FAQs About Debt Settlement Negotiation

When debts become overwhelming, a situation that’s increasingly common, bankruptcy is, far and away, the best solution. Debt settlement negotiation is usually the next best thing. Non-bankruptcy debt negotiation cannot stop creditor harassment or protect your assets. But it can help debtors get a fresh start, which is the underlying purpose of a bankruptcy filing.

As consumer debt has increased, the number of companies promising an easy way out has increased as well. Many debt settlement companies offer big promises and little in the way of action. They also aren’t very forthcoming about debt negotiation pros and cons. A Chicago debt negotiation lawyer, on the other hand, has a long-term commitment to your financial well-being. Just like a good lawyer makes a big difference during bankruptcy, a good lawyer makes a big difference during debt settlement negotiations.

How Long Does Debt Negotiation Take?

Usually not very long, if a well-prepared Chicago debt negotiation lawyer lays the right foundation. This foundation mostly includes tax returns and other financial documents which convince creditors that they cannot squeeze blood out of a turnip. At that point, they come face-to-face with a fundamental rule of business and finance, which is that something is better than nothing.

This preparation must include negotiation strategy as well. Debtors must have realistic expectations. Absent evidence of fraud or other wrongdoing, complete UPB (unpaid principal balance) forgiveness is probably unavailable. So, attorney and client must decide on high-low figures.

How Does Debt Negotiation Work?

The process varies significantly in individual cases, but here’s how debt negotiation usually works in most situations.

An attorney makes the first offer. Usually, whoever makes the first offer has the advantage in settlement negotiations. Then, the creditor reviews the proposal and makes a counter-proposal. If the debtor isn’t making payments (a risky strategy, to be sure), creditors generally move faster. Once again, something is better than nothing.

The final negotiations are usually a “meet me halfway” 50-50 compromise, unless the creditor made a low-ball offer.

That’s another risk of non-bankruptcy debt negotiations. During these non-court-supervised talks, creditors don’t have to negotiate in good faith.

How Much Can You Negotiate Debt?

Pretty much everything is negotiable during debt settlement talks. Many creditors agree to marginal reductions if the debtor has a financial hardship and the creditor wants some good publicity. Significant reductions are available if the debtor has an ace in the hole, such as evidence of fraud.

Does Negotiating Debt Affect Credit?

Usually. If creditors agree to reductions, they usually add notes like “debt settled” to credit reports. Such notes usually reduce credit scores, but not as drastically as a charge-off or repossession.

However, as mentioned, pretty much everything is negotiable. For example, ABC bank might agree to omit the “settlement” comment if Tony repays more money. Furthermore, such comments are subject to interpretation. Credit score companies interpret them badly, which is why they reduce the score. But such comments also show initiative on the part of the debtor. Tony knew he had a problem and he took care of it.

Are Debt Settlements Taxable?

Yes. Debt reductions are income according to the IRS. This policy creates another question. Is the tax bill worth the debt reduction? Only debtors can address this issue.

Count on a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

Source:

newyorkfed.org/microeconomics/hhdc