A creditor has the right to file a claim, seeking a judgment if credit cards and/or other debts and loans are not repaid according to the agreement.
Some do and some don't.....WHY???
If you have too much debt and because of circumstances (usually beyond your control) you just can't keep up with the minimum payments, a creditor has several options to collect, including legal options.
Why some do and some don't is not clear.
I've been helping people deal with having too much debt and not enough income to repay for almost 17 years now.
Usually, when an account (for this blog, I'm talking about unsecured accounts like credit cards, personal loans, medical bills, etc.) becomes delinquent, a creditor will usually do one or more of the following:
- Have an agent or computer call you. Sometimes several times a day! Although ultimately you can stop these calls later, as long as the account is still with the original creditor, they have the contractual right to call.
- Send out letters trying to get you to catch up or start repaying.
- Assign the account to the creditors internal collections or recovery department. The calls and letters start again.
- Assign or sell the account to a collection agency or debt buyer (sometimes they can be one in the same.)
- Place the account with a Law Firm that specializes in debt collection. This firm will contact you, but if you cannot repay they may decide to start the legal process.
If you have some funds available or are able to make a reasonable monthly payment, a repayment agreement or settlement usually can be negotiated. A creditor would rather get you "back on track" to keep that interest going rather than "give up" and "charge off" the account as a loss.
The point of this blog is to try and understand WHY some creditors will be patient and work with you and some won't.
Although I don't claim to understand why and/or when a creditor chooses to seek legal options to collect, this is what I've learned over the years:
Never forget...a lender is in business to make money/profit!
This profit comes from the interest and fees they charge us for the use of their money!
Certain creditors have a set of rules/guidelines of how the seek the loss revenue of these delinquent accounts and they change for year to year.
When we first started our company in 2003, American Express was one of the easiest companies to negotiate settlements for our clients. We could get them to settle for 30% -40% and let us set up monthly payments as $0 interest over a long period of time!
But over the last couple of years, American Express has determined that will not negotiate directly with like ours and will only discuss settlements or repayment plans with the client.
We have to coach or American Express clients, and although we still help them, it is very frustrating and time consuming!
Discover Card has starting going after judgments very quickly over the last year or so.
Now, if we can't negotiate a settlement, most of the Discover accounts are being placed with debt collection law firms to start the legal process within a few months!
I think (and this is just based on my experience over the years) that certain companies go through leadership changes and/or profit-loss margins that force them to become more aggressive, more quickly.
Why can't a Consumer or Debt Settlement Company negotiate with a company like Discover right away and avoid the legal process?
That depends on the circumstances of the consumer and the creditor!
Let me give you a hypothetical example that may help you understand:
Mary goes through a nasty divorce and ends up with a lot of credit card debt and a lot less income!
At first, she does the best she can to make as many minimum payments she can, but after a few months, realizes there is just not enough money coming in to keep up.
She calls the creditor and explains her situation, but even though one or two are willing to adjust her payments, there is still not enough to satisfy all of them. AND THEY ALL WANT THEIR MONEY!!!
She doesn't want to file for BANKRUPTCY PROTECTION from her creditors now, so she calls a Debt Settlement Company like us and after going over her situation, budget, etc. we agree that her best option now is debt settlement, she enrolls.
She has a total debt balance of $27,000 spread over 5 credit cards.
They total monthly minimum payments they want is about 2.25% of the total or in this case, about $600/month, but her budget (even with making cuts as much as possible) only allows her to commit to $350/month (and that is going to be really hard to do).
- Walmart $3,500
- Citibank $4,500
- Discover $5,500
- Bank of American $6,500
- Lending Club $7,000
We knew that our client had not made payments on her accounts for 3-4 months when she contacted us and that some of the accounts were in the process of being charged off.
In fact, a couple of the accounts (including the Discover account) had been placed with a debt collection Law Firm!
One evening, the doorbell rang and she was served a SUMMONS for her Walmart account.
She sent it to us and to avoid the possibility of this going to judgment and potential garnishments, we negotiated a STIPULATED AGREEMENT.
This is an agreement (usually filed with the court) that says basically that as long as she/we pay the agreed amount according to the terms negotiated, they (the Plaintiff/Creditor) will not pursue legal options such as garnishment, bank levies, or liens.
Even though this stopped the potential garnishment (25% of her net take-home income), the terms of the stipulated agreement called for a down payment of $1,000 (she had about $1,300 in reserves) and monthly payments of $200 until the total of $2,400 was paid.
Since we had to take care of the immediate problem with the Walmart Summons, their wasn't enough to negotiate on the other accounts for a few months.
The creditors were all contacted and we explained where she/we were at.
All of them agreed to be patient except Discover!
After a couple of months, they/Discover placed her delinquent account with a Law Firm/Debt Collector.
This firm sent letters and we contacted them to explain her situation. They would not agree to a small monthly payment until the Walmart was completed and they filed a COMPLAINT and a SUMMONS was served.
Why were they not willing to wait a few months? It all depends on their profit/loss or margins at that time.
Most creditors/collectors are willing to negotiate settlements and/or work with a client or us, but depending on various circumstances, some decide to seek legal options quickly.
WHAT CAN YOU DO?
Make sure to make sure to communicate with any creditor/collector sooner or later.
If you are using a company like ours to help, send all letters received IMMEDIATELY!
Hope this helps!