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Debt Law: How to Keep Business Debt Collections Off Your Personal Credit Report

The Importance of Working With Creditors


Collection agencies often buy your debt for pennies on the dollar so they are highly motivated to get money from you. Payments you make may be going to the collection agency to recover your debt that they purchased, and not back to the original source of the debt.

If you are dealing with a creditor’s attorney, they can be aggressive about pursuing you for debt collection. But collection agencies and attorneys can be very reasonable, if you are, too.

Never Ignore a Demand for Payment From Anyone

Even if you do not owe the money being demanded, the worst thing you can possibly do is to simply ignore attempts to collect a debt. This will always result in your unpaid debt being reported to credit bureaus. This information can impact your credit history for many years to come and it will be a long, hard battle, to get it removed – even if the information reported to the credit bureau was false.

There are only two ways to avoid a bad debt from appearing on your credit history:

  • Pay the debt; or
  • Work with the collector to resolve the debt in a reasonable time frame.

How to Negotiate to Reduce the Amount Your Business Owes

The first step to setting up payment arrangements is to negotiate debt with a creditor to reduce the overall amount that you owe. Collectors routinely reduce debt amounts owed and negotiate repayment terms. Start by offering half of what you owe. A collector will counter with something higher, or demand quick repayment, so be prepared to negotiate.

A collector is most likely to offer you a substantial reduction in your debt if you are able to pay the negotiated amount in full within thirty days. The longer the period of time you ask to repay the debt, the less likely you are to receive a significant reduction in the total amount you owe.

How to Set Up a Payment Plan With a Debt Collector

When requesting a payment plan, remember one very important thing: the law is on the side of the creditor. Regardless of your health, employment situation, or financial state, your creditor can take action to collect from you. Not having the ability to pay does not release you from the obligation to pay.

  • Be Reasonable: It is important to offer terms that you can meet. But asking for a year to pay off a $100 debt, or making $10 monthly payments on a $500 debt, are not examples of reasonable requests.

    It is not the legal responsibility of the creditor to accommodate your request, but it is usually in their best interest.

  • Making “Good Faith” Payments May Not Help: Many people mistakenly believe that if they send a “Good Faith” payment, remitting less than what is due, this somehow takes them off the hook. Not so. Sending less than the minimum amount due, unless it has been agreed to in writing by the creditor, does not mean much in the legal world. You still need to set up a formal payment agreement – back up in writing.

Making Payments of Your Business Debts

  • Mark Your Payments: If you have more than one debt with the same collection agency, it is important that you clearly indicate which bill you want your payment applied to. A collector cannot alter your request to apply a payment to a specific account, but if you do not indicate how you want your payment applied, they can assign it to any of your debts.

  • Make Timely Payments: It is important that you stick to your payment schedule, especially if your debt has been reduced for you. Missing even a single payment may void any agreement you have previously made with the collector.

  • Stay in Close Touch: If you cannot make a payment, call, or write and let the collector know why, and when you will be able to make the payment. Most companies that you owe money too will be far more flexible if you simply stay in touch. Ignoring a debt will only result in more aggressive tactics from the collector to get money from you.

  • Post-Dated Checks: Almost all collectors will take post-dated checks that can be cashed within thirty days. Only offer a post-dated check that you can cover, if it bounces, you will have a hard time getting any further considerations from the collector for repaying your debt.

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