Judgment creditors needing help with collection can turn their judgments over to a specialized collection agency. Some agencies purchase judgments outright while others work on consignment. In both cases, an agency might make a lower offer to the debtor.
Making a lower offer is essentially an offer to accept less than the total amount due in order to get the judgment settled. Lower offers may rub creditors the wrong way, but there are very good reasons for making them. Given that a collection agency’s payment is directly related to the amount collected, there are times when making a lower offer makes sense.
The Debtor’s Ability to Pay
Judgment Collectors is a Salt Lake City, Utah collection agency that handles judgment cases exclusively. They explain that one of the first things an agency will do upon taking a new case is look into the debtor’s ability to pay. Their ability directly impacts how the agency will proceed.
The ability to pay is wrapped up in four things: income, cash assets, personal property, and nonexempt property. All four represent a means through which a debtor could potentially pay what is owed. Their ability to pay is directly tied to the supply of each resource.
Imagine you are a judgment debtor. Your actual ability to pay is demonstrably low thanks to limited income and no assets of any real value. What would a collection agency stand to gain by continually pressing you for payment month after month?
Every month the agency spends on your case represents time that cannot be spent on something else. It also represents money invested in maintaining contact with you and constantly checking up on your financial situation. In simple terms, the effort and time spent might not be worth it to the agency.
Settling the Matter and Moving On
Making a lower offer represents the opportunity to settle the matter and move on. And in fact, this is probably the most common reason collection agencies make lower offers. From their perspective, it is better to get what they can right now than invest additional time and financial resources with no guarantee of getting more in the future.
A lower offer obviously benefits the debtor. But there is a caveat: the offer needs to be accepted quickly and without resistance. Otherwise, a collection agency might be motivated to bide its time and see if the debtor’s financial situation improves.
How Low Collection Agencies Will Go
As to the question of how low collection agencies will go with their offers, each case is different. A general rule dictates that the agency must collect enough to offset its expenses. Breaking even is the bare minimum. Ideally, an agency wants to make at least some profit. This plays out in different ways depending on the agency’s business model:
- Purchase – If an agency buys the judgment outright, it needs to collect enough to cover what it paid, plus any expenses incurred through collection efforts.
- Consignment – An agency working on consignment only needs to collect enough to cover its own costs.
Most consignment-based agencies tie their fee to the total amount collected. It is usually a percentage. This acts as an incentive to collect as much as possible, potentially eliminating the lowest offers an agency might otherwise make.
Making a lower offer on an outstanding judgment is not unusual. Lower offers are usually tied to a debtor’s limited ability to pay. Either way, a lower offer can get an outstanding judgment settled more quickly. Both parties can put the matter behind them and move on to more important things.
