Parents-Smiling-With-Toddler-Should-I-Settle-With-a-Debt-Buyer-or-the-Law-Firm?

Summary: Many people with debt in collections wait until a lawsuit has been filed to settle their debt. This can sometimes work out, but settling with the debt buyer before it hands your case off to a law firm might give you greater flexibility. No matter which settlement route you choose, Solo is here to help.

Before you start the debt settlement process, you should know who you're dealing with. Is it the company that you originally owed the money to? Or is it a third party, like a debt buyer or law firm? The answer matters.

If you're wondering, "Should I settle with a debt buyer or the law firm?" Solo is here to help you figure it out.

Read our debt settlement guide to learn more about how to settle your debt and save thousands.

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Creditors, debt buyers and law firms all play different roles

Settling a debt means that you and the owner of the debt are agreeing to resolve the debt for less than face value. You pay a percentage of what you owe. In return, the debt owner will not pursue you for the remaining balance.

Depending on how long you've had the debt and a few other factors, you might be negotiating a settlement with a creditor, a debt buyer or a law firm. Here's a quick rundown of the differences.

Creditors are who you owed first

An original creditor is the party you originally owed the debt to. For example, if you build up a balance on a credit card, the credit card company is the original creditor.

Some original creditors perform their own collection activities against customers who don't pay. However, many do not.

If your debt becomes seriously delinquent, the creditor will probably send the debt to collections. You can expect this to happen if you don't make payments for around six months.

How are debt buyers different?

Many third-party debt collectors are debt buyers. This means that they purchase defaulted debts for a fraction of the value. The purchase gives them the right to collect the full value of the debt.

To understand how debt buyers work, let's consider an example.

Example: Tori owes her credit card company $5,000. The company tries to get in touch with her, but she ignores them. Eventually, the credit card company gives up and sells the debt to a debt buyer for $500. The debt buyer threatens a lawsuit, and Tori settles for $4,500. Even though Tori paid less than she originally owed, the debt buyer turned a $4,000 profit.

Have you been sued for a debt? Use SoloSuit to send an Answer today.

If you decide to settle your debt before you're sued, you'll most likely be settling with a debt buyer.

When do law firms get involved?

When a debt buyer wants to sue you, it will probably hire a law firm to file the lawsuit. If you settle at that point, you'll most likely have to deal with the law firm instead.

Should I settle with a debt buyer or the law firm?

You can settle debt at any point up until a lawsuit is finalized:

Settling before you are sued means you'll likely settle with the debt buyer.
Settling after you've been sued means you'll probably be dealing with a law firm.

Which is better? Let's take a closer look.

Settling with the debt buyer has advantages

By settling with a debt buyer, you can avoid some of the difficulties of dealing with a collection law firm. Here are some advantages:

Debt buyers tend to be less aggressive with their settlement negotiations.
They usually accept lower settlements.
You'll face less time pressure.

Notably, if you negotiate a settlement before you're sued for debt, you may be able to work out a payment plan. Many debt buyers will happily set up monthly payment plans. If you go this route, you can try to pay the account off in full, which is better for your credit than settling.

Use SoloSettle to send your settlement offer today!

Settling with a law firm is more difficult

The biggest downside of settling with a law firm is the fact that law firms usually demand higher settlements. Why? The reason is simple: Hiring a lawyer costs money, so the higher settlement is meant to offset that cost.

This doesn't mean that law firms are unwilling to negotiate, however. Going to court takes time and resources. In many cases, the law firm and the debt buyer would both rather resolve the case with a settlement than have to go through a trial.

However, if you wait until you've been sued to settle, you'll be facing time pressure. First, you'll need to send an Answer to the lawsuit by your state's deadline. Then, you'll want to try to reach a settlement before the lawsuit proceeds any further.

You can still settle debt if you've already been sued

It's generally less complicated to settle debt before you've been sued. If you've just received a Summons and Complaint, you can still settle, but you'll need to act quickly. Here are the steps you need to take.

1. Respond to the lawsuit by your state's deadline

Each state has its own deadline for responding to a lawsuit, which can be anywhere from 14 to 35 days. Here are a few example deadlines:

Nevada: 21 days (NRCP 12(a)).
Tennessee: 30 days (Tenn. R. Civ. P. 12.01).
Arizona: 20 days if served in Arizona or 30 days if served in another state (ARCP 12(a), 4.2(m)).

Find out your state's deadline for sending an Answer.

It's critically important that you don't miss this deadline. If you don't file an Answer in time, the debt buyer or the law firm representing it will likely get a default judgment against you. This means that you automatically lose the case, and the debt buyer may use wage garnishment or other aggressive measures to collect.

2. Decide how much you can reasonably pay

Sending an Answer continues the lawsuit, giving you time to offer a settlement. However, before you start negotiating, it's important to look at your finances and decide how much you can afford to pay.

Debt collectors rarely agree to the first settlement offer, so start out by offering less money than you have saved up. This will give you some room to negotiate.

3. Send a settlement offer and negotiate

Once you know how much you can afford to pay, it's time to send your offer. We usually suggest offering to pay 60% or less of the debt to start.

Be prepared to negotiate. This process can be stressful, but always remember to be polite and courteous. If you're respectful and treat the person you're dealing with like a human, you're more likely to get a reasonable settlement.

Want to settle debt smoothly without making a single phone call? Get started with SoloSettle today!

4. Get a copy of the agreement and make your payment

Get a copy of your settlement agreement in writing before you make your first payment. A settlement agreement is a legal contract. Having a copy can protect you if the collector later tries to sue you for the remainder of the debt despite your agreement.

Key takeaways: Should I settle with a debt buyer or the law firm?

If you can't pay a debt in full, a settlement can help mitigate the credit damage that comes with having a debt go to collections. Before you start the process, keep the following in mind:

If you settle your debt before you're sued for it, you'll probably be settling with the debt buyer.
If you settle after you receive your lawsuit papers, you'll likely be settling with the law firm.
Settling with debt buyers is often easier, and debt buyers often accept lower settlements than law firms.
Settling with law firms can be more formal, and law firms often demand higher settlements.

Want to make the settlement process as easy and streamlined as possible? Get started with SoloSettle today!

FAQ

What is the best way to negotiate a settlement with a debt collector?

There are multiple strategies, but we recommend deciding how much you can pay and then offering less than that to kick things off. If you want to streamline the process, SoloSettle can guide you through settlement negotiations and facilitate payment.

What is a reasonable debt settlement offer?

It's not unusual for debt buyers to accept settlement offers of 40% or less. However, original creditors and law firms tend to ask for more, so 60% might be a good place to start. Know who you're negotiating with before you make your first offer, which should be less than you're ultimately able to pay.

Should you settle or go to court?

That depends on the circumstances of the case. If you know that you owe the debt and that the debt buyer or law firm can prove it, you're probably better off settling. This can help you avoid having a court judgment against you.

Otherwise, it may be worth presenting evidence in court. If you have proof that the debt was the result of identity theft, for example, the court will likely dismiss the case.

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

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The Debt Hotline

Hosted by Team Solo, The Debt Hotline breaks down debt and personal finance topics with help from attorneys, financial experts, and industry pros. We respond to real questions to help you navigate debt with knowledge and courage.

Should I Settle With a Debt Buyer or the Law Firm?