Can You Negotiate With Creditors? Yes, But There are Drawbacks Also

Let’s say that you have significant debt, and for you, bankruptcy isn’t an option or just not something you want to consider. Could you just call your creditors, and see if they will work out a payment arrangement that you can agree to? The answer is generally yes, although there are caveats and considerations to using this strategy to get out of debt, whether we’re talking about personal or business debt.

Earlier May be Harder

As a general rule, the earlier it is—that is, the closer you are to having defaulted on the debt—the less likely the creditor will be to want to negotiate the debt with you. For personal debt, original creditors (that is, the creditor that you first got into debt with), are unlikely to negotiate anything with you—in fact, most won’t even contact you, but rather, will send your debt to collections.

The exception to this is for secured debts. Because there is an item securing the debt, original creditors will contact you, although they are often less likely to work with you, because they know in the end, they will have something (the secured item) to sell and satisfy at least part of the debt.

So you can wait for unsecured debts to go to collection agencies, which will negotiate—by then, the creditor is much more likely to work with you, or negotiate some lower settlement. The problem is that by that time, the debt is likely to have hit, and damaged, your credit, and more interest and fees have likely been added to what you owe.

The Tradeoff on Settlements

If a creditor will negotiate with you, there often will be a tradeoff. Most creditors will eliminate more of what you owe, in return for a faster payment. If you want your payments spread out over a longer time period, you will have much less, if any, of the original balance eliminated.

On to a Debt Buyer

Over even more time, debt can be sold to a debt buyer. Because debt buyers buy debt at pennies on the dollar, they have more leeway to negotiate favorable settlements with you. But because debt buyers actually own your debt (at least, they claim they do), they are more likely to file a lawsuit against you if something cannot be worked out.

Business Debts

Remember that commercial creditors for business debt may be less likely to work with you, because they know that businesses don’t get a discharge in Chapter 7 bankruptcies, and other forms of corporate bankruptcy can be expensive.

Should You Even Try?

If you do opt to try to negotiate with creditors, you need to ask yourself whether doing so makes sense. If you really feel that you can make payments on the debts, and afford those payments, then it’s worth a shot to see if amounts can be reduced.

But if you are so significantly in debt that even making reduced payments on all the debts would be more than you can afford anyway, it may make more sense to consider bankruptcy.

Problems with debt, whether you’re the one who owes, or who is owed, money?  Call the West Palm Beach business lawyers at The Law Offices of Larry E. Bray today for your business and commercial law needs.

Sources:

investopedia.com/terms/d/debt-buyer.asp

nerdwallet.com/article/finance/debt-settlement-negotiations