Sarah Edwards | December 19, 2022
Summary: Working with your original creditor to settle a debt is 100% possible. In fact, some creditors are easier to work with than debt collectors, especially if you can prove you are experiencing financial hardship. If you’ve been sued by your creditor for a debt you owe, respond to the lawsuit, send a settlement offer to start negotiations, and get the agreement in writing. SoloSettle can take care of the settlement process for you.
If you have an old debt dragging you down, you may be looking to settle it. Settling debts allows you to pay a reduced amount to the creditor, typically 50% of its original value. In exchange for your payment, the creditor agrees to absorb the remaining amount due to them, and you’re free from further collection efforts.
However, you should handle the debt settlement process very carefully.
If your original creditor still owns your account, you can try to work directly with them to reach a favorable agreement. If you’re not sure whether the creditor has sold your account to a collection agency, it’s crucial to find out. You don’t want to risk forking over your hard-earned cash to someone who doesn’t have ownership of your account.
If you haven’t received any notifications from a debt collection agency concerning your account with a lender, your original creditor likely still owns the rights to your account. Before calling them to negotiate an agreement, pull a copy of your credit report from all three credit reporting bureaus.
You can obtain these copies by visiting the Annual Credit Report website. This site allows you to retrieve your credit report free of charge from Experian, Equifax, and Transunion.
Your credit report will list all of your creditors, your current balances, and your payment history. Any accounts in collections will appear on your report. If you don’t see any collection accounts or the ones that appear pertain to other debts, your original creditor probably still holds your account.
If you see collection companies you don’t recognize, follow up with them. Collection agencies must prove that the debt is valid and give you a specific amount of time to dispute the debt before reporting to the credit bureaus. You may have overlooked their debt validation, or it may be a potential red flag for identity theft.
Either way, sending a Debt Validation Letter to debt collectors will give you a better idea of who owns the debt. It will also force collectors to prove the debt amount is accurate and that you are actually responsible for it.
If they can’t validate a debt, debt collectors usually cease communications.
Keep reading to learn more about how a Debt Validation Letter can help you. Alternatively, check out this video:
Before negotiating a settlement with a collection agency, ensure it has the rights to your account. Send a written letter asking the agency to validate your debt.
In your Debt Validation Letter, ask the collection agency to provide proof of the following:
If the debt collection agency can verify your debt, it will send you the required information. It’s best to send your validation letter via certified mail with a return receipt requested to have proof of delivery.
You should hear back from the collection agency within 30 to 60 days. If it validates your debt, you can begin the settlement process directly with them.
Yes, if the original creditor still owns your account, you should attempt to come to a settlement agreement with them. If you haven’t made regular payments, you are more likely to be successful.
Collections agencies typically buy overdue debt accounts in bulk for an average of 4% of their original value. If your account goes to a collections company, your original creditor is essentially giving up on you. Your creditor would much rather you pay a settlement than sell your account to a debt collector.
Consider what you have to offer the creditor. If you have enough savings to settle the balance for 30% or more, see if the creditor is willing to negotiate with you.
People who don’t have enough money to settle should consider making payment arrangements to reduce the amount of their debt. For example, you can tell the creditor that you can make regular payments until half of the balance is paid.
Many creditors are willing to accept settlement offers, especially if you haven’t regularly made payments. They know that if they don’t take your request or can’t give you a counteroffer, they have little chance of recovering much of your overdue balance.
However, creditors may not be willing to settle if you owe less than $500. Most people can handle small overdue accounts with a few monthly payments, and your creditor can take you to small claims court at little expense if you refuse to pay.
Some creditors refuse to settle accounts as a matter of principle. If a creditor refuses to entertain any idea of a settlement, they are more likely to pursue a lawsuit. See if the creditor is willing to agree to extended payment terms instead.
If you’ve been sued by your original creditor for a debt, and you’re interested in settling, follow these three steps:
Let’s take a closer look at each of these steps. Don’t like reading? Check out this video instead:
First, you’ll want to file an Answer in response to your creditor’s lawsuit.
Be sure to file your Answer with the court and send a copy to the opposing lawyer before your state’s deadline in order to protect yourself from a default judgment.
With a default judgment granted, your creditor can garnish your wages or seize your property. Responding to the lawsuit gives you time to work out a settlement agreement and get your finances squared away.
With SoloSuit, you can draft and file a customized Answer to your lawsuit in minutes online.
Next, determine how much you can afford to pay in a settlement. The more you can offer, the better your chance for success. Ideally, your offer should be around 60% of the value of your debt, but this amount totally depends on your circumstances.
For instance, if you owe $8K, consider offering a settlement of $4.8K. Reach out to your creditor to explain your financial situation and state your offer. It may sound something like this:
“I am offering you a lump-sum payment of $___ to settle the case with case number ___. If you accept the offer, please confirm. If you want to counteroffer, please reply to this message with only ‘Counteroffer: [$___].’
“This offer expires in 7 days on [MM/DD/YY]. If accepted, I will pay the agreed amount within 90 days of the settlement date.”
Once you send your offer, wait for a response. You will likely receive a counteroffer. If you can’t afford to pay the counteroffer, it’s best to further explain your financial circumstances. The debt collector or attorney may be willing to cut you a deal.
Finally, make sure to get your settlement agreement in writing. A written agreement will protect you in case your creditor changes their mind or tries to take further action against you. Keep a record of your payment, including cancellation of your check or a payment receipt.
If you’re nervous about handling your settlement yourself, SoloSettle has got you covered. SoloSettle will manage your debt settlement agreement for you.
Now, let’s take a look at an example.
Example: Scott is being sued by his credit card company for a debt of $8,000. He uses SoloSuit to draft and file an Answer to the case, giving himself some time to make a plan to settle. After some budgeting, Scott decides he can afford to pay off $6,000 (75% of the debt). He uses SoloSettle to send a settlement offer to the creditor, starting at 60% of the debt, or $4,800. The creditor counters, and after a few rounds of negotiations, they reach an agreement of $5,600 (only 70% of the debt). Scott saves some money and can sleep more peacefully at night, knowing the lawsuit was dismissed and he doesn’t owe anymore.
SoloSuit makes it easy to fight debt collectors.
You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.
SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.
Here's a list of guides for other states.
Being sued by a different debt collector? Were making guides on how to beat each one.
You can ask your questions on the SoloSuit forum and the community will help you out. Whether you need help now are are just look for support, we're here for you.
Is your credit card company suing you? Learn how you can beat each one.
Need more info on statutes of limitations? Read our 50-state guide.
Need help managing your finances? Check out these resources.
Out Debt Validation Letter is the best way to respond to a collection letter. Many debt collectors will simply give up after receiving it.
"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather