Credit-Card Debt: Negotiating Your Way Out

It takes about 10 minutes for Diane (not her actual name) to tell her story outside a Manhattan court room. Her husband was diagnosed with Stage III cancer three years ago and treatments left the couple with $60,000 in medical bills. Unable to work through his illness, her husband lost his job and the adjustable rate on their refinanced mortgage shot up. Now, the collection agencies and the credit companies are demanding their money. "I'm sorry to hear this," says Jeff Thompson, a 30-year-old New York City police officer. "It sounds like you've been through a lot."

Thompson isn't about to arrest Diane, he's showing up in court to try to help her navigate a way out of deep debt. Thompson works as volunteer mediator with Safe Horizon, a New York nonprofit that's perhaps best known for its work with victims of violent crimes. While that is the group's main mission, it has recently branched out to help those who have become casualties of the economy, by mediating cases between consumers and their creditors. Since the program launched in 2007, it has helped settle 500 cases, putting a dent in the 20,438 credit-card cases that the state court has seen in the last seven months. Safe Horizon, and the handful of groups that run similar programs throughout the country, don't expect its workload to ease up anytime soon. American households now have an average of 13 credit cards, accounting for $1 trillion in debt. And even the Obama administration's new credit-card legislation—part of which takes effect Thursday—isn't expected to immediately ease consumer debt.

That's where programs like Safe Horizon's come in, says Brad Heckman, who oversees the group's mediation program. It's his job to help recruit and train volunteers like the NYPD's Thompson to help those in need. "I see mediation as one of the best-kept secrets," says Heckman. "It's a free way to get disputes resolved."

Safe Horizon currently has 10 volunteer negotiators who work on credit-card cases, but it is always on the lookout for more. To qualify, however, would-be mediators have to attend boot camp: five days of intense training, followed by a 14-week apprenticeship. They mediate with a mentor, learn court protocol, and receive critiques after their sessions are videotaped. Heckman says about 50 percent of the volunteers drop out. The ones who graduate from the training are an eclectic bunch and include retired lawyers and law students, housewives, even a Broadway producer. Many volunteers say mediation can level the playing field between major corporations and average folks without the expertise or notion that a settlement was even possible. "In comparison to a courtroom where judges decide the verdict, mediation lets the power reside between the individuals," Thompson says.

For Diane, the mediation allowed her to talk to her credit-card company and say aloud what she'd ideally like to see happen in the dispute. "Well, I would like someone to wave a magic wand and have this go away," she says, laughing nervously. "[I know it may be] insulting if I say that I can offer just $100 a month," she says. "But, I'm here so you guys can help me figure this out."

For Thompson and Safe Horizon's other mediators, "figuring things out" usually takes place at Court Room 419, in the Manhattan Civil Courthouse where lawyers and debtors sit side by side on wooden benches to wait for the clerk to call their case. Moments before the mediation begins, the clerk hands Thompson an index card that outlines the particulars. Then, Thompson ushers the lawyer and the consumer into a sparsely furnished room. Often, the sessions start off tense or awkward. A lawyer who represents a credit-card company jokes about how he's not a bad guy. A debtor breaks down as she talks about her husband's illness. Thompson breaks the ice by laying out the parameters that mediation is voluntary and confidential. Then, like a couples' counselor, he turns to the person in debt. Tell us what happened, he says. "Being a mediator is like being a swan," Thompson whispers before he walks into the room. "You look graceful above the water, but underneath, you're peddling furiously to move ahead." Thompson's job is to keep the negotiations moving toward a resolution.

The stories told in that room can be heartbreaking, says Thompson. During the final session of his day, a woman tells him and the credit-card lawyer that she got laid off from her job in February. She now eats just one meal a day, has lost 15 pounds, and isn't sure how she'll pay her rent next month. Despite nine years of paying her bills on time, it comes down to this: she has $5,200 in credit-card charges, including months of interest and late fees.

The credit-card company's lawyer says she can reduce her debt if she can commit to paying $150 a month. The woman says she can't. The lawyer nods. Don't bind yourself to a contract you can't follow, the lawyer tells her. The two agree to return to court in December with the hope that, by then, the woman will find a permanent job and will start to pay her bills again. They don't come to an agreement, but the meeting ends amicably.

It's a tough role being a mediator in a city like New York, where inevitably the job involves impartially negotiating settlements and simultaneously helping people cope with their debt at a time when they have no other recourse. Thompson calls the volunteer gig humbling. It gives him and his fellow volunteers an eyewitness view of the country's ballooning credit-card crisis. The broader economy may be showing signs of recovery, but for anyone who doubts that times are still tough, there's plenty of proof—just outside Court Room 419.

Credit-Card Debt: Negotiating Your Way Out | Business