Are You a Good Candidate for Bankruptcy or Debt Negotiation?

Jun 16, 2023

Do you struggle with a mountain of debt? Are you behind in your payments? If so, you are not alone. And you have several options to get rid of that debt and get yourself back on a positive financial path. Two of the most common options to deal with this are bankruptcy and debt negotiation. Which is right for you? Here's what you need to know to decide.

How Does Debt Negotiation Work?

Debt negotiation goes by several names, including debt settlement. Its goal is to negotiate with the lender to accept payment of less than you owe, canceling (or, forgiving) the remaining amount. To accomplish this, you generally need a lump sum of money which you can offer the lender. You may be advised to divert payments to a fund which builds up to a sufficient amount to negotiate with. 

How Does Bankruptcy Work?

There are two main routes to personal bankruptcy. Chapter 7 is known as liquidation bankruptcy because it's a one-time liquidation of any eligible assets to pay toward your debt. Qualifying debt which remains after this liquidation is discharged and the case is closed. Chapter 13 includes a repayment plan, which you pay for a period of three or five years. Remaining eligible debts at that point are discharged. 

Who Is a Good Candidate for Negotiation?

Debt negotiation may allow you to pay a fraction of what you owe. If the creditor's only options are to accept 25%, 50%, or 60% the full amount or to risk getting even less through bankruptcy, they may accept your offer. So, the fewer assets you have which could be liquidated, the stronger your negotiation position is outside of bankruptcy. 

Settlement also saves you from having to go through the legal process and spending the extra time to claim bankruptcy. If you want to avoid bankruptcy for these or ethical reasons, negotiation is usually the best route with the lowest cost. 

When you settle a debt, the amount forgiven is potentially taxable income. However, there are exceptions to this which will prevent you from owing taxes on it. One of the most common is that you were insolvent when the debt was forgiven. If you qualify for this or another exception, there is unlikely to be any financial or tax consequence for forgiven debt. 

Who Is a Good Candidate for Bankruptcy?

You need the legal protection of bankruptcy if you're at risk of losing valuable assets to foreclosure, repossession, or garnishment. Bankruptcy comes with an automatic, temporary stay which bans further collections efforts. No other form of debt relief offers this. 

As mentioned, some debtors may end up paying little or nothing to creditors if they file Chapter 7 bankruptcy. Are you one of these? If so, it could be worth your time and effort to claim bankruptcy so as to pay back as little as possible. 

Contrary to what many people think, you don't need to wait until things are catastrophic to claim bankruptcy protection. Maybe you have a lot of debt, but you earn a good income and just need some help getting back on track. Chapter 13 allows you to roll much of your debt — including late payments on your home — into one monthly payment stretched out over several years. You get legal protection while repaying things. 

Where Can You Learn More?

Are you a good candidate for negotiation or bankruptcy? Find out by meeting with McManus & Associates. We'll assess your financial situation, your goals, and your personal interests to help you find the right solutions for your debt challenges. Call today to make an appointment or get answers to your questions. 


Sad couple — Indianapolis, IN — McManus & Associates

Help!  My Creditors are Harassing Me!

By websitebuilder • 08 Mar, 2019
My creditorsare calling me non-stop. They evenstarted calling me at work! Can they dothis? Let meexplain the Fair Debt Collection Practices Act or FDCPA. The FDCPA makes it illegal for debt collectorsto use abusive, unfair, or deceptive practices when they collect debts. Some examples that are prohibited by theFDCPA are: Repeatedly calling on the phone to harass . Debt collectors can’t contact you at inconvenient times or places. The can’t contact you before 8am or after9pm, unless you agree to it. They alsocan’t contact you at work if they are told you are not allowed to get callsthere. Use profane or obscene language. Threaten you with violence or harm. They cannot lie. They can’t misrepresent the amountyou owe, lie about being attorneys or government representatives, or falselyclaim you’ll be arrested, or claim legal action will be taken against you if itis not true. Contact you if you have retained a bankruptcy attorney. If you have retained an attorney to represent you in a bankruptcy, yourcreditors need to contact the attorney. If you are currently in a bankruptcy and a creditor calls that is listedin the case, let them know you have filed, give them your case number and yourattorney’s phone number. If theycontinue to contact you directly, let your attorney know because the creditoris now in violation of the bankruptcy stay. Our firmunderstands how stressful it is to be worried all the time about who is on theother end of a phone call. We arecommitted to helping relieve you of that stress and getting you a freshstart! Give us a call for a freeconsultation to know all your options!
Woman reading — Indianapolis, IN — McManus & Associates

DON’T Use Retirement Savings to Pay off Debt!

22 Mar, 2018
When you are receiving letters from collection companies and are getting harassing phone calls from creditors you are probably feeling desperate to make it all stop. You may even feel tempted to dip into your retirement savings to pay off your debt and just make it go away! DON’T DO IT! Reasons to leave your Retirement alone… You need to realize all the potential implications of moving forward with raiding your IRA or 401k. Taking money out of your retirement fund in order to pay down debt can lead to negative consequences. For example, withdrawing money out of your retirement account may bring about tax penalties and other fees you aren’t expecting. This may put you in a worse situation than you were before. Secondly, taking away from your future to deal with your present issues is short-sighted. You have spent years building up your retirement and that is not easily replaced. You may think paying off your debt with you retirement money is giving you the fresh start you desire, but you will still be behind because you will have to start your savings all over. Finally, and MOST IMPORTANTLY, retirement funds are almost always protected in a bankruptcy . This means, if you file bankruptcy and get rid of your debts, your retirement funds will stay intact, giving you peace of mind that you will have access to those funds in the future. This option will truly give you the fresh start you desire!
Money next to calculator — Indianapolis, IN — McManus & Associates

Problem Solving…Shouldn’t You Know All Your Options First?

22 Feb, 2018
You have financial problems. Life happens! I get it. You may be in a situation you never dreamed would happen to you. I see it every day! Unexpected medical bills are piling up. Your spouse loses their job and hasn’t been able to find work. These things cause you to fall behind on your mortgage or car payments. What should you do? Before solving any problem, shouldn’t you look at all of your options before trying one over another? How Most People Seek Relief from Debt…. 1. Borrow Money from one credit card to make payments on another card **people think they will do this for one month until they are caught up, but often they are never able to catch up 2. Borrow Money from friends and family ***what will this do to your relationship if you are unable to pay them back 3. Sign up with a Debt Consolidation company, which promises they will eliminate your debts. Unfortunately, this is almost never the case and more often than not you spend thousands of dollars before you realize it isn’t working. ***I have yet to hear of a success story with Debt Consolidating companies from someone I have spoken to 4. Raid your Retirement accounts to try and pay down your debt ***this option leaves you with nothing for retirement 5. Schedule a consultation with an Attorney specializing in dealing with consumer debt ***This should be your first option! Most people exhaust every possible option before coming to talk with me. I applaud them for trying to repay their debts. However , they often waste months, sometimes years, spinning their wheels and getting nowhere. This is time that could have been spent rebuilding credit and getting life back on track. I can present to you all possible options for your unique situation allowing you to make an informed decision on the best course of action. Stop banging your head against the wall! You have options!
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