Unsecured debts like credit cards, medical bills, or personal loans.
In the debt settlement world, you have two options. One is to settle a debt using a bankruptcy filing and the other is to negotiate directly with your creditors.
USING BANKRUPTCY TO NEGOTIATE
When using bankruptcy to negotiate a debt settlement, this is usually done within the context of a chapter 13 bankruptcy filing. The reason you want to use a chapter 13 bankruptcy is that for one is that while you are negotiating the debt, you can be building up a pile of cash via the trustee payments to be available to pay your creditor once the negotiations have reach a conclusion.
Negotiating a debt settlement in bankruptcy typically only works when the amount of debt is in dispute. If you have a credit card debt of $20,000 to Chase Visa, unless you are disputing that you actually owe this money due to fraud or failure to record a payment, there is nothing to negotiate in bankruptcy. If you were to file a bankruptcy, the amount you would repay would be determined by the bankruptcy code and the priority and amount of other debts you have.
Negotiating a debt in bankruptcy works best when the amount or whether there is even a debt is in dispute. If the issue is over a personal injury for example, and you file bankruptcy before the matter is resolved, you can allow them to file a claim and then object to the claim. At this point, there will be a trial within the bankruptcy court to determine what the amount of the claim is. While this is going on, you can negotiate the amount of debt you are to repay, if any. An added bonus to this method is that based on the bankruptcy filing, the maximum amounts will be known by all parties involved as the paperwork listing assets and income will determine how much a debtor will have to pay and the claim filed by the creditor has to have proof of what they are seeking. This can help speed things up when compared to a law suit carried out in state court as opposed to bankruptcy court.
If not using bankruptcy to settle a debt, you are instead dealing directly with the creditor. This can be a long, frustrating process compared to using the bankruptcy process. We can do it together, but it requires a couple of things. The first is a pile of money or significant monthly payments. Citibank is not going to accept $50 a month for 12 months to settle $20,000 in credit card debt. Each situation is different and some cases can be settled for pennies on the dollar and others cannot be settled, but having money available makes it easier.
Another requirement is patience. While you may be talking to a human being on the other end, this person is just looking at a computer screen and running a calculation to see whether they will accept or not. It will be very personal to you and very impersonal to them. You have to let this go and treat is as a business transaction. You also have to let them take their time to respond. It takes seconds to make an offer but it may take weeks to respond. The uncertainty can be difficult, but this is part of the game of negotiating and unless you are going to file bankruptcy, is just something that happens.
Another point of concern is knowing your limits. Just because you make an offer does not mean they will accept it even if you haven’t been making payments for years. Threatening bankruptcy on your own will not help. Their attitude is fine, file bankruptcy. It is just a hazard of doing business for them. So if they want $10,0000, and your maximum offer is $5000, then you have to be willing to walk away.
The one advantage to using an attorney for debt settlement is the threat of bankruptcy. While your threat of bankruptcy will be a hollow one, a bankruptcy threat coming from a bankruptcy attorney is a serious one. When I do the settlement, the threat is real because you have actually paid an attorney to get to this point and demonstrates you have someone who is actually advising you on bankruptcy and what you should and should not do in the debt settlement or bankruptcy process. I do not even make the threat of bankruptcy, I merely state that I am a bankruptcy attorney and have explained the options to you my client and that gets the point across.