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How to Negotiate Payments With Your Creditor

 
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November 10, 2011
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QDear Erica,
I’m in a bad position with my credit card companies. I was reduced to part-time employment and have fallen behind on payments. I’m getting calls every day and I don’t know what to tell them or what to do. Please believe me that my wife and I are truly struggling. We have done everything we can to make ends meet, including moving into my parents’ house with our two small children. I have leads on full-time jobs and I believe that eventually we will get back on our feet. Meanwhile, I don’t want my parents to get these calls while I’m at work or off on interviews. My wife is in nursing school by the way and she is almost done. What should I tell my credit card companies? Please help as I am very worried. — AndrewTh_dumb-blonde-exemption

ADear Andrew,
Underneath your anxiety, I sense some optimism. Hang onto it, as that attitude will be instrumental in getting you through this tough time.

It appears that your debts are still with your original credit issuers, which is great. Now, I want you to protect yourself by setting up a payment agreement based on your hardship. Doing so may not stop the creditors from sending the accounts to collections (nor avert credit damage), but it can help if they decide to take legal action.

First, the hardship payment plan: Ask Erica

  • Write to those you owe and succinctly explain that you’ve been downsized so can’t meet your contractual obligation at this time.
  • If it’s realistic, propose a firm date of when you will resume sending normal payments again. However, if you really don’t know when that will be, don’t. Never make a promise you can’t fulfill.
  • Propose a fixed monthly payment that you can afford to send. Include an overview of your current cash flow situation that proves the payment you’re offering is all you can afford.
  • Add any documentation that supports both your underemployment and job search claim and a check for the first payment.
  • Make copies of everything, and send the entire package certified mail, return receipt requested.

Will they accept your offer? There are no guarantees, but I hope so. They may try to negotiate for more money, but if you’ve proposed the top figure, don’t go any higher.

In the event the creditor rejects your proposal and sends the check back to you, it is very important that you keep sending the same amount of money anyway — even if they continue to pass on your payments. This way, you will be proving that you’re making the very best effort under the circumstances.

That dedicated action will be vital evidence if the creditor decides to sue you for the money you owe. A judge may consider your record of good faith payments and grant a stipulated judgment — which will be far better for you than an actual judgment.

Stipulated judgments are payment plans that you work out with a creditor in the courtroom. They allow you to continue to make smaller than expected payments until you can bring the account current. Even better, the creditor would not be permitted to garnish your wages or levy your property while you’re paying as agreed. Oh, and the “stipulation” part? If you don’t follow through, the company that sued you will be able to use the various (and highly unpleasant) collection tactics approved by the court.

As far as the creditor calls, they can try to find you, but they can’t discuss your debts with anyone but you — including your parents.

Know your rights. Because the accounts are still with the original creditors, you are protected from unfair collection tactics by state law.

But also know your responsibilities. Yes, you’re trying, but it’s not unreasonable for lenders to expect you to pay as agreed. Be polite, work with them and stay positive. You’ll get through this.


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