The bulk of my practice involves filing Chapter 7 and Chapter 13 bankruptcy cases for consumers and small businesses. However, not all situations are ripe for a bankruptcy solution and not all my clients are interested in filing a bankruptcy case.
Many bankruptcy attorneys are just that….bankruptcy attorneys. That’s it…that’s all they care about…finito’. They aren’t interested in considering other remedies for their clients’ financial problems. In my experience there may be many reasons why a bankruptcy doesn’t fit a particular set of circumstances and so, on occasion, I’ll finish a lengthy bankruptcy consult and conclude that bankruptcy isn’t the solution.
It could be that debt settlement option is the better option. Bankruptcy and debt settlement are tools. Bankruptcy might be the best solution to one set of problems but debt settlement just might be the proper one to apply to another. Note that I’m talking about debt “settlement”. Not to be confused with a “debt management” plan where debts are put into a mode of payment over the course of time with often a large number of creditors…usually credit cards issuers.
There are many vendors who provide this “service”. Many of those have fairly “shady” reputations and, more often than not, results of dubious worth. I typically don’t recommend then. It’s the old “if I had a nickel” for every time I filed a bankruptcy case for someone who was in a debt management plan and they just tossed that money down the sewer basically.
Debt “settlement” is a pointed effort to negotiate the balance owed to a creditor down to the lowest level possible. What is a “fair”, or “reasonable” or a “good” settlement is in the eye of the beholder. There is no guarantee that a creditor will settle. But often they do so the conversation then turns to….
“How do we get there?”
- Bargain in good faith. Be realistic about what you can do and how you will be perceived by your creditor in terms of your ability to pay. Creditors and their attorneys are not foolish. Sometimes, as part of their strategy once they receive what they’d consider a “low-ball” offer they will ask for proof of income and assets such as payroll stubs, tax returns, bank records, etc. They may do title searches of land and vehicle records. If they think you can pay more than you are offering it is doubtful they’ll accept a low offer. However, there are often strategies that can be used to better position you in reference to the perception of your ability to pay.
- Think about what you want. Are there other issues besides just the money owed? Perhaps there are co-signers you want to protect? Is there collateral involved and is the title and/or disposition of it an important issue to you? Terms in reference to considerations like those need to be a part of the bargain.
- Have you considered the tax consequence? Debt that is forgiven, under most circumstances, is considered income for tax purposes. Your tax advisor can help you with that issue.
- You have to have the financial wherewithal to write the check. You’ve got something they want….money. With this you are negotiating from a position of strength. Alternatively, if you don’t have the “juice” and all you’ve really got is an offer to make a small payment on a small percentage of the debt over a long period of time it’s a weak negotiating posture and not likely to lead to a satisfactory result.
- Use an experienced attorney to help you negotiate. More likely than not I’m going to be a more effective negotiator than you are. My letterhead has weight that yours does not. Considering my long career as a bankruptcy lawyer the creditor attorneys are aware that I am not hesitant to file a bankruptcy case if they don’t take a proposal from my office seriously. If they get a letter from me about a settlement proposal they know it is a serious offer and if not acted on (if they’ve got any inclination to settle the debt at all) that a bankruptcy filing is a probably to follow and in that case they’ll likely get nothing.