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Home / Debt / Will Debt Collectors Settle for Less?


The short answer is: maybe. There are too many factors that go into whether or not a debt collector will accept a settlement for a quick answer to suffice. Let’s look into a few of those factors.

Age Of Debt

The vast majority of creditors do not collect delinquent debts directly, they hire an outside company. There are many tiers within the industry. The first party to receive your debt, or the tier one debt collector, is often handcuffed and is unable to reduce the debt. Even when they can, it will only be by a set amount of late fees or over-the-limit charges. The second tier collector will receive the debt after a pre-determined amount of time. They will have more flexibility because they have bought the debt for less than its face value and they will have added additional ”collection fees”. Sometime during the third year after the debt has gone delinquent, you will be contacted by the next tier of debt collector. This company has bought the debt for pennies on the dollar and may be willing to accept any amount above thirty percent of the original balance. The key word is ”may”.

You also need to be aware of the statute of limitations (SOL) on the debt. At a certain point, it becomes illegal to collect a debt. You will need to contact the office of your state’s attorney general to find out the SOL for the debt in question.

Court Action

If a debt collector goes to court and obtains a judgment related to the debt, you will be unable to get them to settle for less. Most judgments are accompanied by a wage garnishment as well. When this happens, the debt collector is in a position of total power and has no reason to negotiate. When court action is initiated, you will receive a notice to appear for a hearing. Be sure to go to court. Take copies of all of your recurring monthly expenses. If they show that you can not afford a garnishment, the court will not allow one. You will only be afforded one court appearance, so use it to your advantage.

Your Plan

Assuming that you are able to get a debt collector to agree to settle a debt, you must have a clear cut plan to repay the lower balance immediately. The plan must include a date of repayment and method of repayment. Without a concrete plan, the debt collector will assume you are blowing smoke and ignore your attempts to settle the debt.

Those are just a few of the items that go into whether or not a debt collector will settle for less. One other item that you need to keep in mind is that settling a debt could cause you to owe taxes. The IRS views the difference between the balance of a debt and the amount settled for as taxable income and you will be issued a 1099 form. So, if you settle a $20,000 debt for $10,000, the IRS may expect you to pay income tax on the $10,000 difference.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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