Should I Negotiate with My Creditors?

TRI Writer • December 25, 2019

When you are drowning in financial obligations, and you’re struggling to make your monthly payments while also providing for the needs of your family, debt settlement can seem like the perfect solution. What better way to get out of debt than to ask your creditors to let you make one lump sum (but partial) payment that will clear out the debt? It sounds perfect. However, negotiating debt settlements with your creditors does not come without repercussions.

Debt settlement does not require a court filing, and it is often handled by consumers directly working with their creditors. If you are unsure, “debt settlement” refers to a deal that a borrower negotiates with a creditor to pay less than the amount owed.

Why Would a Creditor Agree to “Settle” an Account and Accept Less Than the Amount Owed?

Creditors are aware that bankruptcy is an option for many overwhelmed borrowers. If you file bankruptcy, your creditor’s ability to collect anything from you is eliminated by the automatic stay. The possibility of a bankruptcy filing is the main reason many creditors agree to accept less than the full amount owed through a debt settlement agreement.

What is Necessary for Debt Settlement?

The downside of debt settlement is, again, related to money and a lack of ready cash. If a borrower has plenty of cash lying around, they probably do not need to consider settling their debts, yet to settle your debt; creditors typically want a significant portion of the full balance paid immediately. In some cases, they will agree to a “payment agreement” that breaks the lump sum amount agreed upon into 2 or 3 smaller payments. For those seeking to escape the chains of debt, even dividing the lump sum up into a few lower payments is unreachable, particularly when they have more than one financial obligation to settle. It’s so hard to satisfy many creditors while you move his competitor to the head of the payment line ahead of others.  Please do not go online to various debt settlement scams.  We have many clients who have been ripped off by internet scams.  The debt settlement “experts” end up being con artists and your money disappears.

It’s also important to point out that individuals who settle their debts should expect to see the amount written off through debt forgiveness as “income” when they file their taxes for the year!

If your debts are so massive that you can’t imagine repaying them, you may want to turn to an experienced bankruptcy attorney. An experienced bankruptcy attorney can help you consider both debt settlement and bankruptcy as options. They can also assist you in determining which will best suit your current situation and leave you in the best position for a healthy financial future.

If you are considering debt settlement or bankruptcy and you need to discuss the pros and cons, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in the Chattanooga area with two! You are in good hands with Kenneth C. Rannick P.C.

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