Negotiating with a creditor before filing bankruptcy makes sense when debt is owed to one creditor or if the inability to pay is short-term. Because creditors attempt to evaluate an individual’s assets, a debtor needs to careful during negotiations. Do not answer all questions asked, such as date of birth and social security number that allow a party to intrude into financial information. Do not notify creditors of non-exempt assets that creditors may take in a lawsuit to enforce a judgment. If most of an individual’s debt is owed to one creditor and repayment is possible, negotiating a repayment agreement with the creditor may be more advantageous than bankruptcy.
Credit consolidation agencies may make sense when debts are not substantial or there are not many creditors. A credit consolidation company usually charges fees based on the amount of debt. The US Trustee and US Department of Justice have concluded some debt consolidation companies have engaged in questionable tactics, charging exorbitant fees and not resolving the debtor’s financial issues. Debt consolidation companies do not base fees on how much they negotiate the debt down, unlike bankruptcy attorneys, whose fees are made public in a bankruptcy petition, and reviewed by courts. A bankruptcy attorney must represent to the court that s/he provides certain obligations, like appearing for court hearings, in exchange for the fees.
Creditors often are more willing to work out a repayment agreement with an experienced New York bankruptcy lawyer. If a creditor does not cooperate with the debtor to come up with a solution to pay off the debt, the debtor may resort to bankruptcy under which event the creditor may not see any pay off.
When negotiating with a creditor, a debtor needs to watch out in communications. If an individual informs a creditor s/he is considering bankruptcy such as during a mediation or arbitration in a collections lawsuit, the creditor may note it in the individual’s file. If the individual continues to use credit, the individual may not get a bankruptcy discharge. When the individual files bankruptcy, the creditor may argue s/he consulted a bankruptcy lawyer with plans to file bankruptcy while making credit charges in anticipation of a discharge.
If a person has many creditors and it does not seem s/he will be able pay off the debt, bankruptcy may be the best way to resolve financial issues. Chapter 7 bankruptcy discharges all a person’s debts four to five months from petition filing, and is suited for individuals with few assets, and whose equity in a home does not exceed an exemption equity limit. Chapter 13 is for individuals whose income keeps them from filing a Chapter 7 liquidation bankruptcy or who have assets they want to protect from creditors. In Chapter 13, a debtor submits a repayment plan to the court to pay off debts over time.