Not all debts are the same. There are many different types of debts and loans out there. The reason this is so important is because each account should be handled differently and the results will vary. By understanding each type of account, anybody can approach and handle their creditors and get the results they’re looking for.
Even though you may already know about certain types of banks and loan companies, I’m going to give you insider information about them and what you have to deal with. There may be things that you don’t know, and it’s essential to have a full understanding of the company so that you can intelligently offer the perfect deal.
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CREDIT UNIONS
On average, settlement percentages are higher with credit unions. The reason is simple. Most of the big card companies have insurances which cover their losses whenever a consumer defaults on a loan. Smaller banks like credit unions have to invest a lot more time and energy into recouping a delinquent debt. In addition, credit unions tend to approve loans for consumers based off good payment history with their bank, and not their credit score. They review each customer on a one on one basis. Some might say that credit unions take it personally when members go delinquent on an account. They’re more of a membership or family than a bank. In most cases, people have to be members of a certain group in order to have an account with a credit union. Like teachers or film makers.
Another issue with credit unions is that all the accounts are tied together. For example, a checking or savings account, credit card and car loan are intertwined. Which means, when a car payment is missed the credit union has the right to take the money directly out of the checking account for that payment. Or, if a credit card payment is skipped, and there’s no money in the bank account, they could repossess the car, even though the car payments are up to date. If it’s decided to go delinquent on a credit union account, the rule of thumb is not to have a direct deposit into a checking or savings account, or any funds that they can take. Trust me when I say, they will. If there’s only one account with a credit union, and nothing else attached to it, then going delinquent would be the same as a normal credit card company, with the exception that credit unions usually offer much higher settlement percentages.
One good thing with credit unions is that they’ll take financial hardship information into account when considering a settlement. Presenting hardship information is an important tool for getting the most favorable deal. Bigger banks and collection agencies could care less about a consumer’s hardship because they need to get the bill collected no matter what the situation is. Obviously, every situation is different, but credit unions do have a softer spot than banks when assisting their members.
AVERAGE PERCENTAGE: With credit unions, you’re probably looking at settling a debt between 40-60 percent off. My recommendation is to start by offering roughly 10 percent of the balance. Start a little lower than you expect to pay and that way you have a buffer for counter offers. Low balling a creditor will sometimes insult them, but it’s always better than offering 50 percent and ending up at 80 percent of the balance. By offering 10 percent, the result could be 50 percent or better, and that’s ultimately what you want to get from a credit union.
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MEDICAL BILLS
Medical bills can be harder to settle than credit cards or loans. In addition, each institution treats debt differently. Medical accounts include dentists, big hospitals, private doctors, surgeons, anesthesiologists, ambulance service, lab work, prescriptions and more. Most people don’t realize that even though they may have gone to one hospital for treatment, there could be charges for other services. In other words, there could be a bill for ambulance services, the doctor visit, the X-Ray, lab or any other services associated with the stay. Ambulance bills can be the worst! They may only reduce the monthly payment or perhaps knock off some small charges and late fees.
Typically accounts get handled by the billing department in the hospital first. They’ll attempt to collect the funds for roughly 150 days before sending it to a collection agency. Hospitals have been known to hold onto accounts forever and never send them to collections. Most hospitals don’t have the resources to report delinquent accounts, unless the account goes to a collection agency, it probably won’t be reported at all. As with any delinquent debt, there’s a risk of a lawsuit. Hospital accounts do fall under the statute of limitations and can be removed under that time frame.
Another thing I’ve found with hospital accounts is that, on occasion, they’ll offer a reduced amount to resolve the account in full. I’ve seen where they’ll literally tell you the balance, and then when you say you can’t pay it, they’ll say that they have a special offer and if you pay a certain amount, they’ll write off the rest. This isn’t necessarily a settlement; it’s something they have as a company policy. You could get a debt greatly reduced if you ask.
The first step is to approach the hospital billing department and let them know your financial situation and hardship. Second, I would ask for an itemization of the hospital or medical services. This can get tricky! Consumers can be charged for something twice under different names and codes and you should watch out for that.
If you feel you’re being charged for a service you didn’t receive, I highly recommend you go online and look up the codes and dispute them. This is important! You may be able to reduce your bill BEFORE you start negotiating. I recommend the following website www.FindACode.com.
