What do Credit Card Companies Demand for Non-Bankruptcy Settlements?

lawsuit settlements

13 Nov What do Credit Card Companies Demand for Non-Bankruptcy Settlements?

Credit card debt remains a primary reason that folks call me to ask for a financial problem evaluation issues. Generally bankruptcy constitutes one option but by no means is Chapter 7 or Chapter 13 the only option.

Recently I met with a very nice woman who owes around $6,000 in credit card debt, but not much else. After talking to her, we both agreed that bankruptcy did not make sense for this small amount of debt. There is, by the way, no “minimum” amount of debt that would disqualify you from filing bankruptcy but given that the attorney’s fee cost of Chapter 7 usually exceeds $1,000 and the attorney’s fee cost of Chapter 13 can exceed $3,000, it hardly makes sense to file a bankruptcy if you debt is not significant.

In my office, I use a rule of thumb that if a client has less than $25,000 of unsecured obligations (like credit card debt), I am going to discourage a bankruptcy filing unless circumstances really dictate otherwise. I know other lawyers who will rarely file cases when the debt involved is less than $50,000, while others have no “soft” limits.

In any case, my potential client and I agreed that bankruptcy did not make sense for her, so the next step was to decide how to proceed. In this case, she had already been sued by her credit card company – the plaintiff’s lawyer is a high volume collection firm that files hundreds of credit card debt collection cases every week.

When she came to meet with me, my client had already received a proposed “Consent Judgment” from the plaintiff’s lawyer. The terms of this judgment included:

  1. the plaintiff would take a judgment that would be recorded on the county record
  2. the judgment included interest of $850, attorney’s fees of $620 and court costs
  3. post judgment interest would continue to accrue “at the legal rate”
  4. plaintiff agreed not to file any wage garnishment if defendant paid $500 by the end of the month and monthly payments of $150 thereafter due on the 31st of each month

She asked me what I thought about this proposal. I advised her that had I been involved in negotiations from the time the debt went into default, here is what I would have liked to have seen:

  • no lawsuit at all – ideally, I would have worked out a payment plan directly with the credit card company and avoided the lawsuit and its negative credit implications
  • assuming that a lawsuit was filed, I would have explored whether there were any Fair Debt Collection Practice defenses and perhaps I would have filed an answer asserting all available defenses available under Georgia law. I know that volume collection lawyers make their money on default judgments. By filing an answer along with interrogatories, requests for production of documents and requests for admissions, I know that this file would be pulled and sent to one of the senior partners at the collection firm. If there were any irregularities, it is likely that the plaintiff would dismiss its lawsuit. At the very least, I would force the plaintiff’s firm to provide documentation of the debt and thus increase my leverage for a more favorable settlement
  • I would negotiate to avoid a judgment. Most courts allow a Consent Order which provides that a judgment will be issued if certain events happen. In other words, the Order would provide that my client needs to pay $500 by a date certain and monthly payments thereafter. If she did not pay, then a judgment would issue along with other consequences. I have negotiated Orders that provide for a dismissal of the action within a few months if the defendant performs certain actions. Such an Order would likely have much less negative impact on my client’s credit report than a judgment.
  • I would build into the terms a “second chance.” In other words, the Order (or judgment) could provide that if the defendant missed a payment, it could open default by paying a small penalty fee within a certain number of days. This would protect my client against an immediate default in the event of unforeseen circumstances.
  • I would negotiate more favorable terms. In a consent agreement, everything is negotiable. Perhaps the plaintiff would discount the full amount of the credit card debt with an up front payment of a certain amount. Interest and attorney’s fees are always negotiable. Given that the plaintiff would receive nothing in a Chapter 7, I would use the threat of bankruptcy as a tool to reduce the amount owed and to ask for better terms.
  • I would provide that upon payoff, the plaintiff would take affirmative steps to restore my client’s credit.

Obviously, many of the demands I would have made would have been more timely had I been retained early on in the process. In this case, my client did not want to spend any money with me to negotiate so she essentially accepted the terms of the plaintiff’s Consent Judgment.

The lesson we can all learn from this case include:

  • begin negotiations as early as possible – don’t wait to get sued
  • everything in a collection negotiation is negotiable – don’t assume that the collector or its lawyer will say “no.”
  • make the collection law firm earn its money. You have the right to demand proof of the debt they claim you owe and the credit card company’s lack of paperwork can serve as your leverage for a better settlement
  • if bankruptcy is an option, you can use it as a tool in your negotiations. Don’t be surprised, however, if the creditor calls your bluff
  • when negotiating, avoid making the discussions personal. Keep the tone of your negotiations businesslike and avoid the psychological tricks used by bill collectors

Have you negotiated with credit card companies and/or their lawyers? What has your experience been like?
by , Dunwoody, Georgia

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including https://www.atlanta-bankruptcy.com and an Atlanta bankruptcy blog, https://www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.
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