Credit Card Negotiation

• Bankruptcy Solutions
• Foreclosure Solutions
• Modification & Negotiation
• Credit Card Debt Relief

The Need for Credit Card and Unsecured Debt Negotiations and Settlements –

Negotiation and settlements are an important debt relief tools, in certain situations with regards to credit card debt. Most of the clients coming to our office with credit card and other unsecured debt (personal loans, medical bills, and other miscellaneous debt) are initially interested in bankruptcy solutions since they are usually  thorough, certain and uniform in eliminating, reducing or reorganizing debt. However, despite the strong role of bankruptcy solutions in providing debt relief, negotiated debt settlements also play a large role. There are many instances where our clients have either too much income to qualify to file a Chapter 7 bankruptcy case or they may have too much equity in assets to make a bankruptcy case a good choice to sufficiently alleviate their debt situation. Some debts are high risk for objections to their discharge in a bankruptcy case or are completely non-dischargeable under the law. In other situations the debt is not sufficiently overwhelming to require a bankruptcy case and the client may be better served by negotiating for a lower payment for the debt that they can affordably pay. Our approach to negotiations and settlements, entails: 1) customized and optimized settlements for each individual debt and creditor pursued by high level negotiators seeking “smart solutions”; 2) approaching the creditors at the same time with lump sum, installment or hybrid proposed settlements that eliminate interest and seek a significant reduction of principal; 3) using alternative services, bankruptcy and litigation as threats to leverage a better deal and as real alternatives where the desired settlements are not forthcoming; and 4) coordinating with our clients to make sure that they are on board with the amounts of our offers and the term of the settlements. Our coordinated and elegant approach to debt negotiations and settlements makes this a viable option and an important debt relief tool.

Our Method of Negotiating with Credit Cards-

Because clients often come to us with several or numerous credit cards, and/or other personal debts, that require negotiation, we prepare separate files for each creditor that list pertinent information for that creditor, including their pertinent payment history, negotiation history, contact and loan information. Then we systematically write and call all the cards in pursuit of negotiated settlements. Using this method we can best track the progress with our settlement efforts and advise our clients as to our progress. In our contacts with the creditors our concentrations in bankruptcy law and litigation defense are leveraged to inform the creditors that our clients our considering bankruptcy and/or litigation if an acceptable negotiated solution can not be reached. 

Credit card negotiations can be involved and experience and the leverage of other legal options, are all helpful. Our debt negotiators have experience and legal background, so they individually seek the best possible resolution for each separate debt.  The Law Office of Ronald D. Weiss, P.C.  regularly represents its Long Island and New York clients in credit card negotiations.

1. Client Information and Documentation – Our efforts start with gathering as much information and documentation as possible from our clients at an “intake” appointment where forms soliciting information are filled out by our paralegals, who also copy all pertinent documentation. Our clients point of view as the history of the situation in terms of the debt, the hardship in payments, the payment and negotiation history are all important to us. Statements, invoices, letters, emails, collection notices, litigation documents, communications are all important in assessing the debt situation. Other important aspects of information involve obtaining information about the client’s and the household’s overall income, expense, budget and debt situations, including debts that the client does not want to or can not negotiate, in order to assess what kinds of settlements the client can afford to pay and the manner in which they can be structured. Most important is what the client can use make payments towards a settlement that can be structured in different ways: a lump sum resolution or installment payments or some combination of the two.

2. Searches – We then continue to gather information and documentation from various legal and asset and debt searches that give us additional information about the client’s situation. We start with a credit report, that shows the client’s debt and payment history. Where there is real property we may run a lien, search which can be done at different levels to assess judgment, tax, and mortgage liens. Other searches include a judgment search, a litigation search, and a bankruptcy search to assess past or current activity in the court system.

3. Contact with the Creditor – Next, need to determine who to negotiate with in terms of who the legal contact is for the creditor in terms of negotiating the debt. Ofter creditors have several different parties contacting the client regarding the debt, the original creditor, a new creditor who may have purchased the debt, s servicer of the debt, a collections company, and/or an attorney. We need to determine who has the authority to negotiate the debt since the original creditor may no longer own the debt and the attorney may not necessarily have the authority to negotiate. Once we determine the proper party to negotiate the debt, we write a letter to the creditor advising them of our client’s hardships and why a negotiated solution would be in everyone’s best interest. The goal of the letter is to show the creditor that the offer we are making, although it is a reduction of the total debt is a best case situation for the creditor, given our client’s financial hardship and legal alternatives such as bankruptcy and litigation defense.

4. Several Offers – Negotiated settlements, once they get started, may entail several rounds of offers and counteroffers. We offer the creditor an amount and payment term (duration and amount of monthly payments) that we are seeking and the lowest we can reasonably offer in a serious negotiation. The creditor if it is interested counters and eventually after several rounds we arrive at what may be the best settlement with that creditor. Where the creditor shows no interest in negotiating for a reasonable settlement, we may pause our efforts with that creditor and concentrate on creditors who are more ready to engage in productive negotiations. Sometimes creditors have internal policies driving their negotiated positions and sometimes the assigned negotiator for them determines the amount they may accept. Therefore, when we do not at first obtain an acceptable settlement, in response to our offers, waiting and coming back at a later point may help improve our ability to settle.

5. Settlement Agreement – At the end the settlement we seek to document the resolution with letters/emails that clearly specify the basic terms to and a stipulated agreement. A formal settlement agreement is drafted and agreed to and signed by both parties. As long as the client abides by the agreement they are protected by the settlement. If the client defaults on the agreement, it specifies the manner in which the creditor must notify the client and our office and the number and length of the notices that must be given. If the client despite these protections is repeatedly in default, eventually the client may lose the benefit of the settlement agreement.On the other hand if the client abides by the settlement agreement, eventually at the end of the term of the settlement agreement (assuming the client doesn’t pass earlier), the debt will be permanently resolved.

6. Satisfaction of Debt or Judgment, and/or Release of Lien – A satisfaction of debt agreement obtained  and where there is a judgment it is filed or in the case of real estate where there are liens a release of liens document is executed and filed.

Threat and/or Alternative of Bankruptcy or Litigation to Obtain a Credit Card Settlement

Our law office has a unique advantage in negotiating debts which is that our other services, including bankruptcy and litigation, are potentially threats which can potentially leverage  better deals when we explain to creditors that if we can’t reach a reasonable resolution that our clients may need to resort to bankruptcy or litigation options. We would show how these alternatives are potentially options that we can pursue that would have more drastic consequences on all parties. These bankruptcy and litigation options are not just threats, they become real alternatives where the desired settlements are not forthcoming

1. Bankruptcy As a Threat and/or Alternative –

The threat of a Chapter 7 bankruptcy case will make a negotiated solution appear to a creditor to be advantageous since Chapter 7 will eliminate most or all of a client’s debt, usually without any payment.

A Chapter 7 bankruptcy case will eliminate most or all of a client’s debt, and will allow the client to obtain a fresh financial start. A Chapter 7 case is a highly effective tool in dealing with burdensome credit card and other unsecured debts, such as medical bills and personal loans. A Chapter 7 case is especially helpful when the client cannot pay their present bills and faces the prospect of creditor harassment, collection actions and bad credit.
The Chapter 7 case starts when legal documents, called a bankruptcy petition, schedules and statement of financial affairs, are filed with the bankruptcy court;  these documents which are intended to disclose all of the client’s financial affairs at the time of the filing, contain information about all of the client’s assets, liabilities, income and expenses at the time the case is filed. Such information is obtained by our firm’s meeting with the client and doing an “intake” where we ask many questions about the client’s finances and collect documentation for the file, including proof of income, tax returns, bank statements, and the client’s bills and invoices. We also run a credit report, and where requested a judgment lien search, so that we can properly list a client’s creditors and debts on their bankruptcy schedules. Prior to filing the bankruptcy case  the client must complete a pre-filing session of “credit counseling” which is a session, by phone or by internet, with a credit counsellor who analyzes the clients finances in a private session with the client. Upon the filing of the Chapter 7 case, the client will be immediately protected from their creditors with an “automatic stay” which causes creditors to immediately stop all collection activity and to release bank restraints and wage garnishments. At the end of a Chapter 7 case the client is issued a discharge order, which formally eliminates their debt and then the case is terminated and closed, usually within a 3 1/2 month period of time in an average case that is not complicated with issues that take longer to resolve.

