Debt Negotiation: Reduced Settlements
Debt collection agencies, collection attorneys, and some unsecured creditors are willing to accept reduced settlements from insolvent debtors, but you will have a hard time finding one willing to admit this fact. If you phoned the ten major credit card issuers right now and asked each one if they accepted reduced settlements, all ten of them would adamantly deny it. But all ten of them regularly accept reduced settlements.
How much will they accept? If they do admit that they accept such offers, they will tell you that they absolutely, positively will accept no less than 70%. In fact, if you have an account that has been turned over to a collection agency, they will offer you 70% right before giving up on collecting the account. But the truth is that you can go much lower than 70%. The average settlement with debt collectors and debt collection attorneys is 50%. You can even go lower -- as little as 25% or 30% -- if you're in a position to negotiate, meaning that you are flat broke, have no assets to attach or seize. In other words, you're judgment proof.
Collectors and attorneys are more willing to negotiate with you than the original creditor because once an account is turned over to them for collection; the odds of collecting it have dropped significantly. In addition, once an original creditor turns over an account to a collection agency, it has given up on collecting the account and is prepared to write it off. Anything that it does get at this point is gravy. Overall, only about 5% of debt turned over to a professional collector is ever collected.
In some circumstances, you might be able to convince an original creditor to accept a reduced settlement as payment in full, but you shouldn't delude yourself into thinking they will accept such an offer at the drop of a hat. As mentioned above, you would have to provide them with proof that you are terminally ill or have suffered a permanent and significant loss of household income to get them to agree to accept less than 100% of what you owe them. The threat of bankruptcy must be looming large over your head; otherwise, they will not negotiate with you.
Of course, there are unsecured creditors, bill collectors and collection attorneys that will refuse to work with you period. The threat of bankruptcy won't work; nor will missed payments or a total default on the account work. They will use all legal remedies available to them to recover the money due them. Only after they have completely given up on collecting the debt and are about to write it off will they accept a reduced settlement from you.