Colorado Bankruptcy Law Group, LLC – Chapter 7 and 13 Attorneys

Know what I hate? I hate having any work done on my car. I hate going into the shop and being at the complete mercy of the mechanic, because I don’t know anything about how cars work. Well, I don’t know anything about how cars that were built after 1980 work. Same goes for doctors. Tell me I need an MRI, x-ray, or CAT Scan, and I’m probably going to believe you.

And that may be how you feel about dealing with lawyers. I still get nervous going to court, and I’m in a courtroom several times a week. I can only imagine how it feels for people who have never been.

The purpose of this post is to share some insight into negotiating a debt and uses the assumption that you have already been sued and are showing up to court for the first time to talk about it. However, you can also use this information at anytime along the process, from when you get your first call from a debt collector to any time before your court date.  This post also assumes you are negotiating a simple consumer debt, like a credit card or line of credit for some place like a furniture store.

There are generally five things that a debt collector will be suing you for that you can try to negotiate a reduction of:

• Principal – this is the amount that you borrowed to buy whatever it is you bought with your credit card.
• Interest – this is the amount that you have to pay back that is basically the cost of borrowing the principal amount.  If lenders were to ask you to payback nothing but principal, they wouldn’t make any money from the transaction.  In fact, they’d lose money.
• Interest Rate – this is the rate at which you have to pay back the money you borrowed.  For example, if you borrow $100 on a credit card that charges 10% interest, you’d have to pay back $110.  This is a very basic example of interest however.
• Attorneys Fees – if the debt collector has filed a lawsuit, he is going to have to pay a lawyer and is going to want to get that money back.  Under Colorado law, the right to attorneys fees generally have to be included in the contract and are generally capped at a “reasonable amount” although some contracts fix the amount at a percentage of the principal and interest.  These amounts can add up quickly the longer the lawsuit stretches out.
• Costs – again, if the debt collector has filed a lawsuit, he is going to incur certain costs in suing you, such as court filing fees and service fees.

The above items are all things you can try to negotiate in an attempt to reduce your debt.  While each creditor is different, and there isn’t any “secret formula” for what they’ll settle for (if there is, they haven’t told me), you’ll probably have the most luck negotiating away or down attorneys fees and costs.  This will still allow the debt collector the amount of debt that he is seeking.  Another good idea is to ask for a suspension or reduction in the interest rate, especially if it is extraordinarily high.  A high interest rate is usually what keeps a borrower from paying off the principal amount, since all of his monthly payments go toward interest first.  My philosophy is to ask for what you want and work towards what you can agree upon.  However, if you ask for the debt collector to settle for some ridiculous amount like 10% of what they are suing for, you may destroy all chances for settlement.  Despite what you might be reading on the Internet, none of my clients are settling debts for this amount.  Not even close.

This isn’t brain surgery or even replacing a CV joint.  Use this list when you go to court or call the debt collector.  It may save you some money.

You should also know that if you get a reduction of the amount you owe, there may be tax consequences for forgiveness of debt, and of course there will consequences for your credit report.  But if the debt collection has progressed all the way to a lawsuit, there are probably already a few black marks on there.

Peter Mullison is a bankruptcy attorney at Colorado Bankruptcy Law Group, LLC.  If you are considering Chapter 7 or Chapter 13 personal bankruptcy, schedule your free, confidential bankruptcy consultation with a Colorado bankruptcy attorney today. Our online scheduling system allows you to schedule bankruptcy consultation at a time that is convenient for you.

Colorado Bankruptcy Law Group, LLC is a personal bankruptcy firm serving clients in the greater Denver area.

photo: http://www.flickr.com/photos/strevs/ / CC BY-NC-ND 2.0

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