Even where the client does not qualify for Chapter 7, because their income is too high or their assets have too much unprotected equity, the debt under a Chapter 13 plan could be spread out over sixty (60) months, where no interest is paid on most debts and the debt is divided into monthly installments to be paid over 60 months. Where the client’s income or asset situation shows excess income or equity, chapter 7 may either be not possible or not a favored solution, and chapter 13, especially if a percentage plan is possible, becomes the an option worth  considering. A percentage plan not only spreads out debt without interest over 60 months, but also reduces the monthly payment, based on the amount of excess equity in assets and/or excess income above the median or budget tests which prevented  Chapter 7.

Therefore, because our law firm regularly files bankruptcy cases, the bankruptcy threat is credible and may help with obtaining a negotiated resolution to credit card and/or other unsecured debt. If the bankruptcy threat does not work to get a reasonable negotiated settlement, bankruptcy can be also be pursued as an alternative and is usually very effective in discharging and/or reorganizing debt.

2. Litigation as a Threat and/or Alternative  –

The threat of  Litigation Defense, will make a negotiated solution appear to a creditor to be advantageous since Litigation Defense allows a defendant to use procedure and the legal process of the court system to challenge alleged credit card debt and to assert their legal rights.

Creditors collecting on credit cards and other unsecured debt do not usually expect there to be litigation defense since most debtors acquiesce to their debts assuming that they can not be challenged. The goal of litigation defense for credit card debt is the threat of high litigation fees and time creating a disincentive for the creditor to collect on the debt. Therefor the threat of litigation defense on a credit card or other unsecured debt will make a proposed negotiated solution seem advantageous in that it would seem to be the better value option for the creditor.

Potential litigated issues are usually issues pertaining to notice, collection efforts, documentation of non-payments or late payments, the amount of penalties/late fees/interest charged and/or the non-existence of a signed credit card agreement. If the client needs to actually litigate the credit card or other unsecured debt, firm can represent the client in answering the summons and complaint that initiate the litigation and in asserting defenses and counterclaims. This needs to be done within 20-30 days after service of the summons and complaint. Such answer is one out of several documents that are usually filed as part of a litigation defense. Other documents may include a motion to dismiss, if applicable, and a response to a motion for summary judgment. Defending the litigation proceeding allows the client to assert any defenses they may have to the manner in which such litigation was initiated. A litigation defense also gives the client and our firm notice as to the status of the litigation and prolongs the proceeding. In some instances a client may have a strong defense, which may cause a litigation to be dismissed. Defenses asserted by our office look at issues such as defective service, the existence and applicability of the alleged loan documents, the clarity of the alleged loan terms, the appropriateness of the loan amount, the amount of interest and fees charged by the credit card. Often our office would engage in discovery demands to try to obtain documents and/or information regarding the alleged debt and to help with potential defenses. Defending the collection actions by credit cards allows the client to assert any defenses they may have as to the manner in which such collection action was initiated and/or the manner such credit card debt was extended. These are issues that creditors are not used to litigating and would generally prefer to settle over focusing on such issues.

Therefore, because our law firm regularly engages in litigation defense, the litigation threat is credible and may help with obtaining a negotiated resolution to credit card and/or other unsecured debt. If the litigation threat does not work to get a reasonable negotiated settlement, litigation can be also be pursued as an alternative and is usually very effective in defending against various collection litigation.

New NYS Amendment to Reduce Judgment Interest on Consumer Debt Can Be Very Helpful

Please see the attached amendment added to CPLR 5004 with regard to Consumer Debt judgments.  All interest accrued on judgments for consumer debt is now at 2%, a significant decrease from the original 9%.

This new interest rate applies to all consumer debt judgments after 9/15/21.  If a judgement was entered before that date, the interest a creditor may collect is 9% up to 9/15/21, and any interest collected after 9/15/22 is now only 2%.

