What Can You Do If a Creditor Refuses a Settlement Offer?

Financial problems are some of the most stressful a person can face. If you find yourself in a tough predicament, it is possible to offer a payoff settlement to creditors. This means you offer to repay less to the lender than the total amount owed on a debt and to make that payment in one lump sum. So for instance, if you owe a creditor $10,000, you can offer to make a lump sum payment of $6,500 to clear the debt. Surprisingly, many creditors do accept these offers because they are guaranteed to see at least that much in repayment, which for many lenders is more than they would receive otherwise.

Unfortunately, not all creditors are willing to accept a settlement offer and if it is your last ditch attempt to remedy your financial situation it can leave you feeling desperate. What’s your next move?

You have a few options:

You Can Stop Paying the Debt

This isn’t necessarily advisable, but it is a way to get some bargaining power, as odd as it seems. If a creditor sees you are consistently making payments they are usually willing to stick it out, hoping to receive as much as possible over time. If they sense you are unable to make even small monthly payments, they could reason a lump sum less than the total value of the debt is in their best interest.

You Can Transfer the Balance Elsewhere

This could be risky, but if you have the opportunity to transfer the balance to a new creditor, preferably one offering a lower interest rate, it gives you a bit of a fresh start. You will no longer be behind on payments and the various fees will no longer be wracking up as they are with the current lender. Keep in mind you might face balance transfer fees and if you are unable to keep up with payments with the new lender, you will be back where you were to begin with.

You Can File for Bankruptcy

Another option to alleviate the stress of your situation is to file for bankruptcy. Depending on your situation, this could allow you to discharge the debt or to arrange a repayment plan that is easier to handle.

In addition to making your situation a little brighter, bankruptcy also means you are not responsible for taxes on the debt. If your settlement offer had been accepted, the amount you did not pay (so in the original example, $3500) is considered income and will need to included as such on your annual tax return.

For more information on how settling a debt affects your taxes see the FTC consumer site.

To learn more about your options once a settlement offer is rejected, contact the law office of Frank J. LaPerch, PC at 845.942.5500.

Frank LaPerch

Admitted: New York and New Jersey State Bar; U.S. District Court, Southern District of New York.

Experience: Frank J. LaPerch graduated from the Quinnipiac University School of Law in 1998. During law school, he interned for the Rockland County District Attorney’s Office. Upon admission, Frank focused his private practice in the following areas: Bankruptcy, Family Law, Real Estate and Criminal Law.

Frank is an active member of the Family and Criminal Law Assigned Counsel program of the Rockland County Bar Association. He has also taught several paralegal courses for the Washington Online Legal Institute (WOLI). Frank is also a former Acting Justice for the Village of Suffern in Rockland County, New York. In his judicial capacity, he has presided over misdemeanor criminal matters, vehicle and traffic cases, felony arraignments, small claims and civil cases.

Education: Quinnipiac School of Law, J.D. 1998; Marist College, B.A. 1995.