Bankruptcy Alternatives – Debt Negotiation
If you’re struggling with debt but not sure that bankruptcy is the best solution for you, you should know that you have options to help you revamp your finances.
Your research can start here at Bankruptcy Central, but you may want to consult with a bankruptcy lawyer for personalized advice.
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The Debt Negotiation Option
One alternative to bankruptcy is debt negotiation, which involves working directly with your creditors to revise your current payment schedule.
Debt negotiation is similar to debt settlement in that both options involve working with creditors to change the terms of your debts; the difference is that debt negotiation requires you to work without mediation from a debt settlement firm.
Debt negotiation can work because many creditors would rather be paid part of what you owe than nothing – and if you decide to file for bankruptcy, your debts could be discharged and you wouldn’t be obligated to make any payments.
But, if you’ve never negotiated with creditors before, you may be unsure what you can ask for in terms of getting a break on your debt. Here are some suggestions.
What to Ask For:
- Lower interest rates: Often, people can afford their initial debts but are overwhelmed by the interest rates assessed. Sometimes, simply asking for lower interest rates will yield impressive savings.
- Longer time to repay debts: If you’ve incurred an unexpected expense or hit a slow period financially, you may need some breathing room to catch up on your debts. Assuming your finances will improve after the slump, an extension on your payment period may be the solution you need.
- Decrease of overall payment: In some situations, simply asking a creditor to forgive some of your debt can prove effective. Especially in the case of unsecured debts like credit cards, which may be completely discharged in bankruptcy, creditors may be receptive to receiving partial payment. (Of course, you can negotiate for some combination of the above terms, if such a settlement would appeal more to your creditors.)
Pros and Cons of Debt Negotiation
Like bankruptcy and all its alternatives, debt negotiation has positive and negative features.
Before deciding to pursue negotiation with your creditors, be sure you’ve weighed your options and considered both sides of the equation.
Positives of Debt Negotiation
- You don't pay fees to a firm: Because you’re not asking a middleman to negotiate with your creditors, you won’t have to fork over money to a settlement firm – or worry about selecting the right one.
- No bankruptcy filing on your credit report: Bankruptcy will stay on your credit report for ten years, though its effect on your credit will likely diminish with time.
- Possible overall reduction of your debt: If you negotiate successfully, you’ll probably end up owing less money.
Negatives of Debt Negotiation
- You have to negotiate directly with creditors: Many people are uncomfortable speaking with creditors, unsure of their negotiation skills or uncertain what kinds of breaks they can ask for. If you fall into this category, you may be better off working with help from a debt settlement firm.
- No protection from the bankruptcy court: You won’t have the effect of bankruptcy on your credit, but you also won’t benefit from bankruptcy’s protections from creditors.
- Missed payments can hurt you: Because your negotiations depend largely on your word, missing a payment could result in a creditor pulling out of your agreement.
Learn More from a Bankruptcy Lawyer
Still undecided about your debt relief options? Bankruptcy Central can put you in touch with a sponsoring bankruptcy lawyer practicing in your area.
All you have to do is fill out our free online case evaluation form or call us at 866-288-7281 and we’ll do the rest in connecting you with a local bankruptcy attorney from our nationwide network of sponsoring bankruptcy attorneys.
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The above summary of debt negotiation is not legal advice. For the latest information on debt negotiation and bankruptcy laws, speak to a local bankruptcy lawyer in your state.