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MAY 15, 2013

Citibank Credit Card Settlement

I settled a lot of credit cards these past 4 years, but I am having some trouble with Citibank. Any advice?

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Citibank Debt Settlement
Bill's Answer: Answered by Daniel Cohen

Settling with creditors can be an excellent way to resolve outstanding debt. Unfortunately, debt settlement can also be a complicated and sometimes difficult process involving multiple rounds of negotiations, strict due dates, and of course, the need to raise the money to actually pay the settlement. Thankfully, you already have a good bit of experience in negotiating with unsecured creditors.

Congratulations on your reaching settlements with your other creditors. Settling $41,000 in debt is quite an accomplishment. After negotiating on so much other debt, settling with Citibank on this final account should not be too much of a challenge, though I will admit that Citibank can be difficult when it comes to accepting settlement offers. Regardless of this reputation, I have seen Citibank settle with consumers on reasonable terms on many occasions, so you should not allow the bank’s current demands to force you into a less favorable agreement.

Quick tip #1: You can negotiate settlements on your own, but may be better served having a professional negotiator work on your behalf. Speak with a pre-screened debt relief provider, to hear how a professional debt relief firm could assist you.

Settlement Percentages

It is not uncommon for creditors to change their internal settlement parameters from time to time. Therefore, it does not surprise me that Citibank's 50% settlement offer changed at the beginning of the year to the higher 70% offer. But these periodic changes can also go in the other direction, so even though they will only accept 70%, their guidelines could change again next month, allowing for the 50% offer to be accepted. You should continue to communicate with Citibank to express your desire to settle this account, but to also insist that you cannot settle for more than the 50% previously offered.

Be Ready to Pay

As far as the funding of the settlement, you should certainly try to raise the necessary funds as soon as possible to be prepared if Citibank does decide to accept your offer. Many creditors request payment within a relatively short time frame once a settlement is agreed upon; however, I would still continue to communicate with Citibank as long as you think that you can raise the funds needed to pay the settlement, if accepted, within a couple of months. You probably should not call Citibank and make offers that you cannot realistically afford to pay. If Citi accepts your offer and you are unable to pay the settlement, it could damage you ability to negotiate with them in the future.

Structured Settlements

In some cases, creditors  agree to a settlement will allow 30 to 60 days or more to finalize the payment of a settlement amount, as long as a significant portion of the settlement can be paid soon after the agreement is finalized. Creditors may also be willing to take the settlement amount in payments that are spread out over a number of months. This is called a structured settlement.

Don't be Intimidated

The key to successfully negotiating with your creditors is not let strong-arm collection tactics intimidate you and pressure you into accepting an agreement which you cannot afford or which you do not feel is in your best interest. Many people choose to hire a third party debt negotiation firm to work with their creditors on their behalf because it is much easier for a third party representative to remain emotionally detached from the situation. Working with a professional debt settlement firm is even more attractive now that you can find a reputable firm that charges no-upfront fees. You won't have to pay anything for the firm's services, until after one of your accounts is settled.

Next steps

You should focus on your goal of settling the account and keep in mind that much of what collectors will tell you is designed to frighten and upset you, which can make it easier for the collectors to force you to make a decision that may not be in your best interest.

This account is large, and you could very credibly state that a Chapter 7 bankruptcy is not out of the question for your situation if Citibank will not agree to settle this account for an amount that you can afford. You may wish to tell them that you had to scrape up the money to meet the 50% offer and you have exhausted all of your financial resources. Once you reach an agreement with the creditor, make sure that it sends you a copy of the terms in writing before you make payment.

If you would like to learn more about negotiating with your creditors, I invite you to visit the Bills.com Debt Negotiation and Settlement page.

Additional resources

I have answered other reader questions regarding Citi credit card accounts. See Renegotiate Citi Credit Card Settlement Agreement to understand your options if you have a settlement agreement with Citi you can no longer afford; Citibank Hardship Program for tips on how to enter Citibank's credit card hardship program; Negotiate Citibank Debt to learn what to expect when negotiating debt with Citibank; and Citibank Settlement for ideas on how to negotiate with a collection agency that owns a Citibank collection account, and Consolidating Citi Credit Card Debt.