If you were able to reduce the bill, start by offering a settlement. If there’s a lump sum amount of cash versus a three payment settlement (or more), the likelihood of getting approved is higher. If there’s a situation of insolvency and the ability to pay is low, it’s less likely that an account will go to an outside agency for further collections. However, in some cases working with a collection agency increases the chances of a settlement.
Another note on medical accounts that needs to be known is that, in some cases, they won’t settle at all. I had one experience where a client of mine wanted to settle their hospital account and had funds available for 50 cents on the dollar. I spoke to the collection agency, and they told me that the hospital wanted 100 percent of the balance. The account I was trying to settle was three months from hitting the statute of limitations, and I told the collection agency so, I also told them that the debtor was over 80 years old and retired. They told me that the hospital didn’t care and wouldn’t settle. I told my client that they refused to take less than the full amount, he said he would use the money to live instead of paying them. The account was taken by statute and the hospital got nothing in the end. I don’t recommend this as normal practice, however, sometimes eating and having a roof over your head is more important than that seven year old debt.
AVERAGE PERCENTAGE: Only a small percentage of people know they can settle medical debts. This is the first advantage! Settlement percentages should be between 20 and 50 percent off. Sometimes lower. Make sure to present hardship! I go over exactly how to do this later in the book. As always, one of the principles of negotiating, if you aren’t successful the first time, is to try, try again. Persistence is the key to success and is very rewarding in the end.
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CASH ADVANCES AND PAYDAY LOANS
Ever heard the ads on TV or radio promising quick cash with No Credit Check Required or Get Instantly Approved? This is the pitch for a cash advance loan against a paycheck. Payday loans can cause more trouble in the long run than they’re worth.
These types of loans are sneaky. Essentially payday and cash advance loans are two in the same and are known to target low income families. Although obtaining a payday loan is easy, paying it back with all the extra fees attached is another story. In most cases, the average loan term is about two weeks, and the interest rate can be as high as 38 to 400 percent. Yes, you read that right—it’s not a typo.
There are two types’ of payday loans, legal and illegal. Getting a payday loan online, versus a store front around the corner from your house, could make the difference between the two.
Q: What makes a payday loan illegal?
A: Most states have regulations on how much interest can be charged. This is known as Usury laws. A handful of states have made payday loans illegal and several states have no regulations on interest percentages. Online payday loan companies, who operate in as many as 50 states, are usually not following state laws and have no legal recourse if a loan is defaulted. Not only that, but if the company isn’t properly licensed in the state the loan was originated in, it’s considered null and void.
Before attempting to settle one of these types of loans, find out whether the loan was legal. If it wasn’t, there’s a better chance of getting a great settlement.
The truth is, settling a payday loan is like settling any other account; it’s just a matter of knowing what the laws are for your state. Go over your loan contract, if you have one. Find the interest rate being charged and compare it to www.PaydayLoanInfo.org. From there begin negotiating while knowing the law.
I want to give you one final word on payday loan companies. These collectors are the most aggressive and rude on the planet. I’ve never had so much trouble with anybody in my life as I’ve had with these collectors. I had a client that was being bombarded by a payday loan collector. He was calling all hours, day and night, to my client’s home and office. I attempted sending a cease and desist letter to the company by calling to get their address or fax number, and they refused the information. I tried anything I could think of to get the data out of them, but it was no use. I had a feeling they were working out of their garage or the back seat of their station wagon. I finally told my client that he had to handle the account as top priority because it was jeopardizing his job, he did so, and the account was resolved.
Short story: When I was consulting for the debt settlement industry, I talked to a gentleman that owned a debt settlement company. He told me that he was working out of his car, WHAT? He said that he called consumers to try to get them on the program, did negotiations and all customer service from his cell phone, literally in his station wagon. He said that he had too many children at home and they made a lot of noise, and he couldn’t concentrate. As you can imagine, I was shocked. I didn’t end up doing business with him, and in the end recommended that he become more legitimate. The point of my little story is that you never know what’s going on behind the scenes.
AVERAGE PERCENTAGE: Since the interest rates can be extremely high on these types of loans, you may want to consider handling them as top priority. In addition, most payday loan accounts have smaller balances, typically between $100 and $2,000, the settlement percentage could be a bit higher. A settlement could be between 30 and 75 percent off. Again, offering a lump sum, versus a two or three part settlement, will increase the chances of bigger savings. One other thing to keep in mind is to make sure you know exactly “who” you’re paying. Don’t wire funds, send western union or use PayPal because the money might end up in somebody’s pocket. Instead, have some traceable method of payment.
