Even after a judgment is entered against you, it is still
possible to settle a debt for less than the court-approved amount. Maybe much
less, lawyers say.
It is better to settle a debt before judgment if possible, because
the debtor has more leverage. The fact that a creditor or debt buyer took the
trouble and expense to sue you means they think you have income or assets worth
However, you may be able to negotiate a discount to the debt, in return for a lump sum payment. If a large payment isn't financially
possible, a stipulated judgments allows you to pay in monthly installments,
shielding you from garnishment, levies and liens on your property.
"Most creditors are happy to do that, rather than get
an uncollectible judgment," said Martin Wegbreit, director of litigation
at the Central Virginia Legal Aid Society. A creditor will benefit from not
having to chase down your assets, and avoiding the possibility that your income
and property is exempt from seizure. For example, seizing your car will mean
hiring a towing service and, in some jurisdictions, paying for 30 days of
Around the courthouse
there is a saying, "Slow money is better than no money," Wegbreit said.
debt settlements are concluded with a phone call from a bankruptcy attorney, giving
the debtor more leverage. When creditors' lawyers hear from a bankruptcy
attorney's office, "they understand that bankruptcy is a reality," Arizona
bankruptcy attorney James Kahn said, ratcheting up the pressure on them to make
a deal. Kahn said settlements may wipe out as much as 75 percent or 85 percent
of the debt, if most or all of the payment can be made promptly. "A little
bit is better than bankruptcy," Kahn said. When dealing directly with a
debtor, collectors may be willing to settle credit card debt for only 50
percent of the balance, if paid in cash, Kahn said -- but even that figure that is out of
reach for many. "My clients say, 'If I had that kind of cash, I'd be
making my payments.' "
Once a settlement is complete, get a satisfaction of judgment signed by the creditor, and make sure it is filed with the court
and reflected on your credit reports, lawyers said. The judgment for debt will
still appear on your reports, but creditors might view you in a better light if
there is a notation that the judgment has been satisfied.
Related story: Court judgments for debt: after the gavel