Advantages of Debt Negotiation over Bankruptcy

There are various legal means offered under the US Bankruptcy Code which can help individuals and businesses rise up from overwhelming debts to once again enjoy financial stability. One of these legal means is bankruptcy, which the U.S. Congress approved in 1978.

Bankruptcy offers debtors so many benefits and advantages (based on the specific bankruptcy chapter applied for by the debtor), like:

– The automatic stay, a court injunction that orders creditors and collecting agencies to stop collecting debts or enforcing liens on debtors;

– Discharge of all unsecured debts, which includes debts due to credit card debts, medical bills, personal loans, among others; and,

– The restructuring of the debt payment scheme to make monthly payments more affordable to debtors.

In 2010 alone, there were more than 1.5 million cases of bankruptcy filed in the U.S., according to the U.S. Federal Bankruptcy Courts. Filed under the personal bankruptcy category was 1,593,081, while those files under the business bankruptcy category was 56,282. But though bankruptcy offers benefits and advantages, an experienced lawyer would not right away recommend it as the key solution to overwhelming debts as there are other possible ways which, some debtors may find more beneficial, such as Debt Negotiation.

Debt negotiation, otherwise called debt settlement or credit settlement, is one approach to settling debts through debt reduction. In this approach, both creditor and debtor agree on reducing the balance of a debt (sometimes to as much as half) and considering payment of such balance as settlement of the full amount of debt.

Interestingly, in the Ryan J. Ruehle Attorney at Law, LLC, website, it is said that debt negotiation may even prove to be more beneficial to debtors (than bankruptcy) due to the more manageable payment plan that it offers. This is because debt negotiation:

– Does not require any litigation process (which is necessary in a bankruptcy process);

– Can reduce the amount of a loan or loan balance to more than half its original amount;

– Offers debtors the option of paying the debt amount through a single or lump sum payment or through monthly payments that will be much more affordable to the debtor;

– Frees the debtor from the harassing tactics of debt collectors, from lawsuits and any legal action that could lead to the forced sale of his or her properties; and,

– Defers interest payments, lengthens the time span of loan payment and even allows loan payment consolidation.

To convince his or her creditor to agree on a debt negotiation process, however, a debtor will absolutely need great negotiation skills and extensive financial expertise, concerns where a highly-skilled negotiation lawyer may be able to provide the debtor the negotiating advantage that he or she needs.

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Chapter 7 Bankruptcy: Dischargeable Debts vs. Non-dischargeable Debts

Bankruptcy is useful in relieving overwhelming financial debts. When someone files for bankruptcy, their financial assets (valuable property such as houses, vehicles, personal belongings, jewelry, etc.) can be used to pay off liabilities. Sometimes filing for bankruptcy can exempt people from paying specific debts; these debts (made avoidable by bankruptcy) are referred to as dischargeable debts. In contrast to dischargeable debts, liabilities that must absolutely be paid off by the debtor are called non-dischargeable debts.

Under Chapter 7 bankruptcy, dischargeable debts can include penalties like car accident claims, personal loans, credit card debt, business debt, leases, mortgages, utility bills, automobile loans, and medical bill debt. Dischargeable debts are able to be forgiven by the creditor because of its nature as an unsecured loan. Unsecured loans are not protected by use of collateral; rather they are dependent upon the debtor’s promise of payment. Since unsecured loans are typically higher risk they have higher interest rates. Since people filing for Chapter 7 bankruptcy are usually unable to pay debts with assets, their dischargeable debts are forgiven.

Though dischargeable debt can be relieved more easily, debtors must contend more seriously with non-dischargeable debt. Non-dischargeable debts are secured, or priority, loans. When a debtor enters into a secured loan agreement with a creditor, the debtor must pledge to pay the creditor back by way of collateral. Should the debtor be unable to fulfill payments, the creditor will collect the collateral from the debtor in the form of valuable property. Until the debtor can cover the cost of the payment, the creditor will remain in possession of the collateral. Chapter 7 bankruptcies considers tax debts, spousal support, child support, alimony, government fines, student loans, personal injury debt, court penalties as existing under the classification of non-dischargeable debts.

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