Q: How did they pay you?
A: Typically, by putting money into your account, right?
Well, that’s fine, make sure the money goes back to the company that loaned it to you.
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STUDENT LOANS
Most student loans are federally funded. Problem is the federal government isn't likely to settle. In most cases, they’ll work with you to make affordable payments. The average student loan debt is $27,000 per year. Therefore, four years in school means owing over $100,000 in student loans. Once a student graduates, interest starts to accrue and in some cases minimum payments don’t satisfy the interest. This means that the account will never be paid, and the debt will be owed for life. Student loans appear on credit reports, and in some cases create bad effects on consumers because of the amount of student loan debt they have. There are a few banks that give privately funded student loans, but if a delinquency goes on to long, the debt could be purchased by the government, which again, may not settle.
Unfortunately, government issued loans may not be included in a bankruptcy and have no statute of limitations on how long they can be collected or reported on a person’s credit. A default on a student loan could mean garnished wages, levied bank accounts, seized tax returns and property liens. There are forbearance documents that can be filed if there’s no ability to pay back the debt. If approved, the consumer has a period of time that they don’t have to pay the student loans. It’s very important to stay in good communication with these creditors and make sure that arrangements are made in one form or another.
With government loans, there are programs which can help lower payments and in some cases forgive part of the debt. However, there are certain guidelines in order to qualify for debt forgiveness. Typically the debt has to be relatively new, within the limits of a certain monthly income and have a good payment history on the account in order to qualify. To see the qualifications check out www.ED.gov.
The rules and regulations for private student loans are different. Unlike government issued loans, they’re treated almost the same as credit card debt. Depending on the state, there is a statute of limitations on how long they can attempt to collect. Although it’s true, a student loan can be settled if privately funded, don’t be surprised if you only save 10 to 20 percent of the balance. Ultimately it’s up to them, and settlements are not favorable on these accounts.
AVERAGE PERCENTAGE: The truth is, even if the money is available, private student loans can be the hardest debts to settle. In some cases, they may only reduce the monthly payments or waive some late fees and interest. My best recommendation is, offer a lump sum and start out by offering 45-50 percent of the balance. If you’re feeling gutsy, you can always offer less. You never know what they’ll approve. Be prepared to provide a lot of financial and personal information to the creditor when attempting to settle these debts. This may include pay check stubs, bank statements and your mother’s favorite recipe. Even the kitchen sink could be included in their request. So, be prepared for anything. On the federal side, I would recommend talking to your tax accountant to see if you’re eligible for any government relief.
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LEGAL ACCOUNTS AND JUDGMENTS
First things first, what’s a judgment? To put it simply, if someone’s been sued and lost, most likely a judgment was filed against them. The company that sued has the right to collect the amount owed through various collection tactics such as wage garnishment, bank account levy, property liens and much more. An agency may be able to attempt collection on a judgment debt for up to 10 years (and sometimes longer) depending on the state. Judgments can stay on a credit report much longer than a regular delinquent debt.
These days, there are plenty of law firms, which in actually, are collection agencies flooding the court houses with bogus lawsuits, essentially using the law to manipulate consumers into paying their debts. Many of these firms are collection agencies with a couple attorneys and well trained collectors or paralegals. The odds of speaking to an attorney are pretty slim. Being sued and taken to court is a scary process for anyone, especially if you don’t know your rights. Many folks simply hide the legal paper under a mattress or throw it in the trash. Don’t do this! You don’t need to be an attorney to handle a lawsuit, it’s easier than you think.
On actual legal accounts, you can either consult with an attorney or get thoroughly educated on how to handle it yourself. Without getting into too much detail, I can tell you this; there are a series of steps you can take the moment you receive a letter from a law firm attempting to collect on a debt. By taking these steps, you could ultimately avoid a lawsuit altogether and settle the debt in the process. If you want free legal information, check out a website called www.Nolo.com.
If you threw away your legal papers or never showed up on your court date you most likely have a judgment against you. However, if you haven’t had your assets or funds taken within the first six months to a year of having received a judgment, then you can assume the law firm either hasn’t been able to locate you or doesn’t have the resources, knowledge or capacity to collect the debt. This does NOT mean that your problem will go away. If the law firm can’t collect the debt now, they’ll hold onto it, and typically, once a year, run a new credit report to see if your situation has changed.
