When you are in debt, it’s important to understand that there are a number of options you may be able to rely on to help alleviate some of the burden. One such option is debt settlement, in which you can work with your creditors to negotiate a lump sum payment for the amount owed. However, if you find that this is no longer a viable option for your circumstances, you may wish to declare bankruptcy. Unfortunately, many are unsure if this is possible while in negotiation over debt, so understanding your legal options is critical. The following blog explores what you should know about these matters, including the importance of working with a Memphis, TN consumer bankruptcy lawyer to help you discuss and review your options.
What Does Debt Settlement Entail?
Debt settlement is the process in which a debtor attempts to negotiate a settlement amount for a debt they owe with the creditor. This can result in a debtor paying less than what they owe to the debtor in exchange for making a lump-sum payment. Many creditors find this beneficial as it ensures they will receive at least a portion of the funds they are owed, whereas bankruptcy can result in the creditor receiving nothing. This is especially true for unsecured debt, which is not prioritized during bankruptcy.
Can I Pivot to Bankruptcy?
If you are in debt settlement, whether that is through a program that will negotiate with creditors on your behalf or you have obtained the services of a lawyer, you are able to declare bankruptcy.
For some, navigating debt negotiation may prove to be difficult to keep up with, as lawsuits may still be filed, and you can continue to accumulate more debt. As such, if you have decided it is in your best interest to declare bankruptcy, you’ll find that this is a viable option even if you are in negotiations with creditors.
You should note, however, that if you have made any payments to creditors as part of a debt settlement in the 90 days before declaring bankruptcy, the trustee assigned to your case does have the right to “claw back” the payments you’ve made to creditors. This essentially means that the trustee can contact the creditor and request the amount that you paid them, and if they do not comply, a lawsuit between the trustee and creditor may ensue. This is because the courts can consider these preferential payments and bankruptcy priorities, placing all creditors on an even level.
If you are considering bankruptcy, it’s critical to understand your legal options during this process. As such, you should connect with an experienced bankruptcy attorney with the Arnold Law Firm as soon as possible to explore your legal options. Our team understands how difficult these matters can be to navigate, which is why we will do everything in our power to help you make the most informed decisions for your circumstances. Contact us today to learn more.