New York will lower its interest rate on money judgments in actions involving consumer debt for the first time since 1981 after Gov. Kathy Hochul signed the Fair Consumer Judgment Interest Act (FCJIA) on Dec. 31, 2021.

The goal of the law is to remedy hardships on consumers caused by the statutory judgment interest rate, which have increased during the COVID-19 pandemic.

The new law is one of three from New York’s legislative session that impacts the accounts receivable management (ARM) industry.

With the governor’s signature on the FCJIA, Section 5004 of the civil practice law and rules is amended to read as follows:

“[The] interest shall be at the rate of [9%] per annum, except where otherwise provided by statute; provided the annual rate of interest to be paid in an action arising out of a consumer debt where a natural person is a defendant shall be [2%] per annum on a judgment or accrued claim for judgments entered on or after the effective date of the chapter of the laws of [2021], which amended this section, and for interest upon a judgment pursuant to [S]ection [5003] of this article from the date of the entry of judgment on any part of a judgment entered before the effective date of the chapter of the laws [2021], which amended this section that is unpaid as of such effective date.”

Consumer debt is defined in the law as “any obligation or alleged obligation of any natural person to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes, whether or not such obligation has been reduced to judgment, including, but not limited to, a consumer credit transaction, as defined in [S]ubdivision (f) of [S]ection [105] of this chapter.”

New NYS Amendment to Shorten Statute of Limitations and Increase Notice Requirements for Consumer Debt is a Game Changer

Please see the below link showing a new amendment being added to CPLR 214 with regard to Consumer Credit Transaction (credit card debt).

The new Statute of Limitations for these actions are now 3 years, not 6, and require additional notices to the defendant.  These are some GREAT defenses here that will be very helpful in LIT and NEG.  The amendment takes effect 9/5/2022 https://legislation.nysenate.gov/pdf/bills/2021/S153

CPLR 214-i Amendment – Statute of Limitation for Consumer Credit Cases is now 3 years NOT 6. This Amendment is potentially a MAJOR  change in the law and could be a ADVANTAGEOUS game changer for our practice. 

Rose, Brandon snd David  – on Monday let’s pls discuss researching further some of the questions about the new law.

Jon and Eugenia and new guys to Negotiation Dept (Kunal and Teddy) – on Monday let’s discuss collections Practice and how we can integrate this new law. 

**4. IMPORTANT QUESTIONS CONTINUED  – the last section of this amendment is VERY interesting. It says:

  “§ 15. This act shall take effect immediately; provided, however,  that

sections  two,  three,  five,  six,  seven, eight, nine, ten, eleven and

 twelve shall take effect on the one hundred eightieth day after it shall

 have become a law and shall apply to actions and  proceedings  commenced

 on  or after such date; and provided, further, that section four of this

 act shall take effect on the one hundred fiftieth  day  after  this  act

shall have become a law.”

It is section four (4) which contains the main change which is a reduction of the SOL from 6 years to 3 years. A close reading shows that section four will NOT ONLY take effect earlier (within 150 as opposed to 180 days) BUT section four also impliedly (unlike the other sections) is NOT applicable ONLY to actions commenced ON/AFTER it becomes law. Therefore, unlike the other sections section four impliedly is presumably not just limited to NEW actions/proceedings started after the law took effect and could potentially apply to actions  started earlier and judgments rendered earlier. Until this is clarified by amendments/court decisions this may be a real game changer in that creditors in the past have often started actions AFTER  three years of default have passed. Assuming the debt may go into collection and be sold several times for several years before litigation starts, older judgments may be subject to this rule and  may be now be litigated to a much larger extent if the original litigation leading to the judgment commenced more than three years after the default. It seems that this SOL is NOT subject to waiver and presumably a judgment rendered in violation of the SOL may now be questioned. 