When I worked at the collection agency, I would do this all the time with the old judgments we had in our office. Once a year, we would pull the files, run a new credit report, and if a new job or residence address was found, we'd attempt contact, or send a garnishment that day. Since most judgments are good for 10 years, it sucks to have to worry about a wage or bank garnishment because one day they could find you and in a flash, your money’s gone.
Negotiating with law firms is slightly different than dealing with collection agencies. In most cases, the settlement percentage you’re able to work out will be higher than on a regular non-legal debt. They know they either have the upper hand or think they do because they’re backed by the legal system. However, by knowing more about the legal process you can achieve a decent settlement percentage. For example, if you’ve been served with a summons and complaint, by simply filing an answer with the court you could be making a difference of an additional 10-30 percent off. To find out more about this I’d suggest going on line to www.Nolo.com or consulting an attorney.
AVERAGE PERCENTAGE: When dealing with a collection law firm, they may request that you provide personal, banking and employment information. Depending on the status of your legal account and your current financial situation this may work for you or against you. The average settlement percentage on legal accounts, when they don’t have a judgment against you, is between 45 and 75 percent of the balance. If you have a judgment, you’re probably looking at a settlement percentage of 65 to 80 percent, or higher. If the settlement percentage is too high, and you don’t have the funds, I highly recommend you get into a monthly payment plan with the law firm. They’ll require that you sign a written agreement, and should you default or miss a payment, they can go straight after your assets. Remember, that if you do enter into a payment agreement with a law firm, make sure that you send them a money order every month and don’t give them banking information. If you’re one day late on your payment, they could garnish your bank account, and the odds of getting the money back is slim to none!
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SECURED DEBTS, CAR LOANS, AND FURNITURE STORES
Not sure whether your debt is secured or not? A secured debt is exactly what it sounds like; it’s a loan that’s backed by collateral. The creditor has the right to repossess the collateral in the event you default on your payments.
The downside with this type of loan is that you still owe the agreed loan amount even if the collateral is seized.
For example, the most common secured loan is a car or home. I think most of us already knew that. If you stopped making monthly payments, you might walk out your front door one morning only to find that you have no way to get to work. Or, come home to find all the locks have been changed and a foreclosure notice on the front door.
Some debts start out as secured, but once the asset is seized, are considered unsecured. It’s important to know the difference as you’ll need to handle each one in a different manner. For example, if you purchase a car and then begin having trouble keeping up with your monthly payments, good luck in trying to negotiate with the bank. As long as you still have the car and are current, or are only a few weeks late, they’re most likely not going to bring down your interest or lower your monthly payments.
If you fall behind and the car gets repossessed, the loan would then be unsecured. When the bank repossesses the car they give a certain amount of time for the consumer to pay the delinquent amount before they set up an auction date. If the consumer doesn’t pay the amount owed, with storage fees, late fees, past payments, etc. the car will go up for auction. Realize that depending on how many people are at the auction, the car could be sold for hundreds or thousands of dollars less than its value. You may have bought a car for $20,000 and made $2,000 worth of payments leaving you with an $18,000 loan. The car could be sold at auction for $2,000 or less, leaving a balance owing of $16,000, for a car you no longer own. Scary isn’t it? The bank can even file a lawsuit against you for the delinquent amount. Look at it this way, you borrowed $20,000, and in total the bank only received $4,000 for it, so it does make sense, however, you as the consumer have nothing to show for the money. Besides, you couldn’t make the payments in the first place, so handling the balance of $16,000 is highly unlikely! Besides, at this point wouldn’t your main motivation be to get a new car so that you could get to work? I thought so.
Quick tip: If you find that you can no longer afford your vehicle don’t wait for repossession. Contact your creditor and drop your car off. This will save you money in the end, due to storage fees, late fees, towing fees, etc.
Another secured loan might be rent-to-own items such as furniture, electronics, or appliances. The store has the right to repossess these items should you default on your payments. However, the odds of this happening are not as common these days. Not many companies want to take back that couch you and your family have been sitting on for a year or two. Stains included. There’s not much they can do with something that used. If they’re going to take anything back, it’s most likely electronics such as a television or a fancy fridge.
