One of the best ways to get rid of a debt collector forever is to negotiate a payment plan. But how do you do that? With whom should you talk? I’m going to teach you a trick I’ve learned during my years of negotiating with debt collectors: talk to the lawyer that filed the lawsuit.
How the Debt Collection Industry Works
In order to explain why, we need to step back to understand the debt collection industry and how it works. Most debt collection lawsuits are filed by junk debt buyers. When a doctor, or a credit card company, or a payday loan company, or someone else doesn’t get their payment and they can’t convince a debtor to pay by hounding them, they sell those debts to junk debt buyers. But they do it for pennies on the dollar, because the original creditor knows it’s going to be difficult to collect. Rather than incurring the cost of chasing down every dollar, they will take a few bucks just to be done with the case, and then they will write off the rest. The junk debt buyers then have to collect on these accounts in order to make money. Since they paid less than the original debt, there is a margin for them to make money. For example, if the debt is $1,000 and they buy it for $100, then their profit is anything they can collect over $100.
Junk debt buyers might try typical debt collection methods at this point, like calling and mailing you. But eventually, the only way to make a debtor pay is to get a court order. They get a court order by filing a lawsuit. And only a lawyer can file a lawsuit.
Why Junk Debt Buyers Hire Lawyers
While junk debt buyers will make profit on the amount of the debt they can collect over the amount for which they purchased it, the lawyers they hire work on contingency. This means that they only get paid if they can win the lawsuit and collect the money through the legal system. Often, the lawyers will bill a contingency fee of somewhere between 30-40% of the amount collected.
Let’s continue with our example from above. Remember that the junk debt buyer bought the $1,000 debt for $100. They hire an attorney on a 30% contingency fee. Now let’s assume the lawyer is able to get $1,000 by obtaining a judgment and garnishing the debtors wages. The attorney will earn $333.33, leaving $777.77 for the junk debt buyer, for a profit of $677.77.
The junk debt buyers have to use the lawyers to utilize the courts, because only lawyers are licensed to practice law. If the junk debt buyer tried to file a complaint and show up in court for a trial, the judge would dismiss the case. So the lawyers are an integral part of the process.
How Do the Lawyers Make Money
As you can see from the example above, the lawyer didn’t make a lot of money on that case, especially considering the amount of time it would take to obtain a judgment and garnish the debtors wages. In a very simple case, it would probably take around 10 hours (and most likely more) to collect that money. That’s only about $30 an hour, and that lawyer isn’t going to be happy to make only $30 an hour when he or she needs to pay off those student loans from law school. So they structure the firm in a specific way in order to make the firm profitable.
Because lawyers are expensive and their time is valuable, a debt collection law firm will use lawyers as little as possible. There are certain tasks that a lawyer must perform. These include signing legal documents and appearing in court for hearings and trials. But outside of that, every other task – rafting documents, talking on the phone, taking payments, managing the relationship with their clients (the junk debt buyers) – can be performed by a staff member, usually a secretary or a paralegal.
Paralegals are cheaper to hire and pay. So the more tasks the law firm can assign to a paralegal, the more profitable they can be. On top of all this, the law firm must handle a high volume of cases in order to be profitable. This means that the lawyers do very little in the process, and they will try and avoid any non-essential task.
So How Does This Help Me Negotiate a Payment Plan?
If you want to negotiate a payment plan, you have to call the law firm. When you do that, you’ll get a secretary or paralegal on the phone. They will act as a gatekeeper for the attorney, because the attorney’s time is more valuable than their own. This means that the person with whom you want to negotiate is the lawyer. Here’s why:
Think about a used car sales negotiation. You’re sitting at a table with a salesperson. You throw out a number. The salesperson says “I have to ask my manager if I can go that low” and heads to the back room to ask. The salesperson comes back and says “My manager won’t let me go that low.” There’s nothing you can say to change the salesperson’s mind because he’s not the ultimate decision-maker. It’s a specific negotiation technique that ends the negotiation with that person in power. And debt collection law firms do the same thing.
The paralegal will only negotiate down to a certain number, and at that point will simply say “I can’t go that low. The attorney only gave me authorization to go down to that level.” But if you negotiate directly with the attorney, they may go lower. The attorney doesn’t want to spend time talking to you. Attorneys will often take a lower amount just to end the case or to stop talking to you, because he has more valuable tasks to complete. So it’s absolutely critical that if you want to negotiate a payment plan, you should talk to the attorney who filed the lawsuit.
How to Get the Attorney on the Phone
It’s not going to be easy. Remember that the paralegal will act as a gatekeeper. That means if you call and say you want to negotiate a payment plan, they won’t transfer you to the attorney and will just start negotiating with you. So instead of telling them why you are calling, try and limit the information you give until you get the lawyer on the phone.
You want to convince the paralegal that only the attorney is qualified to answer your question. So for example, you might start by asking for the attorney by name. When they ask why you are calling, state “I’m calling about case number XXXX.” When they ask why you want to talk about the case, you can state “I need to talk about a recent pleading” or “I want to talk about an upcoming hearing” or “I want to talk about some stipulations for the upcoming trial.” These are tasks that only the attorney has the expertise to discuss. Once you get the attorney on the phone, you can then start the negotiation.
How to Negotiate the Payment Plan
Before you even call the lawyer, you should put together your monthly budget. Figure out how much you can pay every every month moving forward. This number will be your upper limit in the negotiations. Then you can start by making a monthly offer well below the upper barrier, and a total amount to pay that is well less than the amount owed. The lawyer probably won’t agree to the initial offer and will make a counter offer. You then move up a little bit from your initial offer. You will probably go back and forth for awhile.
If at any point the lawyer gives you a final offer that is above your upper limit, then for you, the negotiations are over. It’s time to fight the case in court. You just can’t agree to a payment you can’t afford, so just end the negotiation. Perhaps the lawyer will see you are serious about moving forward and will lower the offer at a later date.
If the lawyer comes below the upper limit, you have decide if it’s an offer you can live with. You already know you can afford it, and you’ll just have to decide how confident you would feel taking your case to trial.
One other thing to note is that you want to be careful about what you say about the case to the law firm. NEVER ADMIT YOU OWE THE DEBT! You should always assume that when you talk to a debt collector or a debt collection law firm that they are recording the call. And as soon as you say you owe the debt, the negotiation will end and you’ll lose the case. So don’t say something like “I am calling because I know I owe this debt and I just want to put it on a payment plan.” Instead, say something like “I’m interested in discussing settlement in exchange for a dismissal of my case with prejudice.” This starts the negotiation without you admitting anything.
The last step, once you reach a payment plan both sides agree on, is to memorialize the agreement in writing and get the case dismissed. If you need a form settlement agreement that is faovrable to debtors, along with a settlement offer letter that can kick off your negotiation, check out our store here.
And if you need more help with your debt collection lawsuit, sign up to schedule a meeting with me. During the consultation I’ll teach you everything you need to know to to take the case to trial without a lawyer. You can sign up here.
And if you need forms to take on the debt collector by yourself, you can find all of our forms here.
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