Can You Negotiate With Your Creditors?
You are in debt, and you are considering bankruptcy. But then a thought occurs to you: Why file for bankruptcy? Couldn’t you just call your creditors and negotiate with them? The answer is that you can—although that isn’t as easy as it sounds, and it isn’t always the best idea.
Will Creditors Negotiate?
The first question is can you negotiate your balances down. The answer is in most cases, yes, but that may not be such a good idea. Let’s first talk about when you usually can’t negotiate with creditors.
Usually, original creditors won’t negotiate with you. If you buy something on a Target credit card, and Target still owns the debt, Target likely will not negotiate with you.
Additionally, secured creditors, like car payment companies or mortgage companies, or even homeowners associations, often will not renegotiate with you. They have no incentive to do so—they can always take the secured property (your home, the car), sell it, and make their money back.
When You Can Negotiate-If You Want To
Your best chance at negotiating down a balance will likely come once the debt is given to a collection agency or debt buyer. Then, you will be able to negotiate. The problem is that by the time your debt is handled by collection agencies, it has been so long in default, your credit has been damaged.
Let’s say that you are willing to sacrifice your credit in order to negotiate down your debt. Then is it a good idea? That depends on your situation.
If you have a significant amount of debt, it still may not help. At best, most creditors will take between 40-60% of the balance owed, at least, after the debt has been purchased by a debt buyer. That sounds good…assuming you only owe a moderate amount of money. Obviously, if you owe $50,000, settling for $20,000 may not help you anyway—that still may be way more than you can pay.
Some creditors will take payments on a negotiated settlement figure. But again, if you owe too much, the payment amount may be way more than what you can afford to pay, especially if the creditor wants to be paid back in a relatively shorter amount of time. If the creditor agrees to take payments over an extended period of time, that’s easier—but even then, you’ll be saddled with those payments, and the effects on your credit, for an extended period of time.
Most creditors will also want significant financial disclosures from you, before they agree to negotiate down a balance. They will want you to give them bank account statements and other information.
The problem here is that if you do that, and then later they sue you for the balance, you have just given them a roadmap to how much you owe, whether you could pay the money, and where your money is located.