Getting sued on these types of loans, after the merchandise was repossessed, frankly sucks. Don’t worry; you may not need an attorney.
Q: Have you ever watched one of those court room shows on TV, like Judge Judy?
A: It’s the same concept. If you do get dragged into court, the best time to negotiate with the creditor would be right then and there. Pull them aside and work out an arrangement. Just remember to ask them for a settlement agreement in writing, and follow up with them every day until you get the letter. Never give payment without having the written agreement first!
The idea is this; if your loan is secured, the chances of working out a settlement are slim. If the asset has been seized, making your loan unsecured, you’re more likely to get a settlement.
AVERAGE PERCENTAGE: The settlement you’re able to work out will depend on the type of company that's handling the account. Most of these rent-to-own type stores are not large corporations, expect maybe...well, the big ones! (I won’t name names) You’ll probably have a harder time with the smaller companies. The reason is simple. The smaller companies are doing all the dirty work themselves, meaning, in-house collections, buying, selling, etc. It becomes personal to them. While the bigger companies usually hire a collection agency. I’d recommend starting out by offering 40-50 percent of the balance. This leaves you with some room to negotiate and meet somewhere in the middle.
With mortgage or car loan companies, when the account is no longer secured, I would recommend starting out at 5-10 percent of the balance and work up from there. I've seen, in recent years, where mortgage companies have taken 10 percent or less of the balance. Try it, you just never know.
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MORTGAGES AND HOME LOANS
Due to the complication and variety of options available for negotiating a home loan, I can’t possibly give you all the information you need in this simple segment. However, I will give you some useful tools in your quest for help.
As most of you know, the mortgage industry has seen its fair share of changes in recent years.
In the early 2000’s, housing prices were at their highest in history and interest rates at their lowest. Many families were purchasing and refinancing their homes or taking out lines of credit for home improvements or personal consumption. This was known as the “Housing Bubble.” Many did so, in hopes of adding even more value to their homes by replacing entire kitchens or making other improvements. Or perhaps they used their equity loans to pay off the credit card debt they incurred while fixing their homes. I’ve talked to a lot of people who paid off their credit cards, and then charged them right back up again. People also used the money from their homes to buy boats, vacations, new cars, or whatever they wanted. Some pulled money from the equity in their homes to buy second or third homes. It was out of control.
In addition to families buying existing homes in excess, new development was at an all-time high. It seemed that everywhere you turned new homes and businesses were being built. The housing market was on steroids, and America was on a high, with no sobriety in sight. Times were good. Americans were living the dream. “Houses for everyone!” Well, at least for most.
While many have their theories on what caused the Housing Bubble, most will agree that one of the underlying causes had to do with the big banks. Banks were handing out mortgage loans to customers who weren’t credit-worthy, approving loans to buyers who they knew wouldn’t be able to afford the mortgage in the long run. To make matters worse, the banks were handing out loans with no down payments, or without running proper background checks such as proof of employment or income. Many buyers were told they could get the home and make interest-only payments for three years, and perhaps refinance later when things got better. However, at the end of the three year period, most home owners hadn’t seen much change to their income and when it came time to pay the actual mortgage payment (not interest-only payments) they couldn’t afford them. For instance, some folks tried refinancing as their brokers had originally recommended, only to find that the housing market had changed, and they couldn’t get approved by their banks.
Unfortunately, the housing market began to plummet. As fate proved obvious, these same un-creditworthy customers realized they couldn’t afford their homes and America saw a new onslaught of foreclosures and bankruptcies.
Along with this new crisis, so came the opportunist. Loan modification companies began to pop up everywhere. A lot of these companies employed the very same mortgage brokers who wrote the loans in the first place. I think most of us know what happened from here. Many of the big banks refused to work with their borrowers to modify their loans and an onslaught of foreclosures ensued.
Another story for you: at the time of the mortgage crash, many x-mortgage brokers came to me for consulting and advice on debt settlement. I was told horror stories about things that underwriters used to do to get loans approved. In one instance, an underwriter would white out numbers on mortgage applications to push loans through. A lot of consumers receiving loans couldn’t afford to make the payments, but since they were approved, took the loan anyway in hopes that they would be able to pay it. Obviously these consumers lost their homes quickly and ended up in a worse situation than they were in before. Their credit was ruined, and the possibility of getting another house was slim to none.
