Important things to know
Negotiating with a debt collector may mean that you offer to paya portionof the debt you owe rather than the full amount. There are several situations where this may be a good option for the debt collector if they can get some of the money back and not have to pay court costs.
Knowing about some of these situations can help you figure out how to negotiate and what to propose.
The Consumer Financial Protection Bureau offers additional resources for negotiating with a debt collector.
If you owe a debt collection company, theyare likely to accept a smaller amount
You may owe a debt collection company rather than the company you originally owed money to. These types of companies often buy the debts for a much smaller amount than what you actually owe. Their goal is to collect more than they paid for the debt, cover their costs to collect the money, and make a profit. They may accept a deal if youoffer a reasonable amount over what they paid for the debt, whichcovers their costs, and provides a reasonable profit.
You may be able to offer to pay part of the amount as a single payment
If the creditor has not yet filed a lawsuit against you, you may be able to settle by offering a single (orlump-sum) payment of a portion of what you owe.The creditor sometimes has an incentive to take this lesser amount because it removes the risk of spending time, energy, and money trying to collect later
Sometimes a debt collector is better off accepting your voluntary payment
The lawprevents a debt collector from taking funds for essentials(food, clothing, basic household goods),Social Security, anddisability benefits from you to pay for ajudgment.If you have very little income and property, the debt collector might not be able to collect even if they win their case.
If you are in this situation, the creditor may accept your offer of a voluntary payment on a portion of your debt.
Original creditors may be motivated by tax savings
The original creditorcanget tax savings of about a third of the amount of any uncollected debt.Therefore, they are morelikely to settle if offered more than they can get in tax savings.
For example, if your debt is $10,000, the debt collector can claim about $3500 for tax savings if writing off a complete loss. If you were to offer to pay more than that, they may be motivated to settle with you.
If a creditor accepts a smaller amount, you may have to report this on your taxes
You may have to pay taxes on the amount of debt that is forgiven in a negotiation. If the other side accepts an offer of more than $600 below the amount owed,the creditorwillsend you and the IRSa tax form identifying the amount forgiven as taxable income.Depending on your financial situation, you may have to pay income tax on this amount.
