Negotiating a Settlement for Credit Card Debt in New Jersey

If you are having financial difficulties and feel that your credit card debts are spiraling out of control, negotiating a settlement for credit card debt could potentially help improve your financial picture and even potentially avoid bankruptcy. High-interest rates on credit card debt can make it extremely difficult to ever repay the debt if you are unable to make substantial payments each month, making settlement an attractive option in some cases.

However, it is important to understand the consequences of reaching a settlement to pay only a portion of your credit card debt, as well as the rules governing debt collection practices in general. Speak to an experienced credit card debt lawyer to learn more.

Potential Consequences of Settling a Debt

Credit card debts are unsecured debts, meaning that they are not secured by any specific assets and can be difficult for credit card companies to recover in bankruptcy. Because of this, many credit card companies are willing to negotiate to accept less than what the debtor owes. Negotiating a settlement for credit card debt can help a debtor eliminate a monthly payment, but can have consequences, such as:

  • Credit Rating Impact: If the debt is categorized as “settled” on the debtor’s credit report, it can have a detrimental impact on their credit score that can last for seven years. In some cases, the credit card company may be willing to remove the information from the debtor’s credit report. If the debt is categorized as “paid as agreed” or “account closed”, the debtor’s credit may not be negatively impacted
  • Tax Liability: Settling a debt for less than the entire amount owed can generate federal income tax liability. The amount of the debt forgiven may be treated as a cancellation of debt income that is taxable in the year forgiven, unless an exception applies
  • Statute of Limitations: If the credit card debt is very old, the statute of limitations may have already expired. This means that the credit card company and any collections agencies are legally prohibited from suing to collect the debt. Agreeing to make a payment could re-activate the statute of limitations on the debt
  • Access to Credit: The credit card company will likely cut the debtor’s credit line if the debt is settled, reducing the individual’s access to credit and potentially negatively impacting their credit score

How to Begin the Settlement Process 

Before negotiating a settlement for credit card debt, it is important to request verification of the debt from the creditor. The debt verification or validation letter will prove that the debt is actually owed by the debtor and will also provide information as to the age of the debt for determining whether the statute of limitations for collections has expired.

The debtor should generally begin by offering to settle for a low percentage of what the debt is worth and expect to negotiate upward until an amount that is acceptable to the creditor is reached. In some cases, the creditor may allow repayment through payments made over time. If a lump sum payment is possible, however, the creditor may be enticed to accept a lower percentage of the debt owed in order to avoid a protracted repayment period.

How a New Jersey Bankruptcy Lawyer Could Help You Negotiate a Settlement for Credit Card Debt

A lawyer can help you understand your options in negotiating a settlement for credit card debt, including the importance of ensuring that everything agreed upon is put in writing before you make any payments.

While reaching a settlement agreement can simply be viewed as a type of get-out-of-jail-free card, the consequences can actually be far-reaching and, in many cases, unanticipated. A debt settlement lawyer can help you avoid unpleasant future surprises.