At that time, a friend of mine was trying to get some money out of her house. She was offered a $75,000 loan that had the worst terms I had ever seen. The payments were astronomical; double the amount of her first mortgage that happened to be over $250,000. She asked me to call the company and ask some questions because she couldn’t confront the situation. I called the loan company and the man told me that if she wanted the money that she would have to pay. He said that he was doing her a favor because he could get her the Loan. I told him that she couldn’t afford the payments, and he asked, “Does she want the money or not, what difference does it make if she can’t make the payments? I can get her the loan, and she should take it.” I told him that she wasn’t that stupid. He said, “Well, her loss.” That was the end of that. My friend didn’t get the loan, thank goodness. The moral of this story is, just because they’re going to give you the loan, doesn’t mean you have to take it! Okay, let’s get back it.
In March of 2012, after a lengthy investigation, the Federal Government came in and had the five major banks agree to a 25 billion dollar settlement to offer struggling home owners some much needed help. As part of the settlement, these banks agreed to offer 10 billion dollars in mortgage relief. This was supposed to include principle reduction of homeowner’s first and second mortgages.
It seems now that most of the relief was simply in the form of short sales. This didn’t work for people who were interested in keeping their homes and reducing their monthly payments.
The process of re-negotiating the terms of a home loan isn’t for everyone. It can be a lengthy process, and unless you have thick skin and the patience of a saint, I wouldn’t recommend it. Be thorough while searching for assistance with your loan modification. There are a lot of scams out there, most of them are looking for upfront fees, which are illegal. If you’re trying to modify your home loan by yourself or just want more information, here are some websites which could be of great assistance. These sites are either Government or Non-Profit assistance programs.
www.MortgageOversight.com
www.MakingHomeAffordable.gov
www.Naca.com
www.Hud.gov
www.Hopenow.com
AVERAGE PERCENTAGE: Obviously, you won’t be able to settle your first or second mortgage while you’re still in your house. However, home modification programs are something you can look into. If you go the foreclosure route, you’re looking at a substantial amount of money that you will end up paying if the house is sold at auction. In this case, offer 5-10 percent to the bank to settle the account. Short sales are good because you sell the house, the bank takes a reduced amount, and you don’t owe any money. The ideal scene would be to stay in your home, and if you can’t afford the payments, then contact your mortgage company and find out what programs they’re offering and push through until you get what you want. I’ve seen home owners with foreclosure notices on their door, and they’re still able to stay in their houses, with a lot of intention and a lot of communication to the bank.
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IRS AND STATE TAXES
You can be delinquent on several types of taxes. Because the IRS is a government agency, they have a whole different set of rules when it comes to collecting past due balances. Offering a settlement could be translated in IRS terms to an "offer and compromise.” Make no mistake, you’re not the one to determine the offer or how much you pay.
There are a lot of companies that claim they can settle your past due taxes for pennies on the dollar. Imagine, you owe $60,000 in taxes, and it can all be settled for a mere $6,000 or better, keep dreaming. It’s not to say it doesn’t happen, however, the reality is that tax-settlement companies aren’t the ones making the decisions. Only the IRS can determine if you're qualified for a tax reduction or not.
Generally, tax payers that get approved for IRS settlements are those that are relatively poor. When I say poor, I mean no assets, no property or little equity and low income. The process works as follows: The IRS will have you fill out several forms, which require you to list all of your possessions, assets, income, etc. Once the forms are submitted, and you’ve provided documented proof, they’ll review your offer and decide whether you qualify for approval or a counter offer.
Q: Why would you pay a company hundreds or thousands of dollars to fill out a couple forms for you?
A: Because you don’t know how, don’t know where to look or are having a hard time confronting the problem. That’s why having a full understanding of how all these processes work, put you in control to handle anything that comes up.
Some people that can afford to pay their taxes, but simply don’t want to, have been known to fill out these forms just to buy time. So, the IRS began charging an application fee in order to filter out some of those phony applications. I believe the fee for the form itself is about $150.
Any company who claims they can guaranty results, is lying. It’s not up to anyone but the IRS. My suggestion is to find a licensed tax relief company that doesn't take upfront fees or hire a specialized accountant or attorney.
If you find that you’re having trouble and need help, I highly recommend you call the IRS and discuss your options. If a settlement is the route you want to take, and you want to do it on your own, go to www.IRS.gov and download form 656B. Then complete the worksheet (form 433A). They’ll instruct you as to the rest of the process. Your tax professional will be able to help you with this, and I highly recommend that you consult with them in dealing with the IRS.