5. OTHER POTENTIAL GAME CHANGERS IN THE AMENDMENT – 

a. No Waiver of SOL –  Section four also SPECIFICALLY states that payment or non-insistence on SOL does NOT waive the SOL. Therefore we could potentially counter claim and/or move and/or sue for : over-payments made in violation of the SOL and potentially under the Fair Debt Collection Act for the violation of the Ds rights with the violation of the SOL. 

b. Many New Requirements in the Complaint and Limitations on the Right to Amend the Complaint – There are many new aspects to the Complaint which will be regulated much more heavily to state information like the original creditor, the chain of assignment, a break down of what’s owed by principal, interest and fees and the Complaint needs to also include a copy of the contract or charge off. The Amendment also limits the rights to amend the complaint; presumably creditors may often need to amend to comply correctly but this appears to be a limited right. 

c. Many New Requirements for The Motion for a Default Judgment – There are also Many New Requirements for the Motion for a Default Judgment including its OWN separate NOTICE. 

Thx Gang!!

Ron 

On Sat, Jul 30, 2022 at 3:01 PM Ron Weiss <weiss@li-bankruptcy.com> wrote:

Thx Brandon!!

ALL – we now have a HUGE potential help in negotiating and litigating consumer debt as follows: 

1. SOL INITIATION –  I believe that unlike with foreclosures litigation,  the statute of limitations (“SOL”) for consumer debt litigation starts upon default. {PLS VERIFY}. Therefore I believe that any debt where the default was older than 3 years is vulnerable if there is ANY possible question about service of process AND the date of default. {PLS VERIFY}.  We can argue client did not live where served  (unless very accurate personal service) AND/OR  that default date was earlier than alleged by the creditor (unless very accurate statements kept as records by the creditors). Typically consumer debt creditors don’t have accurate records of supporting proof for either issue, residency of the D or the default date.  We can BOTH litigate and negotiate and/or threaten litigation based on this new 3 year SOL rule and accompanying amended laws.

2. EASIER TO VACATE JUDGMENTS – If our clients who are often transient and unstable as to where they live have ANY proof of an alternate address/residency during the time of the past alleged service (due to a move, separation/divorce) we can contest service and if we win we can not only vacate the judgment but also potentially prevent a new action with an SOL action or motion. 

3, NEW NOTICE REQUIREMENT – This accompanying rule as to a new notice requirement for consumer actions resembles the 90 Day Notices in foreclosure actions in that it may be going forward the source of controversy and litigation. It may be that Ps going forward  will have to show that this notice was actually mailed/given to the D and without that accurate/solid showing, an action may be dismissed and/or a judgment vacated. Exactly how/when to give this notice and the extent of the proof of doing so may end up making consumer debt collection much more litigious. 

4.  IMPORTANT QUESTIONS?  – Is this new 3 year SOL rule retroactive? Apparently it goes into effect in September 2022, but does it go back to transactions and/or cases started/decided before the amendment/rule? If it possibly does go back, that will be very useful because we can potentially get many judgments vacated and cases dismissed based on SOL and because the 3 year rule being much tighter/shorter than the than the former 6 year rule, the P may be barred from starting a new legal action if their first action was dismissed ( ie., based on SOL).  But if it’s just a rule going forward than we might have to wait for the full effect of this rule. 

Thx!!

Ron 

When Negotiations Would be Preferable to Bankruptcy

1. Too Much Income to File Chapter 7 Bankruptcy– 

Negotiations are considered when there is too much income to file a Chapter 7 Bankruptcy case.  A Chapter 7 bankruptcy case can only be filed if the debtors income is below a certain threshold. The income based on the average gross income in the last six months measured by family size needs to be below the median in New York State based on household size. See chart at: https://www.justice.gov/ust/eo/bapcpa/20200401/bci_data/median_income_table.htm  If the income is above the median income for the client’s family size per the number of household members claimed on their most recent tax returns is above the median, there are certain spending items that effectively reduce the amount of the counted income, and maybe qualify the client for Chapter 7. These protected spending items include various forms of insurance, mortgage arrears, daycare expenditures, support to an elderly/chronically ill relative and installments on secured debts. Such items are for amounts that drafters of the means tests laws thought essential such as But trying to squeeze a client into a Chapter 7 case may not be advisable if the income shown by the client is more than $10,000.- $15,000. above the median income level for their household size in New York State. 

