If you’re facing a legitimate financial hardship and can’t make the minimum payments on your Bank of America (or FIA Card Services) credit card account then one potential solution is to negotiate a lump-sum settlement for less the balance owed.
If you’re unfamiliar with debt settlement, you’re probably wondering how someone who can’t make their monthly payments would have the funds needed for a settlement at, say, 30% of the total balance. But there is a huge difference between INCOME and ASSETS, and many consumers who can’t sustain regular monthly payments due to lack of income or other financial hardship are able to use some of their dwindling savings for the purpose of settlements. Other sources for funding settlements might include the sale of household items, valuable collections (coins, stamps, etc.), cash value life insurance policies, borrowing from family, or sale of vehicles or other property. These are ONE-TIME funding sources, in other words, once the money received from a one-time source has been expended, there is no more to replace it. But such funds can be put to excellent use in retiring a major credit card debt, when otherwise the customer would just be facing an unsustainable situation (which in turn often leads to bankruptcy).
When it comes to settlement with Bank of America (and other major creditors), there are some key facts about the collection process you need to be aware of. Broadly speaking, there are three phases to collections.
- “Phase One” begins from the point at which you first default on payments and (assuming no further payments are made meanwhile) lasts for six months. At that point, Bank of America will record a “charge-off” on the account, which simply means they have written off the account on their books. It’s important to understand that a charge-off does not mean the bank has sold the account, or that they will stop trying to collect.
- In fact, “Phase Two” of collections begins right after charge-off and can often be the most intense phase of the overall recovery process. By definition, Phase Two is the situation where the original creditor still owns the account but is attempting to recover by working through third-party collection agencies or collection attorneys.
- What I refer to as “Phase Three” only applies when the original creditor (Bank of America for the purposes of this article) SELLS their rights to the account to a debt purchasing company, which then attempts to recover and generate a profit over what it paid to purchase the account. In the remainder of this post, I won’t discuss Phase Three settlements at all, simply because under that scenario, Bank of America is no longer the creditor you are attempting to settle with.
Why is this information relevant if you’re trying to reach a settlement with Bank of America? Many websites offering advice on settlement of credit card accounts recommend sending “debt validation” notices to collection agencies or creditors, in theory “putting them on notice” that you are aware of your consumer rights and demanding copies of their backup documentation. There are definitely situations where a debt validation letter is appropriate and effective. However, when you are trying to settle a Bank of America account that has not yet been sold, it would be a major tactical mistake. The reason is because they HAVE the documentation. It’s trivially easy for an original creditor to produce a stack of monthly statements two inches thick and mail it to you. By taking this approach when dealing with an original creditor, you greatly increase the risk that the file will be escalated for swift legal action. The general rule of thumb is that validation letters should be used ONLY in Phase Three (i.e., debt purchasing) situations, and not at all otherwise.
Before attempting to settle, first determine whether you are in Phase One or Phase Two of collections. If you have missed less than six minimum payments, then your account should still be in Phase One, prior to charge-off. In this situation, it’s usually possible to deal directly with Bank of America and negotiate a settlement with their collection department. However, I should also note that it is quite common for them to outsource to a collection agency during Phase One. When that happens, it’s no cause for panic, since it’s usually possible to still obtain a good settlement either way.
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If you’re negotiating during Phase One (prior to charge-off), get on the phone a couple of times a month and let them know about your situation. Be aware that you’ll hear various kinds of options presented to you depending on how far behind you are on payments. For example, if you are two payments behind, the representative will generally not discuss settlement yet and will only speak in terms of different payment options. Listen carefully to these proposals and note them down. Sometimes these alternate programs can include low interest rates and lower monthly payments, and for some consumers this level of relief alone may provide sufficient breathing room to get a handle on their financial situation.
