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Can a Bankruptcy Attorney Negotiate with Creditors?

  • People who are struggling to pay their debts often don’t know that their creditors may be open to negotiating the amount owed and will settle for less than the original debt. Good negotiations may result in the creditor's accepting a lower lump-sum payment or lower monthly payments, both of which will help you meet your total financial obligations.


    Why should your creditors accept less?  Creditors understand that chasing after money they are owed costs them time and money.  Handing over the debt to attorneys or collection agencies costs them as well, since they have to pay legal or collection agency fees on what is recovered.


    Not every creditor will be open to negotiation, but if they are, your best bet is to enlist the help of an experienced Ohio bankruptcy attorney to handle the negotiations for you.  Bankruptcy attorneys can and do negotiate with creditors, and the chances are that they will come up with a better settlement than you could on your own.


    Tips for Negotiations

    • Don’t wait too long to get legal advice. It is better for your attorney to try to reach an agreement with a creditor before the unpaid debt is sent to a debt collector – usually within 3 or 4 months. Once a debt has been assigned to a debt collector, the original creditor will refuse to discuss account details and your credit record will be negatively affected.
    • Save enough for a lump-sum payment. If you can come up with a payment of about 30% to 50% of the original debt, your attorney may be able to negotiate the best settlement as compared to a payment plan.


    What Bankruptcy Attorneys Offer

    The last thing creditors want to hear is that you are considering filing for bankruptcy.  Once you do, they will be unable to collect their debt and are stuck with any costs they have made in an effort to do so.  So just hearing from a bankruptcy attorney will probably make the creditors more willing to negotiate.


    In addition, enlisting help from a bankruptcy attorney can benefit you in the following ways:


    • Attorneys know the law. Ohio bankruptcy attorneys know what creditors are entitled to collect and can find out whether extra charges, such as fees and interest charges, may have been added to your account.
    • Attorneys provide advice. They can examine your income, your expenses, your debt, and your goals, and let you know your best options for a financial recovery.
    • Attorneys can protect you legally. They can represent you in a lawsuit against your creditors, file countersuits challenging legal actions your creditors have taken against you, and represent you in a lawsuit against your creditors for violations of consumer protection laws.
    • Attorneys will help you file for bankruptcy. In many situations, debt settlement is not enough to free you of your financial obligations.  Attorneys can help you decide whether bankruptcy is right for you and get the process done in the most efficient way.


    Why Creditors Are Afraid of Bankruptcy

    Bankruptcy is a legal process meant to help consumers to get a fresh start financially by either eliminating their debts or repaying them under the protection of a federal court.  Creditors are more likely to agree to a favorable debt settlement if they know you are considering bankruptcy.


    The most common types of bankruptcy are Chapter 7 or Chapter 13 bankruptcy. 


    Chapter 7 allows you to liquidate any non-exempt assets to pay creditors and eliminate remaining debt.  Creditors know that you will not have to pay unsecured debt like credit card or medical debt, so they will wind up with nothing.  Chapter 13 reorganizes your debts and sets up a payment plan monitored by the court and a trustee and allows you to keep many assets.  At the end of your successfully completed repayment period, the remainder of your unsecured debt will be eliminated.  Debts included in the plan are paid at a reduced rate, so creditors will receive less.


    There are advantages and disadvantages to filing under the various chapters, and you will still be responsible for certain debts, including child support, spousal support obligations, student loans and unpaid taxes. However, bankruptcy can eliminate credit card debt, medical bills and unsecured loans, and stop garnishment and harassment by creditors. Your Ohio bankruptcy attorney can explain which chapter would be best for you.


    Most bankruptcy attorneys offer free consultations, so take advantage of this and find out whether you are better off negotiating with creditors, filing for bankruptcy or looking for other debt-relief strategies to get you out of a financial hole.