The income issue needs to be carefully analyzed prior to filing a Chapter 7 case by comparing the client’s household income, relative to their family size,  and their necessary allowed expenses, in determining whether the client should be able to file for Chapter 7 relief. Because the average household income on Long Island is higher than in many other parts of New York State, it is important to carefully average the client’s household gross household income for the 6 months prior to the filing of the bankruptcy petition. In many cases that are close to the line, this can be a tricky assessment, since even if  the household income exceeds the median income level, there are many allowances for various essential spending that could potentially allow a “close” case under the proper circumstances to file despite income that is over the median. Besides this objective “median income test” there is also a subjective “budget test” which measures where there is a surplus in the client’s budget, which measures what is left after the client’s net monthly income is reduced by regular monthly expenses.

Where the gross household income does not pass the means test or the budget test, the client can still proceed to obtain relief under Chapter 13, which does not have the same filing limits as Chapter 7. Where neither Chapter 7 nor Chapter 13 seem possible or desirable for the client, due to excess income, the negotiation option becomes a potential solution that may work for the client’s situation and should be reviewed.

2. Too Much Equity In Unprotected Assets to File Chapter 7 Bankruptcy – 

Negotiations are considered when there is too much unprotected equity in the client’s assets to file a Chapter 7 Bankruptcy case. Unprotected equity in assets could be marshaled by the Chapter 7 trustee and sold to raise money to distribute to creditors. Exemptions under state and federal laws, as well as secured loan liens can protect the equity in the client’s property. During the Chapter 7 case the client will need to attend a creditors’ meeting where the client is interviewed by a Chapter 7 trustee whose role is to determine whether there are potential assets with equity that may be sold to satisfy the claims of creditors. Most Chapter 7 cases are considered to be “no asset” cases in that there are no assets available to satisfy the claims of creditors. The reality is that most Chapter 7 debtors do have assets, but their cases nonetheless are considered to be “no asset” cases because their assets are not considered to have significant equity. What diminishes from the potential “equity” in particular assets are liens for secured debt, such as mortgages and car loans, and statutory exemptions which protect a certain amount of equity.  Exemptions are amounts in value in particular assets that under the law that are unavailable to creditors. In New York State we are currently able to select from either the exemption scheme offered under New York State law or the exemption scheme offered by federal law. The New York State exemption scheme is generous in it’s “homestead exemption” or in protecting a client’s residence for the amount of $170,825.00. per person owning and actually living in the home. The federal exemption scheme, which is different, is more generous with better protection for personal property in that it gives a “wildcard” exemption of approximately $13,400. per debtor which can be used towards protecting any item of personal property, including tax refunds, bank accounts and vehicles.  Most clients keep all of their property including their vehicles, homes and personal possessions as long as they stay current with the payments on these items and do not have too much unprotected equity in such property. Where the amount of unprotected equity in the client’s property would make a Chapter 7 case too risky and a Chapter 13 case too expensive, negotiations are a favored option to resolve the client’s debt.

3. Issue of “Avoidable Transfers” – Closely related to the issue of  potential equity in assets, is the issue of “avoidable transfers”. These can be “preferences”, or payments to creditors made 90 days prior to the bankruptcy case, for third-party creditors, or one year prior to the bankruptcy filing for “insiders” (or relatives or close associates of the debtor). These can also be “fraudulent transfers” or transfers for less than reasonable value six years prior to a bankruptcy case, usually made  to relatives or close associates of the debtor. Avoidable transfers are not alway obvious and what sometimes can appear to be an innocent transaction, under bankruptcy law can potentially be alleged to be an avoidable transfer. As with potential, unprotected equity in the client’s assets, potential avoidable transfers may make a Chapter 7 case too risky and a Chapter 13 case too expensive, and may cause negotiations to be a favored alternative to resolve the client’s debt.

