I’m a creditor rights attorney, and, with the economy the way it is, I’m filing collection lawsuits left and right.
In most cases, the borrowers are too broke to hire a lawyer to respond, so they ignore the lawsuit and let a judgment be entered against them. In some cases, however, the borrowers are pro-active and call me to make a settlement proposal.
In the past, when property still had equity and people were just one loan application away from a $40,000 Home Equity Loan, creditors weren’t listening to low-ball offers. Even today, it’s still not true that banks will happily accept 10% of whatever they’re owed.
If you’re going to make a low-ball offer, support it with proof that you’re paying them the last pennies you have. You need to show the creditor:
- A recent financial statement;
- A list of all assets, such as cars, real property, cash, other bank accounts;
- A list of all debts (which shows the creditor who else is chasing you);
- Copies of recent bank statements;
- Recent pay stubs;
- A budget showing your monthly expenses; and
- Anything else that proves that you don’t have the money to make a better offer.
Again, the rumors of debt settlements for pennies on the dollar are wildly exaggerated. Creditors will accept discounted payments, but they aren’t approaching these proposals blindly. When in doubt, they decline bad proposals.
If you want a steep discount, you have to work for it, and assembling the information listed above is step one in the process.
Creditors Rights 101 
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