Denha & Associates, PLLC Blog


Many credit card companies typically agree to debt reduction arrangements where they feel a settlement of the debt will be in their best interest. In most cases they come to this conclusion because the person requesting the debt negotiation appears to be a legitimate candidate for bankruptcy. Knowing that in most bankruptcy cases they would receive nothing, creditors opt to take a discounted settlement on the debt rather than receive zero dollars in a Chapter 7 Bankruptcy. The result? The consumer receives debt relief and avoids bankruptcy and the creditor is able to get some money rather than zero if the debtor filed for Chapter 7 bankruptcy protection. Bankruptcy attorneys will typically advise clients before starting a Chapter 7 Bankruptcy to negotiate with Creditors in an effort to stave off bankruptcy. Bankruptcy should always be a last resort.

From a Creditor’s perspective, the type of people who appear to be bankruptcy candidates according to a creditor’s analysis are: 1) persons who have shown an inability to pay their debts as evidenced by their failure to make payments for several months on their credit cards and other obligations; 2) persons who do not have assets to protect such as any equity in homes and/or cars; and 3) persons whose current or future income would not allow them to reorganize their finances either through a Chapter 13 bankruptcy or a plan outside of bankruptcy.

If a Debtor wishes to attempt a settlement for less than the full balance on any outstanding credit card debt, the following are 10 things one should consider before embarking on such a course:

  • Settling debts is not always about what you know, but often who you know. Getting to the right person and avoiding the uncooperative people can make all the difference between settling and not settling. It is advisable to discuss this with an experienced debt counselor.
  • Creditors and collection agencies are not usually going to write off hundreds or thousands of dollars without a fight. Therefore you have to have a thick skin and be willing to persevere, sometimes for several months or up to a year.
  • You must use different strategies with different financial institutions and collection agencies. What works with one, will usually not work with another. In fact, your approach with one company could trigger a lawsuit with another company.
  • Creditors routinely threaten litigation. How do you know whether the threat of a lawsuit is real? Past performance of a creditor or collection agency is the biggest determining factor. Therefore, it’s extremely helpful to know the “profile” of a particular creditor or collection agency to determine if the threat of a lawsuit is legitimate.
  • What if one of your accounts is referred to a law firm? One should consult with an attorney to develop a game plan and strategy moving forward.
  • Debtors should understand what constitutes a good settlement offer and what is not a good settlement offer. For example, a 50% settlement offer might be the best offer one will receive with one particular creditor and you should definitely accept the offer. However, there are other creditors that routinely settle for 30-35% of the outstanding balance. The key is knowing when to accept a certain offer versus holding out for a more favorable offer. This is where a knowledgeable debt counselor can ultimately make a sound decision on an individual’s behalf because there is a short window to make this determination.
  • Sometimes temporarily doing nothing is the best negotiating strategy. Other times doing nothing will backfire on you and you’ll miss a good settlement opportunity or possibly get sued. You should understand when to take action and when to be patient.
  • Should you attempt to settle directly with the creditor or let the account go out to an agency? Believe it or not, there are times when one is better off by allowing an account go out to a collection agency whereas other times it may be best to settle before it’s outsourced to a collection agency.
  • What if your debt is sold to another company? Credit card companies sometimes sell accounts to debt-purchasing companies. These debt-purchasing companies sometimes handle the account in-house and other times they outsource collection of the account to a collection agency. So it can get a little confusing at times. Therefore, it’s imperative that the final settlement paperwork is completely accurate and demonstrates what company actually owns your debt so you are not liable for the remaining balance at a later date.
  • What about settling liens and judgments? It’s possible to settle outstanding liens and judgments for less than what is owed. But the strategy is slightly different than if you were simply attempting to settle an outstanding credit card debt that was not already converted to a lien or a judgment. You’ll also need to make sure the proper paperwork gets filed at the courthouse after the settlement is finalized.

Normally, you can expect to settle your debt (if eligible to do so) with a timeline of three to nine months.  If one of the parties wanted to expedite the process, it could be accomplished in as little as a month or so.  By the same token if someone wanted to stretch out the timeline, or stall, things could drag on for a year or more. Payment or payback timelines are another matter altogether.  Unless bankruptcy is your only option, it is normally in the best interest of the debtor to make the process as short as reasonably possible. 

Lance T. Denha, of Denha & Associates, PLLC, works in the areas of business transactional law, foreclosure/pre-foreclosure workouts, homeowner’s association law and bankruptcy law. In the business area, he specializes in general corporate law with a concentration in business and commercial transactions, property tax appeals, health care, and liquor licensing matters. In the foreclosure/pre-foreclosure workouts legal arena, Mr. Denha represents borrowers against lenders in seeking out residential loan workouts for purposes of avoiding foreclosure, or in the alternative, Mr. Denha will represent borrowers in foreclosure defense cases against lenders. In addition Mr. Denha represents Homeowners Associations in creating and amending bylaws and rules associated with the Homeowners Association, helps enforce the Homeowners Association rules and provides legal services in handling collection issues, including the filing of liens, if necessary, against homeowners. Lastly, in the bankruptcy area, Mr. Denha’s focus is on bankruptcy law matters, specializing in debtor representation, creditor relations, and related litigation.

Mr. Denha is a member of the State Bar of Michigan and State Bar of Florida where he is licensed to practice law in Michigan and Florida.

For further questions and assistance, please contact:

Lance T. Denha, Esq.

Denha & Associates, PLLC