Debt Relief and Foreclosure Law Services

You Can Try to Negotiate Your Debts with Creditors

Bankruptcy is not the only method of debt relief, although it may in some situations be the best and most straightforward method with the most clearly foreseeable results. One thing remains clear: whenever one is behind in his or her debts - anything short of full repayment will have credit reporting consequences - whether bankruptcy, default negotiation, debt forgiveness or consolidation. With that understanding, let's explore some of these non-bankruptcy options.

One way to deal with debts you can't pay is to Default on them - that is, to just not pay them. If you are unemployed, your creditor may choose to simply write-off or charge-off the debt, reporting it as unpaid. In certain instances, this may be more economically advantageous to the creditor than incurring collection fees. If the creditor chooses to sue you and obtains a judgment, if you have no income or available assets to garnish, the judgment will sit unsatisfied for up to 20 years without detriment to you (provided that your insolvency continues) or benefit to your creditor. However, under the Fair Credit Reporting Act,  a judgment can remain on your credit report for 7 years from the date of the judgment “or until the governing statute of limitations has expired, whichever is the longer period.”

You can try to negotiate your debts with creditors. This, of course, requires individual negotiation with each creditor and may have varying results depending upon the amount and nature of the debt. Creditors may offer long- or short-term repayment plans ranging from one to five years. Their repayment departments may offer you various options with different interest rates. If you can show with reasonable certainty that they will receive at least a substantial repayment, chances are good that they will entertain a repayment plan.

If you do not have a current source of income and it appears that you won't have one for the near future you may inquire of your creditors regarding Debt Forgiveness. If they forgive the debt you will not have to repay it but you will have forgiveness of debt income, which is taxable. (This does not happen when you file bankruptcy.) If the amount of debt forgiven exceeds $600, the creditor must report it to the IRS on a Form 1099-C (cancellation of debt). If the amount of your debt is greater than the amount of your assets you need not report the income.

If you are currently employed, or are unemployed but will soon resume working, you may want to consider Debt Consolidation. This is similar to a repayment plan. Under one scenario, you sign-up with a debt-consolidation service to which you make a single monthly payment. They then distribute that amount to your creditors prorata and over time, your debt is paid in full. There are often problems with these services because either their fees are high or they are otherwise disreputable. Under another scenario, you can take all your consumer debts that carry high interest rates, and consolidate them into a home equity line of credit (HELOC) at a lower interest rate. The problem with this is that you essentially are converting general unsecured debts into a secured debt for which the collateral is your home. This requires careful thought, as it is risky.

Short Sale. For homeowners who are upside-down on their mortgage a short sale may provide the way to get out from under a burdensome mortgage debt while avoiding the need for foreclosure and the related adverse credit reporting effects. A short sale is negotiated with your mortgagee such that they allow you to sell your home to a purchaser for less than the amount outstanding on your mortgage. In certain instances, you can even receive some "move-out" money. A short sale requires the expert guidance of both an experienced realtor and a debt negotiation attorney, such as those at Agins Law Firm.

Contact the debt relief attorneys at Agins Law Firm without obligation to discuss the various non-bankruptcy options that may be available to you.

Not what you are looking for? Learn more about Chapter 7, Chapter 11 or Chapter 13 Discharges.


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