Early in my collections career I learned “do not negotiate with terrorists”. It was not George Bush (who famously made this statement) that taught me this, but rather a VP at an auto finance company I once worked for about 20 years ago. The context of this statement came at a time when I was a recovery collector. I approached my VP and told him that I had a debtor on the phone who wanted to settle his $10,000.00 judgment for $1,300.00 and that if we did not take the proposed settlement amount, the debtor would use that money to file bankruptcy and not pay us a dime. At the time I was convinced that this was a good deal for us because some money is better than no money, right?
“Wrong”, the VP told me. “We do not negotiate with terrorists”.
“What”?! I exclaimed. “This guy is not a terrorist. He wants to pay us something instead of nothing. He is either going to pay us $1,300.00 or pay that amount to an attorney to file bankruptcy for him.”
This is when my perspective toward debtors that threaten bankruptcy and the paradigm of how I approach them forever changed. “Doesn’t this threat of bankruptcy sound a little suspicious?” The VP asked.
“Ummmmm, no, why?” I asked cautiously.
“Generally, when a person files bankruptcy it is because they cannot meet all of their financial obligations, not just one. Why would the debtor file bankruptcy if we were his only debt? And if we are not his only debt, why would he pay us $1,300.00 when he still could not meet his other obligations?”
It finally clicked in my head. This guy was bluffing. He had no intention of filing bankruptcy, but rather he was using the threat of bankruptcy as a scare tactic to get my employer to accept a settlement amount lower than the standard company guideline in such a situation. In this situation, I called his bluff. I told him $1,300.00 wasn’t even close to acceptable and if he’s not willing to be reasonable in negotiating, then we were done talking. He then backed off of his bankruptcy threat and paid $4,000.00 down, and then monthly payments of $300.00 per month until the debt was paid in full.
I have seen collectors that are of the opinion that “something is better than nothing”, but I now know that a debtor that threatens bankruptcy is more likely to be using the statement as a negotiation tactic rather than an actual warning of an impending bankruptcy filing. Debtors that file bankruptcy usually do not call you to warn you about it, they just file it and never call.
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