Private Bankruptcy - Negotiate with Creditors

Contact your creditors directly and find out whether they will negotiate with you. You may be able to obtain reduced interest rates, sometimes repayment without any interest may be offered. If you have the ability to make some lump sum payment, some creditors may accept something less than the full balance due to settle the account. If you are successful, be sure to find out how the creditor will report the transaction to the credit reporting companies and how it will affect your credit report. This is sometimes called private bankruptcy because it can work like a chapter 13 reorganization, but the courts and the bankruptcy trustee is not involved.

You may be able to reduce the cost of carrying your debt by obtaining a single loan at a lower interest rate to pay off your higher interest rate debts. These may be obtained from some of the credit card companies, through a home equity loan or by refinancing your mortgage. Be careful of the interest rates. A home equity loan or refinanced mortgage will make your debts payable over many more than three years, although the monthly payment may be smaller. Consider how much the monthly payment would be to pay off your debt in three years. The chart shows the minimum monthly payment to pay off $1,000 of debt at various interest rates. If you owe $8,000 the minimum payment would be exactly eight times the amount shown.

If you cannot pay off your credit card debt in three years at the interest rate that is available to you, then you may wish to consider some form of bankruptcy.

You may benefit from the services of a credit counselor. They may be able to show you how to reduce your monthly expenses. They may be able to negotiate better with your creditors than you can, they have more experience at these negotiations and they may have more credibility with the creditors.

For some, it may make sense to sell some of your assets. For example, if you can downsize your home, you may be able to reduce your mortgage payment enough to be able to pay your other creditors. You may be able to sell other things you do not really need and use the proceeds to pay down your debts. Be careful not to sell things that you will need for the future or assets which would be exempt in a bankruptcy proceeding. In New York, most creditors can not levy against your retirement assets to satisfy your debt, therefore it may not make sense to cash in your retirement funds to pay debts.