Five tips for settling a collection lawsuit
Tip # 1: Don’t forget to answer the summons and complaint
You must answer the lawsuit within 21 days of service, even if you just want to settle and avoid the court process. If you don't answer within the required time, the creditor will likely get a default judgment against you. This diminishes your negotiating leverage and puts you at risk for garnishment and other bad things.
Tip # 2: If possible, negotiate a lump sum
The best way to get a good deal is to offer a lump sum settlement. Debt collectors usually have authority to settle for between 40% and 80% of the full balance if you make a one-time settlement payment. If you're unable to afford a lump sum payment, the debt collector usually has the authority to agree to smaller monthly payments, often over a couple of years. But in exchange for the flexibility of a low monthly payment, you're probably going to have to pay close to the full account balance.
Tip # 3: Before you pay, get the agreement in writing
Once you've reached a verbal agreement with the collector, insist that they send you confirmation in writing before turning over your money. Read the agreement carefully to be sure that it has the terms that you agreed to. Hang on to the letter in case there’s a dispute later about the settlement terms.
Tip # 4: Keep a record of your payment
If you're paying with a personal check, get a copy of the deposited check from your bank. If you're paying with a money order or cashier's check, make a copy of the check and either note the date that you mailed it or, better yet, use certified mail. If you pay in cash or make the payment in person, be sure to get a receipt. Your proof of payment may be needed in the future to prove that you settled the account.
Tip # 5: Be sure to get the right follow-up documents
The appropriate follow-up documents vary depending on what point in the legal process you are when you settle:
If you settle the account after you've been sued, but before a judgment is entered, the collector should send you a dismissal with prejudice. A dismissal with prejudice means that the claim is fully resolved and can't be brought again. Don't accept a dismissal without prejudice because there's a possibility that you could get sued again for the same debt. Also, if the case was filed with the court, make sure the collector files the dismissal in the court file.
If you settle the account after you've been sued and after a judgment has been entered, the collector should send you and the court a satisfaction of judgment. And if your wages were being garnished at the time you settled the account, the debt collector should quash the garnishment.