Q. What is a reasonable offer when trying to settle a $7000.00 debt? My husband and I owe on a voluntary repossession from almost 5 years ago (shame on us I know) and we want to negotiate with them so that we can buy a house. We aren’t sure what cash offer we should offer and how we should go about having them change the status on our credit report. We don’t want them to put “settled” or “charged off as bad debt”. We live in West Virginia.
A. Let’s over some some points on what you should consider when making an offer.
- Most likely, this debt is with a collection agency.
- The debt, since it it was an auto loan was a written contract.
- Since you live in W. Virginia, the statute of limitations on this debt is 10 years on written contract.
The original lender who made the loan to you probably sold the debt to a collection agency and will not even talk to you about the settlement offer. They will instead direct you to deal with the collection agency. This can all be done with a phone call to whomever made the original auto loan to you.
As I mentioned, the statute of limitations is not up on this debt. The statute of limitations is the period of time that a creditor has to file a lawsuit to get a judgment for that debt. Past this time period and the creditor is out of luck. Since the debt is not quite 5 years old, (your words), you don’t yet have the bargaining chip of pointing out it’s past time to file a lawsuit to collect on the debt.
Finally, and here is the good news, this is a relatively old debt, as debts go. If it is, most collection agencies pay 5 cents or less on the dollar the first time a debt is sold. It gets even better the more times a debt is sold: the older the debt and the more times it changes hands, the less a collection agency or junk debt buyer has paid for it.
Most junk debt buyers and collection agencies that do not have much invested in a debt is willing to accept very little money to settle it. The amount of the debt is not large enough, in my opinion, for the junk debt buyer to go after you in court.
Therefore, because of the age, and the amount, I would start by offering a nice round number of $1000, about 14.3% of the amount of the original loan. I really would not go above $2000 (about 29% of the original loan) as a final offer should back and forth negotiations ensue. The collection agency/junk debt buyer most likely will accept an offer somewhere between the two. Make sure you get an agreement in writing stating:
- The settlement constitutes payment in full.
- The collection agency agrees not to report the collection on your credit report in the future or remove it if they have been reporting it.
Getting the original auto lender to change their status to “paid as agreed” or put any other kind of positive rating regarding this account is not possible, even if you were able to pay them in full in cash. You will most likely get “debt settled for less than owed” or “paid charge off”. However, you will be able to avoid having an additional collection on your credit report. Another piece of good news for you, which may not be as good as you would like given the fact you want to buy a home soon, is that all black marks related to the repossession will come off your report in two years.
For most information on settling a debt, you can read our entire recommended debt settlement procedure.