AVERAGE PERCENTAGE: When making a settlement offer to the IRS, where do you start? I’d suggest a minimum offer of 20 percent of the debt amount, lump sum. If you offer installment payments, you may be looking at a higher settlement percentage. But then again, if that’s all you can afford, then by all means submit a long term deal. If your offer gets rejected, you’ll either need to submit your forms again or begin making payments toward your debt.
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BROKEN LEASE AGREEMENTS OR RENTALS
If you’ve broken a lease early, more than likely, you’ll have to pay the remaining amount of months on the original contract. Cell phones are the best example. I have Verizon, and every time I upgrade, get a new phone, or change anything on my plan, I extend the agreement another two years. Once I decided to go with Sprint, I canceled with Verizon and they were nice enough to get me out of the contract with a fee of about $1,000. Nice, right? I went over to Sprint for 30 days and decided that I didn’t like it, so canceled with them prior to the 30 day cancelation period, and went back to Verizon. Boy, were they happy. At that time, I hadn’t paid the $1,000 fee, so they gladly waived it.
A few years back I had a retail store in a mall here in Burbank. I signed a one year lease. About six months into the lease, we had to change something, and a new lease was signed. Exactly three days later something came up that was totally unexpected, and we had to move out of the mall. I talked to the manager, and they told me that I had to pay the full year on the new lease. There was nothing I could do but pay it. No settlement, no arrangement, nothing. For the next 12 months, I paid a lease on something I didn’t have because I didn’t want to be sent to a collection agency.
As a business owner for many years, I’ve paid thousands of dollars for products or services that I didn’t receive, because of leases. Another example would be my Pitney Bowes machine. You know, that’s one of those machines where you stamp envelopes with the amount of postage that’s due. Since we have a lot less postage than we used to, I called the company to cancel the service. They told me that I had signed a 10 year lease with them. I told them that I would never do that, and they said that my signature was on it. I couldn’t prove otherwise. They said to get out of the lease it would cost me $1,400. I pay them a couple hundred dollars every few months for the lease, and have to pay $8 every time we load the machine and God knows what other fees we pay. I told my employees, when I was looking at canceling, that we could buy a roll of stamps, and I would save a lot of money. But, that didn’t work out, I still have the stupid machine because I refuse to pay the $1,400 to get out of it.
My position in all of this is that I think leases are the stupidest things anybody ever invented. I know that it’s important for a company to predict their monthly income over a long period of time, however, if you’re not receiving the service or don’t have the rental anymore, then why should you pay for it? It’s like any criminal that robs a bank, or holds up a liquor store, they walk in, take the money and didn’t do anything to deserve it. This, my dear readers, is exactly what companies do when you get out of a lease early.
Now let’s talk about leased property, if you can’t afford the payments and need to move, the leasing company will hold it against you and charge you the entire amount for the lease. This could get very expensive. Most lease contracts have a clause stating that if you default prior to the end of the lease, there’s a buy out and all you have to pay is that amount. In some cases, like my examples above, this isn’t the case.
Q: How do you handle a broken lease?
A: Negotiate with the lease company and try to come up with the best possible deal for yourself, or don’t get into a lease at all so that you don’t have to worry about breaking it.
The bigger companies will send your account to a collection agency and report the broken lease on your credit. This could make it extremely difficult for you to rent or buy in the future.
It’s a good idea, when negotiating, to include your hardship information and the reason why the lease was broken. Like I said earlier, you may not get an offer at all and might have to pay the full amount of the lease. You could be sued by the collection agency or leasing company if you don’t resolve the debt.
AVERAGE PERCENTAGE: I’d say to start off by offering 30-35 percent of the balance in a lump sum payment. This leaves room for a counter offer. If you’re unable to bring them down from a high counter offer such as 80 percent of the balance, then I would suggest offering to pay them over a 12 month period or longer. If you’re truly in dire straits and have little to no income, then by all means, embellish on that hardship. Once they realize they can’t get blood from a stone, they may just come down on their counter offer.
I hope the information in this Chapter has given you a better idea of the types of loans out there and how to deal with them. Now it’s time to get into handling bill collectors and their do’s and don’ts. The next Chapter was designed to teach consumers the basic laws that collectors have to abide by and how to handle them.