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

bills.com

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Comments (45)


Ji H.
Marysville, WA  |  January 14, 2013
I have been calling and sending a bunch of mails to Citi cards about my debt settlement, and not getting any answers from Citi cards. What should I do now?
Bills.com
January 15, 2013
The next time you speak to someone at Citi, ask to be connected to the department that negotiates delinquent credit card accounts.
Jackie B.
Schaumburg, IL  |  September 23, 2012
As I learn through my mess, I believe maybe the best way out of credit card debt is you take them to small claims court. Inform the judge you tried and the judge may go your way or just set up payment at 9%. I bet 25% payments.
Eco Z.
Lincoln, NE  |  July 15, 2012
I do not know why all these middle-man make settlements sound so complicated. It is very simple. If you are not late, no one will settle. Period. The more past due your account, the more they are willing to settle (up to 6 month late). Settling for 60% of the sum is a high-way robbery. You do not need any agency to settle and can do it yourself for 25%-45% of the amount. Further, Citi is willing to spread the sum over 12 payments. AmEx does it over 24 months, but some banks can do it only over 90 days. Some people settle for less than 25% but it is rare. I settled myself for as little as 28% and as high as 50% (the latter with Capital One, who is notorious to sue in the local court) and I helped my friends settle too. It is simple, painless, business like process. Only debt-settlement agencies make it sound like nightmare because they pocket a big cut to themselves.
Bills.com
July 16, 2012
Thank you for your input and advice about debt negotiation. However, being late is not a sufficient condition to reaching a settlement with a creditor. Creditors can, and do, pursue court judgments against delinquent debtors. A judgment can lead to wage garnishments, bank levies and liens on personal property. Pursuing a debt is a business decision. A creditor might pursue a law suit, make a settlement or sell the "bad debt."

Debt settlement is not the preferred debt relief option for all people with debt problems. I recommend that a person facing debt problems educate themselves and start by reading the Bills.com about Debt Relief.
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Justin B.
South Salt Lake, UT  |  May 15, 2013
Capital One was terrible to work with. They sent out Court Ops to my parents house three times trying to find me and serve me. When they finally agreed to settle it was for 65% of my balance. What's unfortunate about it is they actually made me sign a stipulation letter to see what they could do for me. So, I came up with the settlement amount. Key with Capital One you need to act sooner than later. It went through three agencies and the last agency was an attorneys office. With the two previous collection agencies they were both offering 50% (which I didn't pay because I thought i'd get better in a year.) I didn't because it went to the attorneys office and they would rather garnish me or go for a default judgement.

Chase was super easy to settle with 18%

Home Depot 25%

Lowes 33%

Wells Fargo 17%

Citi just offered me 25% on a balance of $7,500. I'm going to shoot for $1,500 and hope they accept. I'll offer $1,200 and see if they will counter at $1,500 and take them up on the offer.

Good luck!
Tim F.
Tucson, AZ  |  July 08, 2011
I am current on my Citibank Card. Since they won't settle on the principal because of being current, why does it make sense to even attempt to settle at all? For instance, assume $40,000 debt.
  • 12 months late fee until they settle @ default rate 29% adds additional $11,600
  • Total upon settlement $51,600
  • Citi settles for standard 60% - upfront fee of $30,960
  • Citi 1099's for 20,640 - IRS/State bill of 20% = $4,128
  • Settlement cost 30960 + 4128 = $35,088

The sum of all this being that only $5k is being saved, with a lot of hassling phone calls and still end up with bad credit. Can you address please, how often they file suit to get a judgment? At this point, since bad credit and harassing phone calls will happen either way, it appears best to just walk away from the debt and not work on a settlement.

Bills.com
August 03, 2011
The answer to your central question will vary based on many factors. One of these is whether you hire a debt settlement firm or try to negotiate on your own. Another factor is your liquid assets and income, and how much you can afford to pay today. Typically, it is much harder to settle at a deep discount if creditor believes a consumer possesses the assets to pay the debt in full.

I disagree with several assumptions in your comment:
  • Typically, the default rate (the 29% you quoted) only lasts 6 months, until the debt charges off. After that, there is a statutory limit on penalty rates that varies by state. Let's assume 9% after 6 months as a placeholder — so the total would be $48,491 rather than $51,600.
  • A good debt settlement firm will usually negotiate a 45% settlement rate with Citi and not 60%. However, this is an average, and with an account this size, the creditor is more likely to pursue it aggressively (including via litigation). Thus, 60% may be a reasonable assumption. In addition, 60% is probably reasonable if you are put on a long-term payment plan (after all, if you have $30k to pay toward the debt today, you probably wouldn't be considering settling at a discount).
  • Citi may issue a 1099-c for the amount of debt forgiven. The actual tax burden will vary based on each person's individual tax situation. Some debt settlement clients are insolvent and so pay little or no tax on the debt forgiveness. (We discuss this in the Bills.com resource Cancellation of Debt Income.)
  • If you hire a debt settlement firm, there will also be fees paid to the company doing the negotiating.

