Is Bankruptcy Better than Debt Negotiation?

The question of whether Bankruptcy is better than Debt Negotiation depends on whether you are the person who owes the money or whether you are the person who is trying to collect on the debt.  It also depends upon whether you are using a debt negotiation company or are trying to negotiate with your creditor on your own.

Debt Negotiation Companies

Debt Negotiation Companies can be more of a problem than they are worth.  There are many scams out there in the marketplace.  This is a situation of buyer beware. 

• Look for a licensed debt negotiation company.
• Consider credit counseling before deciding to use a debt negotiation company.
• Beware of large non-refundable upfront fees.
• Get a copy of any contract you are asked to sign and review it before you sign it.
• Make sure you can get a refund of your money if the company doesn’t deliever what it promises.
• Be aware that the creditor does not have to accept the debt negotiator’s plan.
• Beware of claims that the negotiation company can get debts reduced by 70% or more.

Bankruptcy

Filing a petition in bankruptcy has the several advantages over debt negotiation.

• Creditors are bound by the constraints of bankruptcy law. 
• In chapter 13 repayment plans are set up by the debtor, the debtor’s attorney and the bankruptcy trustee after considering the debtor’s income and assets.
• Bankruptcy can help you save a home if your mortgage payment is in arrears.
• If the court approves a repayment plan, (Chapter 13) the creditor cannot change it.  Similarly, if a debtor is entitled to a discharge in chapter 7 the creditor’s ability to change it is limited.
• Creditors cannot take action against the debtor while in bankruptcy.
• Discharge of debts protects the debtor from any attempts to collect on debts that were discharged.

Be Your Own Debt Negotiator

Consider trying to negotiate with your creditors on your own.  It is possible to get credit card companies to lower interest rates and penalties and possibly to accept a lesser amount than is owed.  This is the glass half-full theory.  It is better to get something  rather nothing.  Telling a creditor that your only other option is to fill bankruptcy can be a good bargaining chip.

When to Talk to an Attorney

A lawyer experienced in bankruptcy law can of great help guiding you as to which option to choose to resolve your financial problems.  They may be able to help you with debt negotiation.  This is an area of the law where it is best to have good legal counsel.