4. Too Little Debt in Terms of Amount and Number of Creditors for a Chapter 7 Bankruptcy or for Chapter 13 Bankruptcy – Sometimes a client can successfully file a Chapter 7 case, or a Chapter 13 case with a low percentage plan, but the client does not wish to do so because the debt is relatively low, the number of creditors relatively few and/or the client is concerned about their credit report. While most clients seeking our representation are undergoing financial hardship that already reflects on their credit reports, it may be correct that entries that show settlements and partial payment are preferable to Chapter 7 which “discharges” (eliminates) the debt. Assuming a creditor’s entry is updated after a settlement, it may say “Settled Outside of Terms” which means that the client is paying under an agreement that is different (less than) the original terms of payment for the credit card. Settlements or negotiated agreements are only an improvement on the credit report if the client can comfortably and timely meet their terms as to timely payments. If the client cannot pay the settlement on a timely basis, the bankruptcy options may not only be less effort and more realistic but they may also better for the credit report. Therefore it is important before a client embarks on efforts to obtain a negotiated settlement it needs to ascertain that it has the financial resources to adhere to such a settlement.

5. Debt that May be Objected to in a Bankruptcy or is Not Dischargeable – Certain debts (student loans and some taxes) are inherently not dischargeable and need to be negotiated. But other debts may be objected to where there was bad faith spending and/or a potential objection based on misrepresentation or fraud. Where the debt is not inherently not dischargeable, a careful evaluation needs to be done as to risks of a potential objection to the discharge and the ability of the client to defend against such objection. Such an objection would be in the procedural format of an adversary proceeding which is contested litigation within the bankruptcy which may result in a trial or other contested litigation within the bankruptcy case.

Finally, there is also the potential issue of the abusive incurring of debt prior to filing a bankruptcy case. The incurring of a large amount of cash advances and/or balance transfers shortly prior to filing a bankruptcy case, may be monitored by creditors who may object to the discharge of such debt. In some cases where the client has incurred such recent “cash” debt, a certain amount of payments and waiting are advisable prior to filing the bankruptcy case.

In such situations, where the debt is not dischargeable or may be objected to, Chapter 7 needs to be carefully evaluated for the potential risks vs. advantages in filing, alternatively a reorganization under a Chapter 13 or 11 case may address the debt in a manner where there is less likelihood for an objection given that the creditors are getting a partial payment. However, if the client does have the financial resources to enter into  settlements, that may be a preferable route than risking an objection to the discharge.

When Bankruptcy is Preferable to a Negotiated Debt Settlement

The opposite is true in other situations, in that bankruptcy may be preferable to negotiations in the following situations where the client does not have the ability or financial resources to negotiate as follows:

1. Lack of Ability to Negotiate a Settlement – We need to make an offer to the creditor, either in a lump sum settlement or with installments. If a client’s ability to settle is weak or non-existent than bankruptcy is preferable. 

2. Preference for Quickly Eliminating the Debt in Bankruptcy – In many cases, even when the client potentially could negotiate some or all of their debt, Chapter 7 is a more attractive alternative because the discharge in Chapter 7 is obtained within a few months and in most Chapter 7 cases, the case is considered to be a “no asset” case, meaning that the client would pay nothing to the trustee or to the creditors in order to discharge all of their debt. This is a much faster, cheaper and efficient solution than one requiring payments over time under negotiation settlements to multiple creditors.

3. A Negotiation May Result in Undesired Taxes – The act of debt forgiveness is considered to be taxable outside of bankruptcy  in that the savings in a negotiated agreement are considered to be “income”. If a client settles a very large debt they may be taxed a large amount if the cancelation of debt is large. This is not an issue in bankruptcy where debt cancellation is not taxable. However, even outside of bankruptcy there are several exceptions to cancelation of debt taxes as follows: a) cancellation of debt for a person who at the time was insolvent limited by the amount of the insolvency; b) cancellation of debt as a gift; c) forgiven interest that would have bee deductible.

4. The Debts are Fragmented, Difficult to Contact/Ascertain and/or Difficult to Settle – For many reasons where negotiated settlements are difficult, bankruptcy becomes the better option. A Chapter 7 case would eliminate debt, including debts you didn’t realize were there. Debts that are fragmented are difficult to negotiate but easy to discharge in bankruptcy. 

