Debt Collection Agencies Are Buying Up Remaining Balances Of Full And Final Settlements

I don’t know if this is true or not, but I have read on the Consumer Action Forums that some unscrupulous lenders are agreeing full and final settlements with their borrowers, confirming that they will not pursue the remaining balance of the debt to the borrower, but then selling this remainder onto debt collection agencies.

Apparently this is referred to as “Zombie Debt”  - I guess because it reappears years later after you thought the account had been closed.

I have looked into the legal precedents of this and found that there is case law that has set the precedent for cases such as this, in so much that if you have agreed to pay a reduced figure in full and final settlement of a debt, then the spirit of the agreement is that you as the creditor will not be obligated to pay the remainder of the balance, once the creditor has received the agreed amount under the full and final settlement.

My instinct tells me that there are just some rather careless or naive people out there that have not got a written agreement with a creditor prior to settling a debt, and as such have proceeded to repay an amount, typically less than the balance, in good faith that the payment was a full and final settlement.

Clearly if there is no written agreement, I can see that it would be very easy for a creditor to assume that the payment is simply part-payment of the debt and therefore the balance remaining would still be owed.

I would suggest that if anyone is considering going down the route of offering full and final settlements to creditors, ensure that you have a written agreement with them that your offer less than the balance outstanding is as full and final settlement, with the remaining balance to be written off. Alternatively if you are not confident of negotiating with your creditors, speak to a professional debt advisor and get them to negotiate the settlement.

How Long Does It Take To Reach A Full And Final Settlement

This is a question I’m sure many people will be wondering. If you read up on the internet there are various forums where people talk about full and final settlement, usually lots of triumphalism about how much of their debts they have succeeded in “writing off” – but what they tend not to publicise is how long this process takes.

I myself am in the process of writing off a portion of my debts. Thus far I have already written off two of my creditors for just under 30% of the balance outstanding. This process so far, if you start at when I first failed to pay my creditors the required monthly payment under the agreements – July 2008 – will have taken almost eighteen months to get part way through.

I still have a number of creditors to negotiate settlements with, and I expect that it may well take until June 2010 for all of my debts to be settled. It will have taken two years of contstant creditor hassle, including phone calls, letters, solicitors letters, CCJ papers, debt collectors (once) and default notices to get from being in a fairly hopeless situation to being debt free.

It’s not an easy process, you need nerves of steel and the ability to not cave in or get intimidated by your creditors. If I had my time again I would have used a professional debt advisor to help me with the process. If you want professional help, speak to these guys, they have friendly, national advisors that are able to take all of that hassle and stress away.

Confirmation Of Barclays Bank Overdraft Settlement

This morning I received through the post a very welcome letter from Barclays Bank, or more accurately Central Debt Collection Services, on behalf of Barclays Bank.

The letter was very brief, and here is what it said:

Thank you for your payment.

Your debt is now considered to be satisfied and we can confirm that no further action will be taken against you.

Any Standing Orders or Direct Debits you have set up in favour of this Account should now be cancelled with your bankers.

This was in refernce to a personal bank account that I had a £2200 overdraft owing on, which went into arrears in July 2008 and subsequently defaulted on later in the year. I settled this debt at 25% of the outstanding balance, yet when I speak to Barclays about my other account with them they claim there is no way that they will settle on this account as it is against company policy - not sure if I believe them…

Struggling With Debts? Do Not Panic!

During the last couple of years there has been a massive increase in the number of households that find themselves struggling with debts. This is the result of a number of factors:

• The credit crunch and subsequent reduction in availability of credit
• The recession which has meant many job losses and reduction in household income
• Rising household costs thanks to rising fuel and food costs

There is always a bit of stigma attached to suffering with financial difficulties, I have certainly felt that way and I am by no means an overly emotional person, so I can well imagine it would severly dent the pride of some people.

However, I would say to anyone out there that is feeling that way, don’t panic! My good friend up in London who works in wholesale banking was most sympathetic when I told him of my plight. He can quite understand as he has seen many of the banks clients default on their loans with them. This has simply been the affect of the credit crunch and subsequent recession and it is nothing to feel ashamed about.

