How do you know when you should try to work out settlement arrangements with creditors or just file bankruptcy?

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How do you know when you should try to work out settlement arrangements with creditors or just file bankruptcy?

I’ve been out of work for a while; my only income is some part-time/temp/contract work. About 80k in unsecured debt. Can’t make payments on pretty much any of the cards. Not sure how I can avoid bankruptcy at this point but I’d like to try. I’m thinking of contacting all creditors and informing them of my inability to pay, period. With some work and savings, I’ve been able to stay current but savings has run dry so I can no longer pay. Money just is no longer there. After about 4-6 months they’ll either sue or it’ll be in a collection agency’s hands. I’m thinking that maybe they’ll be willing at some point to settle for 20-30 cents on the dollar. Should I call or send letter so it is in writing? I may be able to get the money from my parents for a settlement and avoid bankruptcy. Do you think this is a workable solution? Should I just file Chap 7?

Asked on June 18, 2011 under Bankruptcy Law, Georgia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

IF you can get your creditors to accept 20 to 30 cents on the dollar and then have the money to axctually pay that off, that is workable solution. However, it is unlikely you'll be able to get them to accept payment that low; after all, that's probably scarely better than they could do in many bankruptcy scenarios (e.g. Ch. 13).

If you can't get them to agree, you are probably better of declaring bankruptcy than getting money from your parents to pay the debt. The reason for that is, if your parents have resources to help you, but you spend it on paying creditors, you then have nothing left; but if you can discharge the debt in bankruptcy, your parents could then help you start over. It would be worth consulting with a bankruptcy attorney to discuss your options.


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