Negotiating With Creditors

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 Am I Able to Negotiate with Creditors to Pay Off Debts and Save My Credit?

In short, yes. One of the foremost and most successful forms of debt settlement negotiation is direct communication with one’s creditors. A creditor is any individual or party that extends credit to another party, referred to as a debtor, typically by way of a loan agreement or a contract. Creditors are typically classified as either personal creditors or real creditors depending on the line of credit that they extend a person requesting the loan.

Individuals or institutions that loan money to a person, even loaning money to friends or family, or a business that supplies goods and services to an individual but allows that individual to repay them in payments rather than demanding payment in full, are known as personal creditors.

In contrast, individuals or institutions that execute legal contracts and formal loan agreements with the borrower (i.e. the debtor), giving them a right to be repaid and claim a debtor’s assets or collateral if they are not repaid, are known as real creditors.

In addition to personal and real creditors, creditors are also further defined as either a secured creditor or an unsecured creditor. A secured creditor is a creditor that has a legal right, often through a lien placed on the item purchased with the credit, to take that collateral that was used to secure the loan if the loan defaults. A loan defaults if a debtor fails to make timely payments as outlined in the loan agreement.

On the other hand, an unsecured creditor is a person or institution that lends a debtor money, but the debtor does not agree to give the creditor any collateral to secure the debt. For example, a credit card issuer is often an unsecured creditor, whereas a home loan lender is often a secured creditor.

It is important to note that whether or not an individual will be granted a line of credit, including whether or not the terms of the loan agreement will be favorable, is typically dependent on that individual’s credit score. A credit score is a score that outlines the creditworthiness and the past credit history of an individual that is utilized by creditors to make determinations on whether or not a borrower can be trusted to repay the loan given to them.

Borrowers that have good credit scores are typically considered to be low-risk and in turn will be able to secure lower interest rates with creditors. In contrast, borrowers with low credit scores will be considered to be high-risk to creditors and in turn be charged higher interest rates on loans to mitigate the risk to the creditor.

When an individual fails to make good on their repayment terms, one thing that a creditor can do is report such activity to the credit reporting agencies. In turn this will affect that borrower’s credit score and signal to other future creditors that they are a risk. As such, a borrower may wish to negotiate with their creditors in order to remove such marks on their credit history and repay their loans.

One option that is available to borrowers is credit counseling. The Financial Counseling Association of America (“FCAA”) and The National Foundation for Credit Counseling (“NFCC”) are both examples of credit counseling agencies that were created to assist debtors with various financial services, such as helping debtors form better budgets and creating debt management plans and create repayment plans with their creditors.

Credit counseling allows a borrower to meet face to face with their creditor, or a representative of their creditor, and conduct negotiations to help them repay their debts and improve their credit. In most cases, creditors will reach a new agreement with the debtor for the payment of the old debt, typically at a lower monthly payment, and in exchange the negative remarks on a person’s credit history will slowly be erased.

What Are Some Common Disputes Involving Creditors?

As mentioned above, one of the most common legal disputes involving creditors involves getting sued by creditors for failure to make timely payments on the loan or credit agreement. When a borrower fails to make timely payments on their loan, then secured creditors, such as the bank or mortgage company, have the legal right to claim the collateral used to secure the loan through repossession or the terms of the lien.

On the other hand, an unsecured creditor, such as a credit card company, will have the legal right to sue the borrower in civil court over the unpaid debts. Then the court may order that the debtor pay the balance of the debt, order that the debtor’s wages be garnished to repay the debt, or take other actions allowing the creditor to secure the funds necessary to pay the debt.

For example, a creditor may be granted the right to have the Sheriff levy a debtor’s personal property, such as their car, to sell at an auction to repay the debt that is owed to the creditor. This is commonly known as a writ of execution.

How Do I Negotiate with Creditors?

There are numerous ways in which a debtor may negotiate with their creditors. As mentioned above, one of the most common tools utilized in creditor negotiations is direct communications with one’s creditors. Directly communicating with one’s creditors allows a debtor to attempt to negotiate repayment terms of a current or past debt, such as by changing the terms of the repayment or lowering the payments.

A debtor’s ability to negotiate successfully with their creditors will typically be dependent on how much leverage they have. There are several elements that help a debtor to determine what leverage they might have during debt settlement negotiations:

  • Cash on Hand: If a debtor has accessible cash that they can utilize to pay off the debt in full, a creditor will typically allow them more favorable debt repayment terms, as the creditor is more likely to get paid, rather than lose money on their loan;
  • Errors: There are numerous federal and local laws that protect consumers from credit billing errors, such as the Fair Credit Billing Act that is enforced by the Federal Trade Commission (“FTC”). If a debtor is able to prove that the debt is an error, then they will have significant leverage in negotiations as the creditor may have violated the law;
  • Whether or Not The Debt Is Unsecured or Secured: As mentioned above, if a creditor is a secured creditor then a debtor will have almost no leverage in negotiating debt repayment as that creditor has a legal right to claim the collateral used to secure the loan. However, if the debtor is an unsecured creditor, than the debtor will have more power during negotiations, as the unsecured creditor may not want to risk credit collection actions to secure repayment of the debt owed to them; and/or
  • Amount Owed: If the debt owed is not large, then a creditor will typically not want to pursue legal action to reclaim the debt and more likely consider writing it off. As such, small debts are more easily negotiated in terms of debt repayment.

As can be seen above, there are numerous different ways in which a debtor may leverage themselves in debt settlement negotiations with creditors. A debtor may also seek to hire an attorney that is experienced in creditor negotiations to assist them in communicating with creditors. An experienced attorney will be familiar with local and federal laws, and will be able to help a debtor determine what their best legal option is for handling their debts, such as filing consumer bankruptcy or engaging in credit counseling.

Seeking Legal Help

As can be seen, negotiating with creditors often involves a vast knowledge of consumer protection laws, both local and federal. As such, if you are in debt and are wanting to handle those debts, it is often in your best interests to consult an experienced credit lawyer.

An experienced credit lawyer will be able to help you determine what your best legal options are in regards to negotiating with creditors and handling your debts.

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