Debt negotiation is an option that many people in debt fail to realize exists. While you might assume that you have no choice but to pay your creditor the full balance that you owe them, there are other options available to you that are significantly easier and more affordable for you to pursue. There are multiple types of debt negotiation, which will be discussed below.
When you negotiate your debt, you can achieve some of the relief you are looking for without having to totally cave in to the demands of the creditor forcing you to file a bankruptcy case.
What Is Debt Settlement?
Debt settlement is a form of solving your debt issues, allowing you to settle your debts in either a lump sum payment or in monthly installment payments. You agree to pay the creditor a specified amount, and the creditor agrees to accept. Normally, these debts are settled for less than the amount owed. It is important to note, however, that debt settlement is not the same as debt consolidation, which will be discussed further down.
What Do I Need to Know About Debt Settlement?
- Uncooperative Creditors: One thing you must keep in mind when trying to settle your debt, whether through a hired attorney or on your own, is that the creditor is not under any obligation to settle the debt with you. They are not required to work with you. In fact, they have an agreement that you signed promising to pay them whatever amount you owe on their terms, with all of the late fees and interest fees included. What you will be banking on is that the creditor understands that it is easier to collect through debt settlement than it is through trial. If the creditor were to sue the debtor and go through the court process to collect money owed, this process could be long and arduous. In situations where a creditor can collect a lump sum of money or guarantee themselves a monthly payment from a debtor, then the creditor has no reason to sue, as the money is already coming in without the need to incur extra legal costs. If the situation does go sour, you will have the extra benefit of having an attorney who knows all of the possible defenses available to you and understands the litigation process that a breach of contract case will have.
- Tax Consequences: You must also prepare yourself for the possible tax consequences that arise when you settle a debt for less than the full amount owed. When a debt is forgiven by the creditor, or cancelled as it is sometimes called, the creditor is required to report the forgiveness of debt (or cancellation of debt) directly to the IRS as a 1099-c. A 1099-c form will most likely be sent to you, and you will have to include the amount of debt that was cancelled or forgiven as taxable income. This isn’t always the case, but it is more common than not. It would be in your best interests to consult an accountant or an attorney who specializes in tax law.
- Unpredictable Creditors: While not as common as it once was, certain creditors will refuse to cancel the debt despite the agreement made with you. In some situations there are too many creditors involved with the same debt, and mistakes can be made. If you have an attorney representing you, the likelihood of such mistakes occurring will be mitigated.
Can I Negotiate My Debt Myself Or Do I Need an Attorney?
You can pursue debt negotiation yourself if you choose. If you are comfortable speaking with creditors, who are almost always represented by an army of attorneys, you are free to call the creditor and attempt to negotiate your terms.
If you are hesitant to do that, however, then hiring an attorney to negotiate for you might be the best choice. An attorney with experience in settling debt both in and out of court can be a huge advantage, as they understand the process and what it takes to get creditors to settle. An attorney assisting you with your debt negotiation can:
- provide you with sound advice
- assist you in planning out your debt repayment process
- prepare you for a possible bankruptcy filing if the debt negotiations do not go as planned due to stubborn creditors
- take the case to court if the matter goes to litigation
The most important benefit to working with an attorney is that he will do the legwork and be dedicated to getting you your desired result.
What Is Debt Consolidation?
Many people confuse debt negotiation with debt consolidation. Debt consolidation is a very different process that involves hiring an independent third party to consolidate all of your debt so that you are only making one monthly payment that satisfies all debts owed. The goal would be to get the third party to pay down all of your debt; you would then repay the third party with interest owed. If the interest rate paid to consolidate is significantly lower than the interest rates you are currently paying to your creditors, then this is a good choice.
There are some downsides to debt consolidation:
- First, not all debts can be consolidated. Medical bills are a prime example of this; yet, these are the main type of debts a person would want to consolidate.
- Second, some debts go to third party creditors, and these creditors can refuse to consolidate the debts. Many creditors prefer lump sum payments.
- Finally, if you investigate some of the debt consolidation companies, you will find that they are associated with the credit card companies to begin with, which creates a huge conflict of interest.
What Will Happen If I Get Sued While in the Middle of Trying to Settle My Debt?
The first thing you should do if you are sued while in the middle of a debt settlement process is contact an attorney, if you have not already retained one. An attorney can review the paperwork you were served with and see if any defenses can be made on your behalf. An attorney will discuss the case with you and assist you in coming up with solutions that will help address your concerns and ensure tht you are not taken advantage of by an aggressive creditor who preys on parties not represented by legal counsel.
Some options your attorney will present to you are:
- pay the debt in full if you owe it
- fight the case and choosing to litigate the matter
- continue to try settling the debt through communications with the attorney for the creditor
Although a lawsuit against you has been filed by the creditor, the creditor will still communicate with you and sometimes be cooperative in working towards a settlement that works for both parties. Having an attorney by your side during this stressful process can be invaluable both for your peace of mind and to ensure you achieve the best outcome possible.
Contact a Massachusetts Debt Attorney Today to Learn More About Debt Negotiation
If you have questions about debt negotiation and want expert legal advice, contact Massachusetts debt lawyer Eric Kornblum today. With a wide array of experience in related areas such as bankruptcy, foreclosure defense and consolidation, he can help you get you the settlement you deserve.