So if you are struggling with debt, the first bit of advice is do not panic. The second bit of advice is to ask yourself a few questions. Would you really care if you did go bankrupt or went through an IVA? These are the quickets solutions to get you out of debt and stop anymore creditor hassle.

They are most definitely the course of action that will have the worst repercussion on your credit file however, so any decision must not be taken lightly.

If you don’t wish to pursue either bankruptcy or an IVA, then you must consider a debt management plan. I would recommend you use this website, help me get ouf of debt to see how little you could pay under a debt management plan.

Once you get yourself into a debt management plan, it would be worthwhile scraping some capital together which you can later use as a full and final settlement with your creditors. If you have read my earlier article about settling debts for 28.5% of the balance remaining you will see that it is both possible to settle debts for much less than you owe, though it is a process that takes time and requires nerves of steel, along with a fair amount of negotiation skills to boot!

How Do Debt Collection Agencies Work

Debt collection agencies typically fall into two categories, either independent or in-house.

An in-house debt collection agency is simply a different department of a lender that deals with delinquent accounts – accounts that have stopped paying their repayments under the agreement – and may have a different name than the lender to give the customer the feeling that they are dealing with an external organisation. In some cases, the in-house debt collection agency will be in the same building as the lender, so very much in close contact with the lender having up-to-date information on the account.

An independent debt collection agency is an external firm that either buys the bad debt from the lender for a percentage of it’s face value. This can be as low as 7% as I wrote about in What Is The Value Of Your Debts To A Debt Collection Agency?, although sometimes they work on commission, receiving a bounty which will be based on the amount of the debt they are able to recover.

In either case, debt collection agencies will typically attempt to force customers to pay back debts that they may not be able to afford, and in some cases using tactics that are neither ethical or legal.

The important thing to remember is that for debt collection agencies they are simply performing a business function, and so they will not be emotionally involved with your situation so don’t expect any sympathy when dealing with them. The way to deal with them is to maintain a certain amount of professionalism and pragmatism, ensuring that you state your case clearly for what you can afford and trust that they will be reasonable in their approach too.

Who Funds Non Profit Debt Help Organisations?

This is an interesting area for me, as I’ve been doing some looking into the various charities that help people with their debts. There are some very big and obvious ones, such as Citizens Advice Bureau and Consumer Credit Councelling Service who offer services on a national level, either through local branches or via a centralised call centre respectively.

But how are they funded? And what are the alternatives?

The Citizens Advice Bureau (CAB) are a charity, which was setup at the outbreak of WW2, and continues to this day on donations from the public and various corporate donors.

It may come as a surprise to some people that there are a large number of financial institutions that donate to the CAB, here is a list which I found on their website here:

• Abbey Charitable Trust
• Alliance and Leicester
• Bank of America
• Barclays plc
• Barclaycard
• Department of Trade and Industry
• Experian
• Friends Provident Foundation
• GMAC RFC Foundation
• HSBC
• HM Treasury
• Lloyds TSB Foundation for England and Wales
• MBNA
• Money Advice Trust
• Nationwide Building Society
• Provident Financial plc
• Prudential
• The Royal Bank of Scotland

There are other corporate donors, from solicitors firms to name one sector that stands out, but the proportion is far smaller than that of the banking and finance industry.

When you look at the Consumer Credit Councelling Service website you see that they are entirely funded by the credit industry which according to their website means:

“It is this totally unique mechanism that allows CCCS to provide its services totally free to consumers.”

I would perhaps argue that it also means that the credit industry has a huge strangle hold on debt advice and debt management in the UK as they sponsor the two biggest debt help charities in the UK and no doubt have input on how these two charities deal with consumers’ debt problems.

I know from my own experience that when I spoke with the CCCS they were very helpful, but ultimately at the time they refused to set me up on a debt management plan because I couldn’t meet their minimum criteria for a monthly payment – 1% of the balance of my debts each month.

