Why shouldn’t I just renegotiate my debt? This other lawyer says he can lower my payments and get me out of debt without filing for bankruptcy.

We hear this all the time during our free initial consultation with new clients. To be honest, it might work for you. But when we were trying to decide what type of law practice would lead to us being able to provide the most help at the best value for folks, we chose bankruptcy. Here are the primary reasons why:

Reason #1: Debt negotiation takes a lot longer

Let’s just do some basic math with super optimistic assumptions and compare how long it takes a person who has $25,000 in credit card debt to get rid of that debt with negotiation versus a Chapter 7 bankruptcy. A few assumptions about this person to make this easier (the point remains the same, and these things still don’t change whether bankruptcy is the right choice): 1) single, no kids; 2) rents an apartment; 3) owns a car but owes more than it’s worth; 4) gets a tax refund every year; and 5) no student loan debt.

 Debt NegotiationBankruptcy
Total Debt$25,000$25,000
Negotiated Balance$12,500$0
Interest Rate0%N/A
Attorney Fees$1,350$1,350
Monthly Payment$200$200
Total cost$13,850$1,350
Length of Payments625 months7 months

See what I mean? By the way, you aren’t going to get a 50% deal if you have to make payments. The only way you’re going to get your debt cut in half is to pay it in a lump sum. This is how a lot of debt negotiation attorneys work. They collect monthly payments from you, then they pay negotiated settlements with your creditors once there’s enough money in your trust account to make a lump sum payment. You might be able to pick off a few smaller balances this way, but large balances will sit around for years. Our optimistic example would take over 50 years to pay off!

This leads us to our next reason.

Reason #2: Debt negotiation requires a lot of personal discipline

Let’s say somehow our person can afford a lot more than the $200 payment in our example. Let’s say she can afford to pay $1,000 toward settling your debt. That’s still going to take over 13 years to clear the debt.

Now be honest with yourself. If you were this person, do you think you would be able to put $1,000 of your monthly income toward settling debt for 13 years? You’d never want to go on a vacation. You’d never want to buy a new phone. You’d never need to buy a car (certainly not a new one). You’d never want to get married and have kids?

These aren’t bad financial decisions for someone who has the cash or income to pay for them. These are normal, healthy things to do (in moderation, of course). Not doing them takes a lot of self-control. Not doing them for 13 years takes more self-control than most people I know.

And, being honest again, if our pretend person had the discipline and good luck to be able to make 13 years of $1,000 payments, she probably wouldn’t need someone to negotiate that debt for her and probably wouldn’t have the debt to begin with.

Reason #3: Debt negotiation still hurts your credit

Folks who charge money to do debt negotiation almost always promote their service by telling you that you can get out of debt without filing bankruptcy. Presumably they tell you this to make you feel like you won’t experience the plunging credit score that a bankruptcy hits you with. “Bankruptcy ruins your credit!,” they tell you. The don’t tell you that settling debt for less than what’s owed also goes on your credit report, and it becomes a boat anchor around your credit score for years. Yes, a bankruptcy will put your FICO score in the tank, like probably 500’s. But you’ll be stuck in the low 600’s or maybe even 500’s with a debt negotiation. So why would you prolong that pain?

Reason #4: The credit hit lasts longer with debt negotiation

A bankruptcy will stay on your report for 7 or 10 years (Chapter 13’s drop off sooner), but you’ll be able to start building your credit immediately with all that income you unshackled from debt service. Yes, you have that really bad mark, but the longer time goes by without new bad news, the more you practice good habits, the less that bankruptcy affects your credit score. The negotiation will keep being reported for as long as you keep making payments, and as I showed earlier, that can be a long time. It’s not uncommon for folks to get a mortgage 2 years after a successful Chapter 7.

Reason #5: Debt negotiation ties up your income

I already mentioned this, but it bears repeating because this is the key to success after bankruptcy. Debt negotiation takes every penny you have to spare at the end of the month for years. You’re always scraping and living a life that isn’t as comfortable as what you ought to be able to afford with your income. In order to build good credit, you have to use credit. The only way to use credit correctly is to use it to spend money that you already know you can pay back. You won’t be able to pay back any new creditors if you have no free income, and they know it. That’s why you won’t get any new credit offers if you go the debt negotiation route, and it’s a big part of why you’ll get new credit card offers almost as soon as your bankruptcy debt is discharged.

We got into this business to help people make better lives for themselves. We could probably make more money for less work by doing debt negotiations, but we don’t believe that type of practice would meet our Golden Rule of doing business: “Make money by doing good things.”


If you’re down in a hole and feel like your wings have been denied (sorry, I’ve been on a ’90’s rock kick this week), reach out to us to schedule a conversation about what we can do to help.