Your question on lawsuits is difficult to answer because the process creditors use to decide who to sue and who to ignore is opaque. Credit card companies litigate a small fraction of outstanding accounts. However, an important factor is the size of the debt, because large debts are more likely to offset the time and cost of litigating. With a debt this size, a creditor like Citi is probably going to be more likely to consider litigation.

Whether it makes more sense to settle or just "walk away." With a debt this size, I doubt you will be able to simply walk away. Citi will certainly pursue collections, which means a collection agency or law firm will try hard to collect on it. There is a slim chance you can ignore it and pay nothing. If you cannot pay anything toward this debt, consider bankruptcy, but obviously this path has consequences.

Finally, you argue $5,000 is being saved vs. paying in full. This is true if you have $40,000 to pay the debt today. However, in your settlement example, you have not made any payments on the account for a year. To pay off a debt in full making minimum payments, it will often cost two to three times the face value of the debt today. That is, if you continue making minimum payments (or slightly more) on the debt, it is likely to take 5 to 15 years, and cost $80,000 to $120,000 before the debt is paid. Settling the debt may not save a lot over the face value of the debt today. However, it is probable it will save you a great deal in total cost vs. your alternatives.

Before choosing a course of action, evaluate your financial situation in full and the total costs of each option. The Bills.com Debt Coach can help you decide the best option for you based on your goals and available resources.

Aubrey T.
Jefferson, LA  |  June 10, 2011
Hi! I have a question. I am in debt with Citi for $4,000. They offered a settlement to me for $2000.I called them and want to take the settlement, but they refuse to allow me to do it in payments. They have also declined a payment arrangement because they said they already gave me one. I lost my job and couldn't afford to make the payments so I had to stop. I am trying to work with them again to start paying, but they said they'll either take the settlement in one lump sum, or I will be sent off into collections, because they cannot offer me any payment arrangements. I feel like I am stuck between a rock and a hard place. The lady on the phone asked if I could borrow the money, but there is no one who will lend me $2000 just like that. Any advice would be greatly appreciated.
Bills.com
June 10, 2011
Readers, please offer your solutions for this dilemma, and the negotiating tactics you found successful for resolving this type of situation.
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Aubrey T.
Jefferson, LA  |  June 10, 2011
Yes thank you! I even called them back and spoke to 3 different reps, and the answer was the same. They will not offer any payment arrangements. I would have to pay them $300 a month. She said the date my account is set to be charged-off is 07/11/2011. My mother told me that under laws, they have to accept payments that you offer to them, because you are trying to make right on a debt. But, I don't know how true this is. I told them that they will just send my account to a collection agency because I'm trying to pay them and they are refusing to accept. I guess there's nothing else I can do.
Julio C.
Kensington, CA  |  April 06, 2011
Hello. I have one final old credit card debt with Citibank for $13,800 (most of which is penalty and interest fees bc I have not used card for over 6 years). They have already turned it over to a law firm who has already filed a judgment. Besides the 75% settlement I am now being offered with the law firm, do I have any hope of negotiating with Citibank directly to get it down further? The law firm told me that sometimes Citibank will run a "deal" and take 50% and they let the firms know when that is but that I can't call Citibank directly to ask for that. Or am I too late? It took me a long time to come up with a chunk of money to be able to even think about settling for 30% let alone 75%. Thanks.
Bills.com
April 06, 2011
If the law firm has a judgment against you, neither it nor Citibank are motivated to negotiate with you. However, you have every reason to keep trying. Continue to explain your situation. Send the law firm proof of what you have in your savings account to show your sincerity.

