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  • Writer's pictureVincent Tubiana

Credit Card Debt Settlement- What Happens Behind the Scenes ?

Hutchison & Tubiana have represented several individuals in their efforts to effectively negotiate credit card debt. Many credit cards were settled for a fraction of the balance. Our effective strategies have been utilized to save our clients thousands of dollars. However, it remains a mystery as to why different creditors will settle the same type of consumer debt for different amounts.

What has been unusual throughout this process is that different lenders settle debts for different amounts. We have not determined exactly why certain banks are willing to settle debts for markedly different amounts. For example, we have been able to settle unsecured debt with Bank of America for less than, say, American Express. While Discover Card, CapitalOne, Chase all seem to vary. But, one constant remains which impacts the likelihood of a favorable settlement is whether you are negotiating with a third-party debt collector versus the bank itself.

Assuming the debt collector has purchased the debt from the bank, one may be able to obtain a better settlement figure than dealing with the bank directly. However, there are certain banks whose in-house collections department is willing to settle balances for a much lower amount than a third-party debt collector. We believe the reason behind this is that the bank would rather settle a debt for 20%, than be forced to charge it off of its balance sheet and sell it to a third-party for pennies on the dollar.

Again, I am speculating, because the banks and debt collectors, like car dealers, do not divulge their bottom numbers. So, one is forced to use deductive reasoning and track results over time from both the bank and third-party debt collector. Finally, there are contingent creditors. These are debt collectors who collect debt on behalf of the bank, but must obtain the bank’s approval before finalizing the settlement of a debt. Depending on whether you are dealing with a bank or a third-party debt collector may determine one’s ability to obtain the best settlement figure. Keep in mind that one hazard to the settlement of debt is the impact it may have on one’s credit. Initially, people are very excited about obtaining some type of financial relief regardless of the cost.

However, people sometimes forget that when a debt is settled for less than what is owed, the bank or debt collector will report that result to one, or all, of the major credit bureaus (Experian, TransUnion, Equifax). In turn, this will lower your credit score which may impact your ability to, not only be approved for a loan, but also what interest rate you receive. In addition, during this process, the lender may exercise its contractual right to sue you in court. Just because the consumer is in the process of negotiating the resolution of his or her debt does not mean that the bank has waived its right to initiate suit against you for “breach of contract,” “account stated” or “open account.”

These are various legal theories that are commonly used by banks when they sue a cardholder.  Although we can always negotiate with the attorneys that have sued on behalf of the bank, the cardholder must now defend his or herself in a court of law which presents a different set of challenges.

Nevertheless, regardless of what stage of the credit card debt settlement process you are in, the attorneys at Hutchison & Tubiana invite you to contact their office with any questions.

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