Many New Yorkers are feeling the pressure of the high cost of living in Manhattan, Bronx, Brooklyn, Queens, Westchester and Staten Island and a painful combination of some or all of the following: high mortgage debt, high credit card debt, high gas prices, high medical bills, student loans and other debts are exploring their options. Filing a personal bankruptcy case, whether chapter 7 or chapter 13, may or may not be the right solution depending on the circumstances. Bankruptcy is not a panacea (cure all) and should not be viewed as the solution to every personal or business debt problem.
In a series of 4 posts we will explore the most common alternatives to personal bankruptcy, which are (1) negotiating directly with creditors and/or collectors, (2) so called “debt settlement” or “debt consolidation”, (3) credit counseling, and (4) doing nothing (ignore problems and hope they will go away).
In today’s post we will explore negotiating directly with creditors and/or collectors.
Negotiating Directly with Creditors and/or Collectors
This is certainly an option that should be explored. One problem for many debtors is that they often have too much overall debt to work out a payment plan with each creditor individually. If a debtor has a compelling hardship (such as major injury, illness and/or death in family affecting income, natural disaster, etc.) creditors may be willing to work with a debtor in reducing debt or permitting payment over time. Even without a major hardship some creditors may be willing to grant concessions.
If the debt has been turned over to a collection agency you should be aware that collectors are very aggressive in seeking payment (that is basically the essence of their job). Debt collectors typically will not agree to much in the way of discount or to stretch out payments by very much. Bankruptcy clients of ours often say they tried to work out a deal involving small payments over a long time (such as $50 a month for 3 years) and the collectors they dealt with simply were not interested. However, each collection agency and collector varies.
Whether the claim is still in the hands of the original creditors or has been sold to a “debt buyer” (who typically has bought it at a very steep discount) also affects the type of deal that can be made. One common problem encountered in dealing with collection agencies is the difficulty in documenting deals reached. An oral agreement will be reached with one collector and then in a subsequent discussion the same collector will deny ever making any such agreement (or his/her supervisor will say it was not authorized by the creditors/client). Of course the collection agencies record their conversations – but wont share their tape with you for your benefit, only to use against you (or defend themselves).
If a debtor can afford it, he/she may want to hire an attorney to negotiate with creditors. However, the fees to hire an attorney to do this will typically be considerably more expensive than the cost of bankruptcy.
The option of negotiating directly with creditors and/or collectors will likely make the most sense if the amount of overall debt is not too high as compared to income and non-exempt assets. Many of our bankruptcy clients owe debts that are a very high percentage of their overall income, or even exceed their income. With the high interest rates on credit cards the debt continues to mushroom. If you are in that situation, without obtaining significant concessions (discounts) from creditors, you are unlikely to be able to satisfy the debt.
While negotiating directly with creditors is an option to bankruptcy that should be explored, it may or may not be a potential solution to your debt problems. Other non-bankruptcy solutions will be explored in future posts.
However, for many people personal bankruptcy may be the best solutions to their debt problems. There is a lot of misinformation regarding the 2005 amendments to the bankruptcy law. Many people are under the mistaken impression that they are not eligible for chapter 7 (liquidation), when in fact they are. A prior post on our blog New York Personal Bankruptcy — Am I Eligible to File? addressed this specific topic.
The majority of the people who contact us for personal bankruptcy in New York are still eligible for chapter 7. Even if you are not eligible for chapter 7 bankruptcy, you are most likely eligible for chapter 13 bankruptcy.
If bankruptcy is an option you would like to pursue further please contact us at Starr & Starr, PLLC at 888-867-8165 to schedule a free initial consultation.