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Chicago Bankruptcy Lawyer > Blog > Debt > FAQs About Non-Bankruptcy Debt Negotiation

FAQs About Non-Bankruptcy Debt Negotiation


Lots of people have lots of questions about non-bankruptcy debt negotiation. The poor economic conditions of the early 2020s were especially hard on families in the Prairie State. So, most people know they need to do something to get off the revolving debt treadmill. However, to many individuals, that “something” isn’t bankruptcy, which many people see as a last resort.

That view is mostly based on some untrue bankruptcy myths. For example, many people believe they lost most or all of their property when they declare bankruptcy. The opposite is usually true. Illinois has very broad bankruptcy property exemptions. Most people keep most of their property, even when they file bankruptcy.

Nevertheless, bankruptcy isn’t for everyone. A Chicago debt relief lawyer offers other options, including tax settlement and non-bankruptcy debt negotiation. These approaches don’t have the same benefits of bankruptcy. They usually don’t offer property exemptions or other debtor protections. However in many cases, non-bankruptcy debt negotiation is just what the doctor ordered.

What percentage should I offer to settle debt?

There is no magic number that determines an appropriate percentage, but there is a magic process that a good Chicago debt relief lawyer carefully follows.

First, an attorney looks for evidence of lender fraud, if any. Lenders often subtly or overtly lie to borrowers. Mortgage fraud is a good example. Many mortgage brokers are basically hustlers who convince people to buy homes they’re barely able to afford and sign papers they don’t really understand.

The fraud evidence might not be strong enough to prevail in court. But it’s often strong enough to embarrass the lender and motivate the lender to keep things quiet.

Based on the evidence, a negotiator should aim high. The debtor can always agree to compromise once negotiations start.

UPB (Unpaid Principal Balance) reduction isn’t the only issue. A lawyer often obtains other forms of relief, like interest rate reduction and payment deferral, that are equally as valuable.

How do you negotiate debt down?

Quite frankly, it’s difficult to negotiate a debt down outside of bankruptcy. During bankruptcy mediation, both sides have a duty to negotiate in good faith. But that duty doesn’t apply to non-bankruptcy debt negotiations. A good lawyer turns this disadvantage into an advantage.

Bluffing is often a good strategy in cards and non-bankruptcy debt negotiations. As mentioned, many debtors don’t want to file bankruptcy, for one reason or another. Others don’t qualify for this federal debt relief program. But the creditor doesn’t know these things. So, a bankruptcy filing threat often motivates a lender to make a favorable deal. In the lender’s mind, the alternative is a bankruptcy filing that leaves the lender with practically nothing.

What happens when you negotiate a debt?

Debt negotiation often saves Illinois debtors considerable money. However, it might or might not help their credit ratings.

Negotiating old debts may be a bad idea. Frequently, the resolution moves an old debt, which was buried at the bottom of a credit report, to the top. In these cases, debt negotiation could do more harm than good.

On a related note, if the creditor adds a note like “settled” to a debt reduction, the negotiated settlement often does not significantly affect a credit score. Instead, the lender should add a “paid as agreed” or similar note.

One last point. Debt negotiation usually doesn’t address the collateral consequences of debt. If a creditor filed a mechanics or other lien, an attorney must normally address that lien in a separate proceeding.

 Work With a Detail-Oriented Cook County Lawyer

No matter what kind of financial problem you are having, there’s usually a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.



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