Take the high road and negotiate in good faith. Don’t play games or make up stories about your situation. If you are in a financial crisis, that is enough, and you just need to be patient and persistent. Start out with an offer in the range of 15-20% of what you owe, but state this in terms of a round dollar amount. So, for example, if your balance is $10,000, you would start at $1,500 or $2,000 max. As the negotiation proceeds, resist your initial urge to jump your offer right away, and give it some time to see how things go first. You can always increase later. The first offer you receive will rarely be the best offer available, no matter how convincing the explanation that this is “the best we can do.”
Once you reach verbal agreement on the settlement figure, you always want a written letter of agreement. During Phase One settlements with Bank of America, it’s usually possible to structure the settlement to be paid in 3-4 installments over a maximum of 90 days. They normally require that you first make arrangements for the first payment on the settlement before they will release the settlement letter and send it to you. This is acceptable, provided that you POST-DATE the first payment. You should never fund a settlement payment until you first have an acceptable letter to document the agreement! Some collection centers for Bank of America will agree to fax the letter to you, while others insist they cannot fax and will only mail it to you. If they will agree to fax the letter to you, then you only need to post-date the first payment by a few days. You can then check the letter and fund the payment BEFORE it is scheduled to be pulled from your account. If they tell you they will only mail the letter, then allow at least 7-10 days for receipt of the letter and date your first payment accordingly. (NOTE: If you are negotiating settlements with multiple creditors, it’s better to set up a special checking account for this purpose. That way you can react quickly in case anything goes amiss.)
What happens if the account has already gone beyond charge-off and been assigned to a third-party for collection? This is a Phase Two collection scenario, and the major difference is that you won’t be able to call Bank of America directly anymore, but will instead have to deal with their assigned agency. Achieving a settlement with any creditor is a matter of balancing RISK versus SAVINGS. You’re in a financial crisis and want to obtain as deep a discount off your balance as possible, but you also have to be mindful of the legal risk that mounts whenever you are behind on payments with a creditor. One important tip for determining the risk factor is to assess WHERE the assigned collection agency is located. If they are not a law firm and they are in some other state than yours, then the situation is low risk compared to assignment to a law firm in your state. We do take legal threats from Bank of America seriously once a file has escalated to placement with a collection attorney firm (licensed to operate in the client’s home state). In such situations, the risk is greater, so we accept a higher figure than we might otherwise. Where the risk is lower, we can hold out and try to do better on the settlement percentage.
Let’s say you are talking with a third-party agency in a different state and they have agreed to a 25% settlement. You are happy with the result and you can fund the settlement ok. The one unbreakable rule in debt settlement is to GET IT IN WRITING FIRST, before you pay! You must have a letter in-hand before you make payment on your settlement. There are NO exceptions to this rule. This isn’t a matter of “trust,” or “distrust.” It’s just simple common sense that any agreement modifying your contract with Bank of America (or any other creditor) must be in writing. If you have a debt collector balking at putting the settlement in writing, then just put your foot down and insist that you will only proceed on the basis of a written agreement letter. It doesn’t have to be long! It just has to cover the essentials – the account number, amount of settlement to be paid, any payment installments listed clearly with due-dates, and the transaction has to be defined or referred to as a “settlement,” or “settlement-in-full.” Simple enough!
With your letter in hand, then you can make your payment. Cashier’s check by Federal Express is one method, but you want to be sure that you’ve coordinated payment method with the agency. Most of them prefer check-by-phone or electronic check (same thing). This is also called an ACH transaction, and it means you provide them the bank routing number and account number off your settlement checking account. If you have it in writing first, it’s ok to do this.
Over time, and with a series of negotiation calls, it’s possible to reach a settlement agreement on your Bank of America card that you can handle. Don’t be greedy. Once you reach your goal, accept the settlement and take the deal off the table. If you’re like most clients, you’ll feel a tremendous sense of empowerment at achieving a successful settlement. It can be a huge game changer financially, as well emotionally.
If you’re drowning in debt and want some expert advice and coaching as you negotiate through your settlements, please visit Charles at ZipDebt.com. He offers training and coaching programs for every budget, and his mission is to help you negotiate effectively and settle your debt accounts quickly and safely.