What Can I Expect If I Try to Settle My Debts Instead of Filing Bankruptcy?
If you have some money to pay your debts, but not enough to ever pay them off, you might prefer debt settlement over filing bankruptcy. If you have experienced difficulty making the payments to a creditor, it is possible that the creditor will accept partial payment in full satisfaction of the debt. Although this type of settlement will negatively affect your credit score, it is not nearly as damaging as a bankruptcy filing.
Typically only unsecured creditors will agree to a settlement. If a creditor is secured by property (like a car, furniture, or a house) the creditor will want to repossess the property in order to get paid. However, often times the repossession and sale of the property does not pay the full debt amount. Once the property is sold off by the creditor, the remaining unsecured portion of the debt can usually be settled for less than the remaining balance owed. (Secured business are an exception to this rule of thumb. Often business loans can be settled while the businsess maintains ownership of the equipment serving as collateral).
Successfully settling a debt depends upon many factors. Settlement amounts vary based on the creditor, the type of debt, and your ability to pay. The following are several types of unsecured debts that routinely settle when the Debtor is unable to pay the full amount:
- Mortgage and Credit Line Deficiencies (Debt Remaining after Foreclosure)
- Unpaid Homeowners Association Charges
- Credit Card Balances
- Business Loans
- Business Equipment loans/leases
If you attempt to settle a debt on your own without the assistance of an attorney, make sure you know what you are getting into. Some creditors are reasonable with their borrowers. However, some collection agencies are very agressive and will make threatening statements which overexaggerate what they can do to you. Some third party collectors will actually harrass you in violation of the federal collection laws (the Fair Debt Collection Practices Act). Depending on the creditor, you may have to endure repeated phone calls and threats, as well as a lot of posturing. At the end of each month, they will pressure even more heavily to pay some amount of money. Banks will generally require you to fill out a personal financial statement and send bank statements, etc. Credit card lenders often do not require documentation to settle a debt. If you are paying anything toward a settlement, make sure you have the settlement terms in writing and signed by the creditor before you pay. Otherwise, they will not likely be bound by anything they may have told you, and they will still be able to sue you if you do not pay the full balance.
An experienced attorney possesses many advantages which allow you to get you the best possible settlement. The attorney should have experience measuring individuals’ capacity to pay and matching that with what various creditors will expect. Understand the Bankruptcy laws and general Debtor laws also allows the attorney to explain your rights to each creditor and show that your offer is better than they may otherwise get if they try to collect the debt through a lawsuit. An experienced attorney can save you a substantial amount of money when settling your debts.