How to Negotiate with a Debtor

Collections departments and third-party collections agencies contact debtors and negotiate debt payment.  While the goal is to collect full payment, often this can be impossible. Negotiating debt with debtors can be an especially arduous task when working with individuals that are completely uncooperative or unable to repay any amount of debt owed to the company. 

Actions during Negotiation

The initial goal of negotiation is usually to collect the full amount owed, but this may not always be possible Understanding the debtor’s actual ability to pay is crucial because if a customer has insufficient income or assets, that debtor may be able to file for Chapter 7 bankruptcy and it may become impossible to collect most or all of the debt.  A small percentage of your debtors will likely be bankrupt already, but just have not filed for bankruptcy yet.  Because of the risk of collecting nothing, it can be advantageous to try to work with customers and negotiate a settlement plan.

It is very important to make the customer feel as calm as possible throughout the negotiations.  They must feel that the collections agent is “on their side” and is understanding of their current situation.  In some situations, it is impossible to stay calm and the debtor can be threatened of a lawsuit that can lead to garnishment or seizing of their personal assets.  While these are viable options for the collections agent, they should be avoided as much as possible.  Statistics show that debtors do not respond well to threats, especially ones that involve the court system. 

When negotiations for debt collection are underway, collectors must always follow the policies set forth by the Fair Debt Collections Practices Act.  A collector must never threaten or harass a debtor in any manner.  Furthermore, collectors can only threaten legal action if the company intends to take legal action, and cannot send documents designed to appear as legal papers if they are not.

A collector must always identify themselves as a collector and state the original company for which they are working to obtain debts owed.  The collector must also notify the customer that they have 30 days to dispute any and all debts as stated from the original date of contact.  Upon receipt of a debt dispute, the collection’s agency must provide written documentation or proof of the claim. 

Negotiating Debt

Before negotiating a payment plan for less than the full amount owed, the collector must discern what caused the delinquent payment.  This information can be very helpful in establishing a time frame for payment and in determining whether settling the debt for less is the appropriate course of action.  Occasionally, an individual is between jobs and may only need 1 or 2 months as a reprieve from payment. 

Next, the collector must always ask for the immediate payment in full.  This is the starting block for the negotiations.  Over half the time, collectors will face problems in receiving immediate payment in full, so it is important for the collection manager to have been briefed on the least amount that the collection’s department will accept on the account.  This should not be confused with the elimination of debt; it only acts as a means for an immediate payment amount.

The collector’s repayment plan can be negotiated to fit any given time frame to collect the payment in full.  Debtors are usually very good at making immediate payments for less than the full amount as an act of good faith for a new repayment schedule.  Once a repayment schedule is proposed, the debtor can accept it or counter offer.  Counter offers should be well thought out before being immediately accepted or rejected, unless of course it falls below the least acceptable immediate payment amount whereby it should be rejected immediately. 

The collector can also ask for a security deposit, collateral, or return of the original inventory as long as it has not lost its original value while developing a repayment plan.  In general, it is important to understand the legal obligations to maintain reasonable communication with the debtor and potential future legal actions while seeking to negotiate payments in full.

If a repayment plan has been negotiated for payment in full, it is important that the plan is written for it to be legally proven upon the debtor’s dispute.  If such dispute is not received within the 30 day time limit, the collector is under no legal obligation to provide written documentation of the debt.

Finding Legal Help

After the passage of the Fair Debt Collections Practices Act, lawyers are now able to act as collectors of debt as well.  In many cases when potential lawsuits may arise due to large amounts of delinquent debt or an uncooperative creditor, this option should be sought immediately so an attorney can look at the collection’s file and propose appropriate action.