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HOW TO SETTLE A DEBT COLLECTION LAWSUIT

Strategy
Tactics
Aftermath



Strategy
Settlement is usually the best option if you owe any part of the debt. File an Answer, then settle.
About one in 13 consumers with a credit record has made a debt settlement agreement on one or more of their accounts
File an Answer
Do nothing
Do something invalid
Try to settle too early
Bankruptcy?


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Tactics
File an Answer
Within 30 days, send a Debt Lawsuit Settlement Letter
Determine lump sum target amount
How much money do you have on hand now? How much can you have in a month?
Debt buyer, offer 1%–60%. Bought for 8%. If they settle for 10 percent of the debt, they will earn 2 percent.
Original creditor, offer 20%70%.
Lump sum allows you to settle for less. Payment plans, you’ll pay more.
Avoid payment plans
Ackerman approach
Set target price
first offer 65%
Use empathy nos (How am I supposed to accept that? It’s really embarrassing, but I can’t accept it)
Three raises: 85% 95% 100%
Use nonround numbers on final offer
Throw in nonmonetary
Insert clip from debtpayoff video of me negotiating down debt on the phone. Clip can be pretty short (less than a minute).
When they accept, create a settlement agreement.
The dollar amount
“Settlement in full”
Case number
They will file dismissal with prejudice.
Date
Send payment, check is probably easiest.
Cashier’s check or money order
Followup to ensure they file for dismissal.

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Aftermath
How will it affect my Credit report?
You’re credit score will go down.
The impact will be worse on higher scores.
Credit scores are dinged because you aren’t paying back the money in accord with the original agreement.
35% of FICO’s credit score relates to payment history. 30% to amount owed.
If the lender agrees, your debt is reported to the credit bureaus as “paidsettled”
This is better than a chargeoff.
But it doesn’t mean the same thing as “paid as agreed”
Try to negotiate to have it reported as “paid in full”
A Debt settlement stays on your credit report for 7 years
Current accounts have the biggest impact on your credit score. So don’t risk missing payments on current accounts to settle an old one.
Most people get 60%30% hacked off of the debt, according to the AFCC
Settling has less of an impact if the account is delinquent.

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Taxes
10% to 37% for 2022
Taxes are progressive, you’ll be taxed more as your income increases.
The difference between the settlement amount and the total amount will be considered taxable income. The difference is called “cancelled debt.”
Generally you must include the debt in your income. Exceptions and exclusions apply.
Student loans are a common exception
Exclusions: bankruptcy, insolvency (the amount of debt you owe is greater than all of your assets.
The collector may send a 1099C to you and give notice to the IRS.


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