It would seem to me that the lenders being so closely involved with the debt help charities is a “slight” conflict of interest in that there may be certain consumers that are not getting help when they need it most because they don’t fit the criteria by which the charities work. Whereas commerical debt management companies are able to get debt management plans agreed based on what is affordable to the consumer, regardless of whether it is agreeable to the creditors.

It seems like in most areas of life, if you want good, impartial advice you have to pay for it, which is a shame, because when people are needing debt advice, the last thing they need is a bill for a few hundred quid to setup a debt management plan.

Almost Settled Another Two Debts With Barclaycard

I had a letter through the post today which somewhat puzzled me – it was from Barclaycard for a balance I didn’t recognise and an account number I didn’t recognise.

I promptly rang them up and spoke with them about the account, and they informed me that they had taken over my old Sky card, and issued me with a new number, which was why I didn’t recognise it.

I spoke with them about the balance and the account, explained that I couldn’t afford to make anywhere near the agreed payments, explained all I could afford was a token payment etc etc.

The chap went through a budget with me, and I explained that I did have access to funds for a full and final settlement, which was to be a gift from my family, so not my funds.

We went through my offer, he didn’t accept it but agreed that he would pass the account over to the debt collection dept, and then transferred me through.

When I was transferred through, it transpired that the connection wasn’t a very good one and he hung up.

I then took the initiative and rang Calders Financial, who are the debt collection agency for Barclaycard, and spoke with them about the account. Strangely enough I spoke with the same woman I agreed my previous full and final settlement with Barclaycard, and she was very good in that she remembered me.

We came to the conclusion that as I have two remaining accounts with Barclaycard we may as well look to settle both today. She went through the figures with her computer and came back and offered exactly 30% for each balance. This was ok, but we felt we should be able to get down to nearer 20%.

We haggled a bit, she went and spoke to her manager and then came back and said that she was terribly sorry but the two accounts we had been discussing had not actually been passed through to Calders at that time, which meant they were not quite ready to be settled yet.

This I found quite interesting as it gave me some useful information, in that as soon as they do get passed to Calders, I will be in a position to start the negotiating at 30% and drive the price down.

Barclaycard Are Also Known As Mercers And Calders Financial

As someone who has a couple of Barclaycard credit cards, in fact as I write this I’ve just remembered that in actual fact, I now only have one Barclaycard credit card, as the other one I have managed to agree a Full and Final Settlement on, for a lot less than the full balance on the card!

Anyway, I digress a little. I have been unable to pay my Barclaycard accounts since July 2008 when my business went belly up. Since then I have had all sorts of phone calls from Barclaycard, text messages and from what I’ve read on various forums, unenforceable default notices served against me.

What generally happens is that once your account goes into arrears, the account is passed over to Mercers, who are in the same office as the Barclaycard staff, or so I have been told by someone who used to be a debt collector and knows the business inside out.

Mercers then deal with the account, and to be fair are persistent, they rang incessantly for weeks before I eventually spoke with them and told them that I could not afford the full payments.

I eventually did have a six month spell when I could pay 1% of the balance under a quasi debt management plan, though all it was really was a short term (six month) agreement with my creditors to stop interest while I was getting my finances back together.

After this period, I then couldn’t afford to go back to paying even the 1% as my income had taken another hit, so I wrote to them, in fact all of my creditors, and told them that I could only afford about £80 a month between all of them.

This was not acceptable to any of my creditors, so I just started paying it anyway. This went on for a couple of months, I had more default notices sent to me and more phone calls, but by this time I’d become oblivious to it.

Then I had a breakthrough, middle of October I had a phone call from a very nice, polite woman who was from Calders Financial, acting on behalf of Barclaycard.

I spoke with her and she informed me that she may have a solution that would stop the phone calls, but it required me making a lump sum payment.

Bingo! A full and final settlement offer, initiated by the creditor, or at least their representatives.

I made her an offer of about 20%, she came back with nearer 40% and we settled someone between the two, slightly in my favour if I recall.

