Garnished wages can we still settle the debt?

October 29, 2008 8:49 PM

My Mom’s wages are being garnished by a collection agency. Can we still settle the debt? How much do we offer and where do we get the money?

My mother’s Ford Fiesta bit the dust a month ago and she needed to get a new car. Her hours have recently been cut at her old job and she has just taken a second job for significantly less money ($7.50/hr versus $10.50/hr). After talking with her I came to the realization that she couldn’t afford to even purchase a reasonable beater for a few grand. I decided that I would help her out with a few hundred bucks and an interest free loan on the condition that I could look at her finances and make sure everything checked out. Here is what I found:

Her monthly income is variable but appears to average about $1000/month +/- $200 (her rent is $480/month).
She has one credit card with a balance of about $1100
She owes a collection agency about $13,000 and they have begun garnishing 25% of her wages at her primary job. The debt comes from a credit card where the original balance was about $6000. She settled with the credit card company but then failed to make the payments and the account sat in collections for a couple of years.

Here are my questions:

Now that the collection agency is garnishing her wages is it too late to settle with them?
If we can settle with the collection agency how much should we offer?
If we do offer to settle, how should we raise the money to pay them off? Will banks make loans to me or my Mom for this purpose?
Should my Mom just file for chapter seven bankruptcy?

We are both located in Michigan. My Mom does not have any significant savings or assets other than a 401k. I have only been out of school for a couple of years so I am still trying to get on my feet. I have good credit and some savings, but not enough to pay for this endeavor unless I borrow against my 401k.

posted by anonymous to Work & Money (4 answers total)

It is never too late to settle with a collection agency. As her son, you may not be able to talk to them about the account unless she gets on the line and says 'he is my son, you can talk to him'. I recently settled a number of charges for my boyfriend, simply called with all of his relevant information and introduced myself as his wife.

If this is an old debt, it likely has been sold at least once by the collection agency to a different agency- at this point, they have only paid pennies on the dollar and are operating under no assumption that she will pay them too much.

Call with a good story and make it one that convinces them it is in their best interest to settle rather than continue to garnish her monthly wages- e.g. that she IS employed but her hours got cut at the old job and will likely lose both jobs by the holidays, meaning they will have no income to garnish.

Tell them that you want to settle the debt for your mom and you're prepared to pay them- but you don't have enough money to give them either the lump sum or monthly payments, either.

This is when the friendly credit guy asks, 'Well how much CAN you afford?'

They like it better (and are more willing to dicker) if you can offer them a lump sum payment AND PAY THEM RIGHT NOW. No suggestions on where to raise the money, but if you can do it, that is the way to minimize the amount they will accept. If she owes $13k, you may be able to get them down to 4k if you play your cards right (I did something similar) but you can definitely get them down to 6k if it is old debt.

In terms of payments...tell them your Mom is losing the jobs, they'll lose the $250/month they've been getting...but YOU, generous child that you are, are willing to pay them ____/month (as much as you can sanely afford) if they'll lower the amount they'll accept. The payment scheme will be more difficult but you should still be able to get them down to about half the original debt if you are convincing.

This is a good thing you and your Mom are interested in doing. Good luck.
posted by arnicae at 9:54 PM on October 29, 2008

Get the Nolo book Credit Repair -- at the library if need be. It covers all the options and includes forms and call scripts.

I would say it's possible you could negotiate a lump sum as low as 10% under the circumstances. In any case, start with as low an offer as you can. This is a negotiation, it's something they do every day, and they will try to guilt or embarrass you into offering more. Stick your ground until they start making counteroffers.

Then make sure that any agreement you make you get in writing. This is important. You may get the runaround even at this point but demand fax numbers and names. Oh, write everything down yourself, too.

When you're done, get your mom to stop using that credit card and make fixed payments -- i.e. the current minimum -- until she can pay it off. That's costing her a few hundred a year she could use more productively.
posted by dhartung at 11:41 PM on October 29, 2008

Unless it is court ordered she should be able to tell them to piss off (for now). Have her boss or payroll dept. stop the withdrawals.
posted by Gungho at 4:10 AM on October 30, 2008

According to nolo, 25% may not be legal if she's making that little:

Under federal law, you cannot garnish more than 25% of the debtor's disposable income. There is an additional protection for low-income people: A wage earner must be left with a weekly wage equal to 30 times the current federal minimum wage -- which has been $5.15 since June 2000. This means that the debtor gets to keep the first $154.50 per week; you can garnish 25% of the excess. (15 U.S.C. §1673(a)(1).)

posted by smackfu at 9:49 AM on October 30, 2008