In the meantime, talk to a lawyer about bankruptcy and learn your options. If this is a viable option, explain that to the law firm, and that if you cannot agree to a settlement you will exercise that option.
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Aaron B.
Tontitown, AR  |  October 03, 2011
It is my understanding that sending proof of money in an account to a judgment holder would be the same as giving it to them. The judgment allows them to take what they can find. Am I wrong? Seems like the last thing I would do in that situation.
Bills.com
October 04, 2011
You make a solid point. If a person is in a state that does not permit bank levies, the risk would be nil. Otherwise, while it may be necessary to disclose assets and financials to reach a negotiated settlement, showing how much is in a vulnerable bank account is an invitation to a bank levy.
Julie R.
Ontario, CA  |  January 24, 2011
Hello, I have 11k debt in a delinquent account with Citi and have been served to appear in court. I am and always have been an unemployed housewife. The account in question is solely in my name. My husband and I have a house that is NOT paid off and one of two vehicles that IS paid off and in both our names. I would like to know, what can they repossess, or put a lien on if all possessions are joint between my husband and I? Also, what are my options? Thank you.
Bills.com
January 25, 2011
Julie, because Florida is NOT a community property state, you are solely responsible for the debt that is in your name. If the creditor obtains a judgment against you, then it can attempt to collect on it in a few ways: garnishing your wages, levying your bank accounts, and placing a lien on assets your name. If your husband have a joint bank account, a judgment-creditor could get a levy on your account and take any money in there up to the amount that you owe. The creditor can't seize your assets. I don't believe that they can compel you to sell your car to pay them.

The options that you have, as I see them are:
  1. Consult with a bankruptcy attorney to see if you are eligible to discharge the debt through a Chapter 7 bankruptcy.
  2. Try to work out a payment plan with the creditor before the court appearance.
  3. Do nothing, let the judgment fall upon you, then keep assets and bank accounts in your husband's name. In Florida, a judgment stays in force for 20 years. As long as you did not try to sell or refinance your home or a car that has you on the title, you continued not to work, and you did not keep money in your bank account, it could be possible for you to avoid collection until the time that the debt is no longer collectible.
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Julie R.
Ontario, CA  |  January 25, 2011
Bill, you replied to my situation as if I were in Florida. I actually reside in California and was wondering how that affects my situation with possible different laws and so forth. Thank you again.
Bills.com
January 26, 2011
Julie, California is a community property state. This means that debts that are incurred during the marriage are viewed as the financial responsibility of both spouses. Because the Citi account is in your name only, the creditor can't pursue your spouse unless it sues you and is able to tie him to the debt in court. At that point, if Citi were successful in its claims, you spouse could be included in a judgment. That would make his wages and bank accounts subject to levy. Given these facts, I think the recommended course is to try to work out a payment plan with the creditor before the court appearance, to try to negotiate a reduced-balance settlement, or to consult with a bankruptcy attorney.
Bills.com
January 26, 2011
Your state of residence may have a significant influence on the answer to your question. California is a community property state, and as such, spouses share liability for debts incurred by the community — in other words each other. However, just because California statutes and collection laws give debt liability to the community in broad terms, does not mean that certain specific debts are not separate. Put another way, there may be an exception that applies to the debt in question that makes it a separate debt. Consult with a California attorney who has experience in family law or bankruptcy. I am not suggesting that bankruptcy is your best option, but a bankruptcy lawyer will know how to analyze your debt and can explain your options.
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Bills.com
September 06, 2010
If you ever receive a summons you should do as it instructs! This is not just a social invitation that you can ignore. In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor. Therefore, if you receive a summons, the first thing you should do is contact the law firm representing the creditor. Open a negotiation to see if they are willing to settle the debt. If not, it would be wise to respond as indicated in the summons. If there is a hearing, attend it and present your side of the story to the judge. Use facts, tell the truth, dress appropriately, and show the court respect. The court may or may not decide in your favor, but at least you exercised your right to be heard.
Jenn .
September 06, 2010
Hi, my husband & I have a debt with citi for a little over $20,000; we settled the acct. over a year ago but only made a couple of monthly payments (too bad, I know)... We've been through a very difficult situation and now we received a letter from a law firm to present in court. My husband got a recent job outside the US and is unable to travel to be present at court. What should we do? Call Citi again and try to get a settlement again? Or call the law firm? We are really worried and trying to solve this asap. Thank you for any advise.
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Bills.com
July 01, 2010
Statements should cease upon your completion of the settlement agreement. Do you have your settlement agreement in writing? If so, contact the negotiator with whom you made the agreement and send him or her a copy of the statement and a copy of the agreement. State that the company billing you after you paid what was agreed in the settlement agreement is a breach of contract. If you get nowhere then bring your documentation to an attorney. He or she may be willing to work on a contingency fee basis in a breech of contract or fraud lawsuit against the creditor.
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