Switch to ADA Accessible Theme
Close Menu
Chicago Bankruptcy Lawyer > Blog > Debt Negotiation > What You Should Know About Non-Bankruptcy Debt Settlement

What You Should Know About Non-Bankruptcy Debt Settlement


In August 2023, for the first time in history, Americans’ credit card debt passed the $1 trillion mark. Some people rack up credit card debt because they overspend. Much more often, people use credit cards to pay living expenses when they lose their jobs, business is slow, or another income disruption arises. Credit cards have such high interest rates that, after only a few months, many families have dug themselves into a hole.

Chapter 7 bankruptcy, which erases credit card debt and stops adverse creditor actions, is usually the best option in these situations. However, for various reasons, a partnership with a Chicago debt reduction lawyer might be a better idea. Non-bankruptcy debt negotiation does not include an automatic stay and the results are more uncertain. However this approach may not adversely affect a credit score as badly, and it avoids the stigma some people associate with filing bankruptcy.

Preparing to Negotiate

Before negotiations begin, a Chicago debt reduction lawyer must determine how much the debtor owes and how much the debtor is able to pay. These issues aren’t always straightforward.

Banks usually market credit cards and HELOCs (home equity lines of credit) as magic wands that make money problems disappear and enable families to reach a higher standard of living. These marketing campaigns, which they often target at lower-income groups, only mention the cost of these loans in the fine print.

These campaigns are very effective. Frequently, customers take out loans they can barely afford to pay and sign legal documents they barely understand. So, the question is what did the customer think s/he owes, as opposed to what does the bank say s/he owes.

As for part two, there’s a significant difference between willingness to pay and ability to pay. Most banks won’t discuss debt reduction, outside of bankruptcy, unless the debtor is clearly unable to repay the debt.

What to Ask For

The above discussion usually determines what a Chicago debt negotiation lawyer asks for. Most lawyers have a top figure, like a 50 percent reduction, and a bottom figure, like a 25 percent reduction. Generally, attorneys ask for something near the top and refuse to go below the floor.

How to ask might be more important than what to ask for. Attorneys know how to encourage banks to negotiate. A bankruptcy filing threat is usually very effective. The bank doesn’t know that bankruptcy isn’t an option, for whatever reason. The bank simply knows that if the debtor files bankruptcy, the bank will most likely end up with nothing, especially if the loan is unsecured.

What to Do Next

Banks usually add “settled” or other such footnotes to credit reports. These footnotes are almost as devastating as a failure to pay.

To mitigate this damage, most people should borrow more money. A secured credit card is usually a good idea. Charge something every month, pay the bill on time every month and watch your credit score rise.

 Work With a Savvy Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced debt reduction attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.



Facebook Twitter LinkedIn