Should I Re-negotiate and Settle These Debts Or File Bankruptcy?

For most of my clients it makes more sense to file bankruptcy and discharge their debts instead of trying to settle them and pay them back. 

As a general rule, depending upon your income, I tell people that if they have more than $10,000 in unsecured dischargeable debts and they are otherwise eligible then they should probably file bankruptcy.  If you have less than $10,000 in debt and a decent income then we would explore the possibility of settlement.  But if your income is already being used elsewhere and you are strapped for cash then we would probably reconsider bankruptcy.

If you have now or have  received a large sum of money recently then it also makes sense to settle your debts.   This sometimes happens to my clients.  A relative may die and the inherit money or they could win a lottery or the may just have a large amount of money sitting around.  (This does not include retirement funds which I will deal with in a later blog).  If you have this pool of money which exceeds the allowable wildcard exemption and you would risk losing it in a bankruptcy then you want to consider settling the debts.  This money sometimes comes expectantly during the bankruptcy but before filing.  That is okay and we just shift gears and we begin contact the creditors to settle the debts.

If your income is too large for a chapter 7 and you don’t want to be locked into a chapter 13 then you can also settle your debts.  You can settle the debts for a fraction of what you owe especially if a bankruptcy attorney calls and warns them that you may file bankruptcy.  How small or large that fraction is hard to say as the companies are all different but in my experience the will settle for substantially less than the full balance if you can pay them in a lump sum.  If you want payments then you might consider the chapter 13.

If your income fits within the limits of the means test, and you do not have too much cash or other non-exempt assets then you should probably file the bankruptcy.  You can then discharge your debts in 90 days without paying them and use the money you save to pay for yourself, your family, your retirement or just about anything instead of these large banks who don’t need your money nearly as bad as you do.

Most of the people who contact me fall into this last group and they decide go ahead and  file bankruptcy and not settle their debts.

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