Bankruptcy vs. Non-Bankruptcy Debt Negotiation

Consumer debt has reached the point that, among many people, financial stress causes symptoms that resemble Post Traumatic Stress Disorder symptoms, such as depression, trouble sleeping, and anger. These symptoms make it difficult to function at work. That affects earning power, which increases financial stress, which increases PTSD symptoms, and the downward cycle continues. If your financial situation has reached this point, most likely, things won’t get better by themselves.

Desperate times call for desperate measures. Non-bankruptcy debt negotiation is very effective in some cases. However, if the situation is dire, perhaps because a lender is threatening foreclosure, a Chicago bankruptcy lawyer must help debtors find other alternatives. Anything less would be telling clients what they want to hear. Sooner or later, that advice always leads to disaster.

Benefits of Bankruptcy

Most people choose non-bankruptcy debt negotiation because they underestimate the benefits of bankruptcy and overestimate its adverse effects.

The Automatic Stay is a unique benefit of bankruptcy. Regardless of the amount of delinquency, most creditors cannot take most adverse actions against most debtors. The resulting breathing space gives a Chicago bankruptcy lawyer room to operate.

Additionally, according to a persistent myth, filing bankruptcy “ruins” your credit. That’s simply not true. Most people in dire financial straits already have poor credit scores. Filing bankruptcy takes the score from bad to worse, but that’s it. Furthermore, if debtors responsibly use credit after discharge, their scores quickly rise.

Starting Negotiations

Another thing most people don’t realize is that debt negotiation is usually part of a bankruptcy case. Under Illinois law, a bankruptcy filing wipes out most existing loan and credit agreements. The person who emerges from bankruptcy is legally not the same person who filed a petition.

So, as the case in bankruptcy, during non-bankruptcy debt negotiations, almost all credit provisions are negotiable, such as the interest rate.

The big difference is that, during bankruptcy, a mediator supervises these negotiations and ensures that both sides negotiate in good faith. Non-bankruptcy debt negotiation mediation is available, but it’s rare and expensive, and it doesn’t have the same effect as court-supervised mediation.

Ending Negotiations

Bankruptcy discharges (eliminates) credit card bills and other unsecured debts. If the debtor reaffirms these obligations, a Chicago bankruptcy lawyer is in the driver’s seat in terms of loan terms.

Non-bankruptcy debt negotiation typically reduces interest rates and therefore lowers payments. Additionally, a good negotiator usually convinces creditors to defer or even forgive late payments. So, the relief is significant, but in extreme cases, it’s insufficient to turn things around financially for most debtors.

Keep these things in mind when you reach out to a lawyer and discuss the pros and cons of filing bankruptcy vs. non-bankruptcy debt negotiation.

 Work With a Compassionate Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.