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Irvine Bankruptcy Lawyer / Blog / Bankruptcy / How Does Non-Bankruptcy Debt Negotiation Work?

How Does Non-Bankruptcy Debt Negotiation Work?


Non-bankruptcy debt negotiation could significantly decrease household debt. Nationwide, this figure has continually increased in recent years, all the way to over $17 trillion by the end of 2023. Therefore, most families can barely pay monthly bills. An unexpected expense, like a medical bill or family emergency expense, could mean financial disaster.

Usually, bankruptcy is the best way to reduce household debt and give families more breathing space. However, bankruptcy isn’t always an option, usually due to a personal preference. Some people simply cannot overcome their bankruptcy-phobia. In these situations, alternatives are available. Non-bankruptcy debt negotiation doesn’t protect consumers from adverse creditor actions or shield their assets from liquidation, but it is the next best thing, and it often works, especially if the debtor partners with a top Irvine bankruptcy lawyer.

Getting Leverage

Deep down, most people want to pay their bills. At the same time, most creditors don’t want to foreclose on property or repossess collateral. Instead, creditors want the owners to take care of the property and pay the bills. In other words, during non-bankruptcy debt negotiations, both parties fundamentally want the same thing.

A temporary debtor hardship may be the most effective debt negotiation leverage. These temporary hardships include divorce, job loss, economic downturn, and sudden illness. Such hardships could cause anyone, even a bank president, to fall behind on bills.

Everyone understands the nature of such hardships, as long as the debtor doesn’t use them as an excuse. Additionally, everyone, including bank presidents, loves a good comeback story. If a Santa Ana bankruptcy lawyer uses such a before-and-after approach (e.g. I fell behind on bills when I lost my job but I’m working again now), creditors usually make compromises.

A fallback equitable argument (e.g. “there’s just too many bills”) could work as well, especially if the debtor pays some money upfront as a show of good faith.

Closing the Deal

A bankruptcy threat is usually the transition between midgame and endgame. Creditors know that if debtors file Chapter 7, they end up with little or nothing, and something is better than nothing.

Significant UPB (unpaid principal balance) reduction is probably not an option unless the debtor has overwhelming evidence of fraud or other lender wrongdoing. More than likely, if such evidence existed, a Santa Ana bankruptcy lawyer would be in court, instead of engaging in non-bankruptcy debt reduction negotiations.

Likely outcomes include payment deferral, late fee forgiveness, interest rate reduction, and perhaps late payment forgiveness. These results give debtors breathing room and peace of mind.

Connect With a Diligent Orange County Lawyer

Regardless of your financial problems, there’s usually a way out. For a free consultation with an experienced bankruptcy lawyer in Santa Ana, contact The Law Office of Charles A. May. Convenient payment plans are available.



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