When Negotiations Would be Preferable to Litigation

Negotiations are preferable where, as with credit cards, the debts are not huge in amount and the debt is not subject to many potential disputed issues. If the debts are more unique, much larger and much more disputed than litigation may be preferable at least in the beginning. However, litigation is a risky strategy with most credit card situations and is mostly used just to gain time and leverage. Therefore negotiation is preferable to litigation where:

1. Undisputed Debt, Not Given to Litigation Defense – If the debt is disputed or was obtained in a procedurally defective manner litigation is potentially a good option as long as the client is realistic about its risks, costs and potential limitations.  But if the debt is undisputed, and there is not much to litigate and the bankruptcy route is not possible or cannot be pursued, negotiation becomes the main option. 

2. Litigation is Potentially Expensive, Prolonged and Cumbersome – Even where there are potentially issues to litigate, litigation is not an easy solution so is generally not pursued where the debts are smaller in amount, the number of creditors higher and the clients finances tighter. Litigation works where there is a concentrated, disputed debt that is high in amount. Because litigation is potentially expensive, prolonged and cumbersome, it should only be pursued where its advantages are apparent.

3. Options as a Negotiating Advantage – despite bankruptcy and/or litigation not being viable options in some cases, it is advantageous to keep these as threatened options in the negotiations so that the creditor is aware that the options of more drastic remedies are possible if a reasonable negotiated settlement can not be reached.

How Our Office Can Help You Negotiate Credit Card Settlements  –

In situations where bankruptcy is not possible or desired by a client, our office can negotiate “lump sum” settlements for payment plans with the client’s creditors. Given that we are a bankruptcy firm and routinely file bankruptcy cases, creditors are informed that we are exploring bankruptcy options but would prefer a negotiated solution. Often we are able to obtain a lump sum resolution which reduces the debt to 33-50% of the debt. If the client needs to negotiate a payment plan, the loan will not usually be so drastically reduced but it will be reduced in terms of interest and monthly payments.

1. Approach – Warning of Potential Bankruptcy / Litigation Options –  In every negotiation we need to inform a creditor why we think an offer is to their advantage. Given our concentrations in bankruptcy and litigation defense, it is realistic for us to inform creditors of these more drastic options and why they will potentially help our client and hurt the creditor. It is reasonable for us to avoid these more drastic measures as long as the creditor agrees to a fair negotiated settlement.

2. Other Hardship Factors We Want to Incorporate into Our Negotiations – In approaching creditors we need to advocate any hardships that our clients have encountered, reduction of income, health issues, marital problems, business failures, job loss and/or large necessary expenditures to explain our clients situation and need for a negotiated settlement. We also want to stress our clients limited income and lack of equity in their assets. The goal is to sell the creditor on the settlement offer as their best chance to recover part of their debt.

3.  Technics of a Settlement- We can make several different offers where the variables are: 1) the amount down (a full partial payment is a lump sum); 2) the amount of installments,  3) the amount of  time to pay the debt, 4) the amount due at the end and 5) the amount of interest or late fees factored in with payments. These factors affect the terms of the negotiations and the ultimate settlement. Our agreements typically entail no interest or late fees going forward and a reduced principal balance; typically there is no large payment at the end and the main factors that are bargained over are the amounts of the partial principal that are paid and over how much time they are paid.  Below are the various agreements:

          a. Lump Sum Agreements – The more the client can pay upfront the better the discount. Therefore the largest discounts are typically when the client can pay the entire discounted offer to pay the debt at once in one larger lump sum payment.

          b. Installment Agreement – Where the client does not have the ability to pay upfront, we need to negotiate over how much time they have to pay the discounted principal of the debt and over how many payments. Typically the shorter the period of the installment agreement, the better the discount. Most creditor prefer payment plans that go for 1-3 years, but this is a term that can vary greatly based on the creditor involved. 

          c. Hybrid Agreement – Here, there is an incomplete lump sum payment and the rest of the partial payment is made over time. The idea of the larger first payment is to make the creditor comfortable with entering an agreement where the installments will take time to pay.

          d. