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Consider the risks surrounding informal debt resolution

When a person finds he or she is overwhelmed with debt, then he or she may begin looking in every direction to find some relief. Of course, both Chapter 7 and Chapter 13 bankruptcies offer significant flexibility for many consumers to repay debt as well as discharge it. However, many creditors are willing to consider alternative repayment options that do not include an actual bankruptcy. If you face serious debt, you may be able to negotiate repayment and discharge of the debt for pennies on the dollar, but be sure to keep your self protected if you pursue this option.

Many creditors are willing to consider informal debt resolution known as "loan workouts." Under such an arrangement, a debtor would not enter into a legal bankruptcy, but would instead simply get the creditor to agree to a certain amended payment plan or reduced payoff amount. This may simplify the process and offer the debtor freedom from the debt with incurring the consequences of a bankruptcy.

However, these agreements pose serious threats to consumers who approach them too casually. If you decide to negotiate a lower repayment figure or payment plan with a creditor, be sure to get the terms of the repayment in writing so that the creditor does not later claim you still owe them money. Furthermore, it is never wise to give any creditor access to a checking or savings account. They may unethically remove everything they can from the account instead of an agreed upon amount. Often, when this occurs, a debtor has little legal recourse.

An attorney can help make sure that you continue to protect yourself from unscrupulous practices. With proper guidance, you may find that informal debt resolution is a good fit for your financial circumstances.

Source: Findlaw, "Loan Workouts and Dealing with Creditors Informally," accessed Nov. 17, 2017

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