfers, it suggests you're trying to scam us and we're never going to make any kind of settlement. Lastly, we'll pull your credit report. I can see every debt you have (or had in the past 7 years), how much you're paying and how regularly you pay. Just because you're paying on other credit cards doesn't mean you're not struggling, but if every single other card is being paid as agreed and those balances are high, something is definitely fishy. If you're truly struggling, I'll expect to see juggling. You might be paying one card in a timely manner while others have fallen behind. If everything is being paid, I'm only going to offer you a shitty settlement, if any. Additionally, we can see your FICO and previous FICO even easier. If your credit score is 730 and your previous score was 724, any kind of hardship story is bullshit unless it has happened in the past month. VI. What to Tell Us to Get a Settlement Understanding all of those factors, you can figure how to play us. Tell us that you got injured and couldn't work any longer and still can't. You started using your credit cards for survival expenses. Such an injury won't show up in your statements, so we can't call you out on it. Tell us that you're only really getting by with gig work, occasional odd jobs and help from family members. The help from family members can help to explain why other debts you have may be paid up-to-date and how you're able to pay a lump sum despite not even making enough to survive. You can push this over the edge by insinuating that one of your parents is desperately trying to give you a clean slate before they die. An alternate (but not as convincing) method would be to suggest some kind of inheritance or even gambling win. The major issue with this is we can see your payment history on debts across years. If you try to claim that you're paycheck-to-paycheck and just happened to get a big payday, we'll call you out if we see consistent payments going back the past several years. If you can't weave a convincing tale about your hardship, your last viable option is to wait. Speaking for my bank, as your debt ages, we start sending out progressively more fantastic settlement letters. Year 1-2, you're likely only to get offered payment plans for the full amount. As time goes on, we'll start sending 75% settlement letters. With more time, we'll send 50% settlement letters. Finally, we'll start sending 25% settlement letters which have short timeframes and then alternate between these and 50-75% letters in hope that you'll jump on the 25% offer the second time you see it (keep in mind that your debt is likely to be close to falling off if you're getting a 25% offer).
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Do U know who yur fuckin with? Registered: 10/18/17 Posts: 4,522 Loc: |
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Good advice and well put Darwin
I was a bill collector a large 3rd party collection agency for just under 10 years. Been out of there 12 years now Sounds like you're in 1st party collections which I know is different than 3rd party. I hated it despite being really good at it and making pretty good money I agree the best way to get good deals out of a bill collector is have a good story and stick to your guns -------------------- Pastywhyte's easy no pour agar dishes YOUR NEXT FAVORITE ALBUM Stallion Mang’s Ween covers
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Stranger Registered: 11/13/17 Posts: 145 Last seen: 2 days, 7 hours |
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It's interesting to get a behind-the-scenes look from someone on the inside! I've always wondered why banks would even consider settling for less. From a consumer's perspective, sometimes life just happens, and priorities shift in ways we don't anticipate.
I've been on the other side of the table, having credit card debt on my shoulders. I used these services by Bankruptcy Law Center, and they they got one of my cards, which I owed about $5k on, settled for just a tad above $1.2k. It was a huge relief. Edited by Ryan87o (09/13/23 04:24 AM)
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