Debt Negotiation vs. Filing for Bankruptcy

Over the past few months, my of counsel officemate Susan Blum and I have met with dozens of potential bankruptcy clients for whom bankruptcy may not be the best solution.  While it may seem strange that a bankruptcy lawyer would tell you not to file bankruptcy, I advise everyone with whom I meet that bankruptcy is and should always be considered a last resort and that non-bankruptcy alternatives should be part of the discussion.

A negotiated debt settlement constitutes one viable alternative to bankruptcy.  In a debt settlement negotiation, you or an agent working on your behalf contacts your creditors to work out a payment plan for your debts.  A true debt settlement involves a reduction of both your total debt as well as the interest payments.

I occasionally get involved in a debt settlement although you really do not need an attorney.  I do recommend that you engage the services of a third party to negotiate your debt – given the antagonistic and  personal nature of this type of negotiation it is very difficult to speak to a risk manager at a credit card company about your own debt.

If you do get involved in these negotiations yourself, prepare yourself.  A few months ago I began corresponding with a gentleman named Kenny Golde who found me by reading this blog.  Kenny is a filmmaker who lives in California and he chronicled his personal experience settling over $200,000 of debt for $30,000.  You can read more about Kenny and buy his book by visiting Kenny Golde’s web site.  Kenny sent me a review copy of his book and he describes in detail what he experienced – if you are thinking about engaging an a debt negotiation, I highly recommend that you read Kenny’s book.  Kenny also hosts a blog which contains several detailed articles about debt settlement and negotiation.

I also came across a helpful post on Minnesota consumer protection lawyer Sam Glover’s Caveat Emptor blog.  His May 7, 2009 post entitled Deal With Your Debt – Negotiate a Settlement offers several helpful suggestions about a good strategy for settling debt.

Obviously debt settlement does not work for everyone – as a practical matter you will need access to a lump sum of cash either immediately or within a few months, and you will need the intestinal fortitude to deal with harassing phone calls and letters, and outright lies by collectors playing the old “good cop, bad cop” routine.  And there can be tax consequnces to settling debt as debt forgiveness may be taxable debt.  But if debt settlement works for you, it generally beats bankruptcy.