ASSESSING YOUR DEBT PROFILE
Why is it that a friend of yours was able to get rid of their credit card debt for pennies on the dollar, but, the bank won’t budge an inch with you? Why did your bank let you pay next to nothing to settle a second mortgage on one property, but, now wants almost the entire balance on another property? While the objectives of debt settlement may seem to be pretty straightforward, there is often more than meets the eye. Based on the breakdown below, what kind of debtor are you? Do you have a debt that can be settled for less than you thought? Read more to find out, and let us know.
- DEBTOR CHARACTERISTICS: What type of debtor are you?
Personal: Age, county of residence, physical condition
- Age affects the length of time that exists to pay or collect an outstanding debt.
- County of residence determines where lawsuits must be filed, which affects the time, cost, effort and likelihood of getting a money judgment.
- A healthy client usually has less debt and more earning potential, clients that are disabled, chronically ill or infirm usually have less earning ability, fewer assets, and more debt.
Employment: W-2 employee, self-employed, unemployed/retired/disabled
W-2 employees can be garnished in the State of GA, which can cause embarrassment as well as financial hardship.
Self-employed debtors are much more difficult to garnish effectively
Unemployed/retired/disabled debtors may receive income that is exempt from garnishment, and creates a risk of claims for improper collection attempts
Assets: Verifiable [title, deed, account number] items of property owned by debtor that individually exceed the amount of debt.
Homes, cars, CD’s, stocks, etc. are all examples of assets whose existence and value may be independently verified; as opposed to a baseball card collection, or gold bullion held in a private safe, or cash in a mattress.
- CREDITOR FACTORS: Who is trying to collect the debt?
Creditor Type: Original Issuer of Credit, Purchase Money Transferee or Account Servicer, Debt Buyer [collector purchased debt after account was closed].
Original Issuer of Credit: The bank, finance company, or other company extending credit or loaning funds. Original Creditors usually have more knowledge, more documents, and more witnesses that can help to prove their case. They are also not subject to many of the consumer protection laws that apply to debt collection activity.
Purchase Money Transferee/Servicers: These are usually finance companies or assignees of loans that buy your account while it is in good standing in order to profit from your interest payments. It can also include subsidiary or affiliate companies that receive payments and perform accounting and other functions for the “parent” bank that just lends money. These companies may not have complete records of all transactions, but, are also exempt from coverage under many important consumer protection laws.
Debt Buyers: These companies collect at their own risk. They generally have very little knowledge or documentation to substantiate the debts they collect, and may be subjected to claims under a variety of consumer protection laws. If handled properly, these debts can often be eliminated without any monetary payment to the debt collector.
Structure of organization: “in-house” collection, early 3rd party placements, litigation model, settlement parameters
Some creditors have a well-organized and efficient collections department. Others send their unpaid debt to third party debt collectors fairly soon after the debt is charged off and the account closed. In house collectors usually have miore accurate information and can be less flexible in negotiating a settlement.
Some creditors have a more organized approach to litigation of debt, and have better logistics and a better working relationship with the collection attorneys. Others may send files electronically to law firms, and that’s the end of it.
- DEBT TYPE: What type of debt is being collected?
Credit cards can be difficult to prove and may present a minefield for consumer protection litigation. The accounts can be decades old, with incomplete files, account number changes, bank name changes, mergers, asset sales, securitization issues, etc. Even with all of the necessary evidence, a trial against an experienced attorney can be difficult and risky. With little evidence and usually no witness, it can be a recipe for disaster.
Auto loans are almost as bad as credit card claims. People usually buy from dealerships. The dealerships sell the contract to the finance company, subject to defenses and claims against the dealership. The finance company repossesses the car and usually sells it an auction. The car is usually sold for less than what is owed, with the debtor owing the balance. These cases generate a relatively large amount of paperwork, and may require the testimony of multiple witnesses for an auto finance company or auto debt buyer to prove its case. Bringing such a claim without sufficient knowledge or evidence can result in claims against these debt collectors.
Unsecured bank loans and private label student loans, on the other hand, can be relatively easy to prove. Large branch banks have offices all over the country, with employees that can come to court in any county to testify if needed. The documentation is usually just a signed loan agreement and a printout of the payment history. Unless the debt was sold to a debt buyer, these cases are not very difficult to prove.
HELOC’s can be very unpredictable. Most HELOC’s become collection accounts and lawsuits, because they have become unsecured due to a foreclosure or a change in market conditions, or other loss or destruction of the collateral. With so many factors at play in evaluating these claims, it must suffice to say that some banks will take almost anything to resolve these claims, others are firm, but, negotiable, and others want unreasonably high amounts, regardless of the debtor’s situation.
