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Will Creditors Negotiate to Avoid Bankruptcy?

Worried couple feeling frustrated while having to pay their bills.

Is there any reason to talk to a bankruptcy lawyer if you aren’t ready to file yet? Absolutely. Depending on your financial circumstances and the types of debt you have, your bankruptcy attorney may even be able to get your creditors to negotiate on your monthly payments or total balances to help you avoid bankruptcy altogether.

This blog post will discuss whether a bankruptcy attorney can help you negotiate with your creditors to avoid bankruptcy. It will discuss possible payment arrangements and why you may want to hire a lawyer to help you keep from having to file for bankruptcy.

Getting Out from Under the Avalanche of Late Payments and Fees

When you start falling behind on your loans, every new statement brings with it more interest, late payments, and fees that add up making the situation worse. Many families budget to make regular payments on their mortgage, credit card bills, and medical or student loans. But then a family emergency sets them behind. Once the process of back payments begins, it can feel like your loans never get any smaller, you just end up paying more and more in administrative costs.

Stopping the Collection Calls and Foreclosure Notices

All those fees come with another hassle: collection calls. When you fall behind on your payments, the bank, mortgage company, or other creditor will likely assign your account to a debt collection company. These companies make money based on how much they bring in on the debt owed. And they can be relentless. You could face multiple calls, emails, and pieces of mail every day to collect the same debt. If the loan in question is a mortgage, you could even find yourself in court facing foreclosure proceedings.

Can You Avoid Bankruptcy by Negotiating with Creditors?

With all this stacked against you, it can seem like filing bankruptcy is your only option. But there are a variety of reasons why you may want to avoid bankruptcy. You may be expecting to take on new debt (like student loans) or be disqualified because you have already filed for bankruptcy too recently in the past. You may simply want to avoid the social stigma or feelings of failure that unfortunately follow many who do choose to file.

The good news is that your creditors don’t want you to file for bankruptcy any more than you do. When an individual files for bankruptcy his or her assets or income (except for those protected by state or federal exemptions) are divided up between all his or her secured and unsecured creditors. Anything not paid off is discharged (unless it is a non-dischargeable debt like student loans). This often means that creditors only receive pennies on the dollar on their account balances. Unsecured creditors like credit card companies and private businesses may get even less. If you and your attorney give your creditors reason to believe you plan on filing for bankruptcy, your creditors will likely be willing to compromise to avoid it. This could include some combination of:

  • Extending payment periods
  • Reducing monthly payments
  • Waiving late fees or interest
  • Accepting a lump sum settlement for less than the full balance

By meeting with a bankruptcy attorney even before you are sure you should file for bankruptcy, you can develop strategies to approach your creditors and negotiate for new and better terms that fit within your budget. While it is true that you can sometimes negotiate with certain creditors by yourself, an attorney can help you keep the bigger picture in mind, working with you and all your creditors to consolidate and renegotiate debt, and find new ways to pay down your balances. 

When late payments, fees, and interest get out of hand, you need help interrupting the pattern and getting out from under the ever-growing debt. You may think bankruptcy is your only option. But at John A. Steinberger & Associates, P.C., we know otherwise. We are a full-service bankruptcy law firm in Southeast MI, serving debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We meet with clients long before they decide whether bankruptcy is right for them to help them explore options to increase income, reduce expenses, and pay down their debt. We also help them negotiate with their creditors so they can avoid bankruptcy altogether. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.

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