What Procedure do Creditors use to Settle Debts?

This personal bankruptcy question was posted on the internet in 2011 in a bankruptcy discussion: “What is the formula or procedure creditors and debt collectors use to figure out how much money they will settle a debt for?”

Most creditors in today’s world either specialize in credit loans or provide you with credit in order for you to purchase their products. Very few have collections departments like in days long since past.

The credit industry, specializing in small limited loan amounts, has evolved into one of the largest financial industries in the world. Participating credit corporations and businesses have fine tuned the industry so that they have learned how to manage large portfolios of loans and make sizable profits while experiencing very little risk. In doing so, they have learned things like building their risks into their service.

What all of this means to the average debtor is that the loans you make are just a very small part of the overall scheme of things in the lending world. You are nothing more than a number to most of the credit card companies and national store chains providing you with their credit. If you default on their credit, the company will hardly miss your absence.

Lending institutions today are much more likely to sell their debt to others specializing in the art of debt collections rather than try to collect from you themselves. Since they have already built in their risks of default, they will not spend long in trying to get you to pay your debts.

Before they sell the debt, they will contact you for a period of time in order to collect it. Depending on the company, the window of opportunity to settle your debt with the original owner can be for a period around 3 to 6 months. It is usually not long after the original creditor will either sell the debt to one of the relatively new breed of bill collectors, the junk debt buyers, or pay a collection agency a commission for collecting the debt.

During the 3 to 6 month window, you have an opportunity to settle the debt with the original owner. Most debtors find it is often hard to negotiate with original creditors who do not always know whether you have the means to fully pay your debt, and their current perception of you stiffing them is still fresh on their minds. By this time, the original creditor will have reported your default to all the major credit reporting agencies. If it was easy to settle with them at this stage, everyone would be trying to talk them down.

Most debtors will find the next owner or handler of your debt much more reasonable when it comes to settling the debt. If you intend on settling the debt, now is the best time to do so. Most of these handlers and/or owners of the debt will be authorized to settle somewhere between 30 to 70 cents on the dollar. Depending on what they know about your financial condition will determine what the actual settlement will be. If the figure you are bankrupt, they will deal with you much easier.

If you are bankrupt, common sense indicates you might need a bankruptcy lawyer in order to help you understand how complex bankruptcy laws may apply in your particular situation.

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