Negotiating with your creditors without filing a Chapter 7 or Chapter 13 Bankruptcy.

Many times clients call me and ask if it is possible for them to negotiate with their creditors to avoid filing a Bankruptcy. My answer is usually yes, but they better have some cash. While you may not need an attorney to negotiate with your creditors, and may be able to avoid filing a Bankruptcy, you will need to negotiate lump-sum cash settlements with your creditors because the majority of them will not settle your debt on the basis of monthly payment plans. To succeed in negotiating with your creditors, you will need to do the following:

  • Have a set amount of money available to pay your creditors;
  • Keep in mind the overall amount that you have available in cash and calculate a pro-rata settlement amount to be paid as a maximum to each creditor, this way you can determine the parameters of the settlement amounts that you can offer;
  • Contact all your creditors, in writing, requesting a settlement of your debt. Include in your letter the nature of your inability to pay your debt;
  • Negotiate a lump-sum amount to be paid by a date certain with your creditors;
  • Make sure that all the terms of your settlement are in writing and that the creditor agrees to release you from all claims associated with the debt, whether known or unknown.

Many creditors will agree to negotiate a lump-sum settlement for pure business reasons. Collections suits can be costly and take time and selling your debt to a third party usually results in a very small amount being paid for your debt.

One thing to remember, unlike filing a bankruptcy, settling your debt for an amount less than what you owe may result in owing taxes on the amount of the debt that was forgiven. So before you decide how much you are willing to pay to settle a debt, keep in mind that you may need to pay taxes on the amount forgiven. To see if you will owe taxes, speak with a tax professional to find out.

While it is possible to negotiate with your creditors, it can be time consuming and difficult. Speak with an experienced attorney to find out if debt negotiation will work for you. My office offers free consultations to help you decide is debt negotiations are right for you. Other than your debt, you have nothing to lose to call and make an appointment.

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