Even if your debt seems insurmountable, bankruptcy should be your last option. A bankruptcy filing remains on your credit report for seven years, is a matter of public record, and costs money. An advantage that debtors have is that creditors also lose in bankruptcy. Unless the debt is secured, a creditor is likely to end up with nothing if the debt is discharged. It therefore is possible to alleviate some or all of your debt by directly engaging in negotiations with your creditors to settle your debt in order to work out a more manageable arrangement and avoid bankruptcy. Debt settlement can be a win-win situation when a creditor agrees to accept a lower lump sum payment or lower monthly payments that can in turn allow you to regain control of your finances. Debt settlement can also help improve your credit rating
If possible, try to deal directly with the original creditor before it sends your debt to a debt collector. Most creditors will assign a debt to debt collection once the debt is three or four months’ delinquent. If you are able to reach an agreement with a creditor before the debt is referred to collection, the debt may not even appear on your credit report (as long as you comply with your part of the agreement). Moreover, it may be advantageous for the creditor to reach an agreement with you before sending a debt to collection because it does not have to go through the time and expense of hiring a lawyer or third-party debt collector to collect the debt.
Creditors are also more likely to agree to settle a debt for a lower amount if a lump sum payment can be made immediately. If you are able to save a sum of money before you begin negotiating your debt and then make an offer to pay that sum immediately, you are more likely to get a creditor to accept a payment that is a percentage of the original debt. Creditors would rather take an immediate offer of cash rather than have to wait for smaller payments over a period of time. Additionally, you will likely pay more over time if you agree to a payment plan.
In order for either of these options to work, it is important that you analyze your income and expenses closely to determine what you can realistically afford to pay. Since your primary goal is to eliminate enough debt so that you can pay off what is remaining in a reasonable time period, paying more than you realistically can afford to pay to eliminate one debt can make it more difficult to pay off other debts and can increase your debt down the road. If debt negotiations will not allow you to get to this place, then you should reconsider before moving forward.
Bankruptcy remains a viable option if you cannot negotiate your debt in this manner. If you are considering bankruptcy or negotiating your debt, the Herron Law Offices will take the time to listen to the circumstances of your case and help you figure out what your next step should be.
Ohio attorney Mark Herron has been practicing law in Cleveland and Northeast Ohio for over 20 years. Mark opened his law firm in Cleveland in 1993 and since then has concentrated his practice in a variety of areas, including employment law, bankruptcy law, domestic relations law, personal injury, insurance law, business law and litigation.