The effects of the coronavirus will cause millions of Americans to default on their debts. Most of these defaults will be because of unemployment or the financial failure of small business. These debts will ultimately fall into collection and then consumer debt lawsuits will follow. These lawsuits can then lead to default judgments if not defended properly or at all. Judgments in turn allow creditors to levy bank accounts, garnish wages and place liens on property. All the while judgment interest accrues and a consumer’s credit is negatively affected.
Many consumer debtors will try to avoid bankruptcy or will not qualify for Chapter 7 bankruptcy in which one has to pass the “Means Test” or earn under a certain amount of income to qualify. That leaves debt settlement as the primary option to resolve consumer debt before a lawsuit and all its negative effects ensue. The good news is that we believe that many consumers will be able to settle their debts for even less than what they would have a few months ago. During and after the last recession we saw creditors like American Express, Discover and Capital One, debt-buyers like Midland Funding and Portfolio Recovery and even student loan lenders like Navient and National Collegiate Trust offer settlements that ranged between 50%-80% off the balance. More recently we have seen original creditors and even debt-buyers curb their settlement offers considerably because of the “good economy.”
Now is the time that these creditors will likely start lowering their guidelines to accept much lower offers once again so that people will be able to reduce these debts significantly because of the extreme financial and medical hardship that consumer debtors and small businesses are enduring as otherwise the creditors fear that they may not recover anything even after spending significant funds on collection and litigation. This is the best time for consumers and small businesses to negotiate settlements for even less and to avoid unnecessary lawsuits.