Based on the factors listed above, you can create a general profile of the debtor, which can then be compared to various types of debt in order to get an idea of how easy or difficult it will be to settle; and an approximate idea of the amount likely to be paid.
DEBTOR CATEGORIES: Your debtor profile may make it easier or harder for the creditor to collect.
Collection Difficulty Levels:
- Debtors over 65 who are retired, on social security, and have no verifiable assets.
- Debtors who are unemployed due to permanent disability or chronic health condition.
- Debtors who are self-employed and have taken steps to avoid personal liability or risk of collection against assets.
- Students with no current garnishable income or verifiable assets.
- Self-employed or over 65, but owns home or other property with substantial equity.
- W-2 employee with regular income, but has prior judgments and/or high debt load, and qualifies for chapter 7 bankruptcy discharge.
- Debtor is under 65, with regular W-2 income and verifiable assets.
- Debtor has high income and low debt load, and does not qualify for chapter 7 bankruptcy discharge.
- Debtor has high credit score and is credit conscious due to occupation, morals or principles, etc.
DEBT COLLECTOR CATEGORIES: Certain debt collectors are more flexible than others.
High [50% to 80% of Balance Owed]
- American Express, Discover Bank & Wells Fargo Bank
- Unsecured bank or credit union loans
Medium Range [25% to 50% of Balance Owed]
- Original creditor collections on credit cards
- Original creditor auto loan deficiency claims
- Private label student loan trusts as bank assignees
- Storefront loan franchises [World Finance, Citifinancial, Republic Finance, etc.]
Low Range [0% to 25% of balance owed]
- All consumer claims purchased by debt buyers [Midland, Cavalry, LVNV, Portfolio Recovery, etc.]
- Small out of state banks and lenders on loans under $10,000.00
While these descriptions are not all inclusive, and the settlement ranges are affected by numerous other factors, this information can serve as a well-reasoned guide for a debtor seeking to evaluate the cost of settling individual, or multiple debts.
WILD CARD FACTORS: Regardless of the above information, unknown factors can influence debt settlement.
Collection Law Firm: Not all lawyers are created equally. Some collection firms employ very knowledgeable, experienced and skilled attorneys. Other firms may have high turn-over rates, with a steady stream of fresh, inexperienced attorneys. Some firms are staffed by many lawyers, and have a well-organized litigation plan. Others may be severely understaffed, unprepared, and chronically disorganized.
Venue: Most of the collection firms in GA are headquartered in Fulton, Dekalb and Cobb counties. When a firm has 5 lawyers to handle 100 cases a day in metro Atlanta, and there is a jury trial scheduled in Savannah, it can affect the outcome of that case. Different courts also run on different schedules. A case that could take a few months in one county, might take a few years to resolve in another county.
Judges: While all judges are supposed to be impartial, they are only human. Personal feelings always creep into the court’s decision making process. As most judges handle thousands of collection cases during their career, they tend to become more “creditor friendly” or more “debtor friendly.” Knowing which one is which, and to what extent, can sometimes make a big difference.
Internal Factors: Banks and other lenders often have agendas and motivations that can often be difficult to assess, and which change over time. After the banking crisis in 2008, many banks failed, forcing the FDIC to act as receiver and administer those assets, entering into “loss share agreements” with other banks that stepped in to buy the insolvent banks assets. Many of these banks were very inflexible in negotiations. There settlement offers never changed, regardless of any factor present in the case. But, unbeknownst to the debtors, the “loss share agreements” provided that if the creditor could obtain a judgment that was not able to be collected due to debtor insolvency, the FDIC would pay the creditor a substantial percentage of the loan, thereby acting as a disincentive to reduce and settle the debt. Alternatively, a bank may be willing to settle certain loans due to its knowledge of misconduct by a bank employee, or, it may need to write off debt for tax purposes. A company’s financial goals and motivations can be very hard to detect or predict, but they affect the outcome of many cases.
Knowing a little more about how debt is settled, and the factors that affect the outcome, you can now respond correctly to collection efforts by your creditors and other debt collectors. Instead of feeling helpless or avoiding the situation, contact Carlisle Law Firm. We will help you determine the best outcome, and act on your behalf so you don’t have to worry about debt or speak to debt collectors. If you are facing collection efforts and need help, please send us information through the form below, or just give us a call.