I then had her spin me a double glazing salesman’s line that the offer was only valid for that day and if we couldn’t get the funds to them by 3pm that day, the offer would not be available after that, and it would most likely cost us more to settle in future.

Clearly rubbish, if the debt is only worth x today, and then in three months time, after there has been no income on it, it’s worth less, simple economics.

I was able to settle the debt that day, but before I did, I demanded that they produce an offer of full and final settlement to me in writing before I paid over any money. Call me skeptical but I don’t trust these people, and certainly wouldn’t want to pay over a lump sum, just to find that the next month I received a statement showing that I had paid off some of my debt but the rest remained.

They claimed they couldn’t email any written offer over, but could fax something, so I gave them our fax number and it arrived after about 10 minutes. I then settled after I had written proof, and as yet have not had any other proof from them to say the debt is settled, so I await my next statement date with interest!

Debt Collection Harassment From Barclaycard

Having recently written an article explaining what is debt collection harassment it was a bit of a co-incidence that I then ended up being harassed myself by Barclaycard yesterday and the day before.

What happened was that my home phone received a phone call from them every couple of hours, each time it was a recorded message asking for me, and asking me to press number one to hear the message.

In addition to having my home phone number bombarded with these incessant messages, I then had my mobile phone number bombarded with text messages asking me to phone Barclaycard about my account.

The final message said something about a debt collection agency getting involved if I didn’t get in contact with them ASAP.

I just ignored all the calls and messages for a couple of days while I figured out what I wanted to do. I’ve already settled one of my debts with Barclaycard for significantly less than the debt was worth, so I figure I’m entitled to settle my other Barclaycard debt for less, given that more time has passed since the first debt was settled.

Last night, I did follow the instructions on the Barclaycard message and eventually got through to speak with an operator. This lady was not a native english speaker so the telephone conversation was not terribly concise.

After establishing with this lady that I could not afford the amount they were asking me to pay, and that I had already written to them to explain this, she suggested that I setup a debt management plan.

I told her that it was in Barclaycards’ interests to accept the amount I can afford directly from me, rather than go through a debt management company who will only take a % from the money I pay each month, thus leaving less money for Barclaycard, but she didn’t seem to grasp this concept.

I then offered 20% as a full and final settlement if she accepted on the spot, she refused saying that they don’t offer full and final settlements, which I informed her was rubbish as they had already settled my other account.

She then said they can’t offer me a full and final settlement on the account in question, so I replied that they will just have to accept what I am paying them until they come to their senses and accept a full and final settlement. I then prompty hung up as the conversation was not going anywhere.

It does amaze me that in spite of overwhelming evidence to suggest that what I have offered is the best deal for them, there is still this feeling that it would be more beneficial for the creditor if I were paying my monies through a debt management company – why? It will only reduce what Barclaycard receive as a monthly payment – bonkers in my opinion!

Why Debt Collection Agencies Buy Debts

One of the things you learn as you go through life is a certain truth – there is always a second-hand market for any commodity. Debts are no different.

Once a borrower has defaulted on a debt and ceased to pay the agreed amount under the terms and conditions of the borrowing, the value of the banks asset decreases (your detbs are the banks assets). This is simply a result of the fact that the asset will not earn as much money as it had done before, in some cases it will never generate income again.

This is no different than the value of a football club decreasing when it is relegated from the Premiership to the Championship, which is a reflection of the fact that the money to be made in the Championship is far less than in the Premiership.

Have you ever watched Dragons Den on the television and wondered why various entrepreneurs value their business at £1million when they have yet to make a profit? Day dreaming is what they are doing, but if they could think rationally, they would see that without any profit, their business is worthless – the same can be said for your debts when they stop generating income for the lender.

This is why debt collection agencies buy the debts. The debt collection agencies believe that they can add value to these debts by either getting the borrower to start repaying the money owed, or simply pursuade the borrower to repay a portion of the debt, ensuring that on average the amount of monies reclaimed from borrowers exceeds the money spent on buying the debts in the first place.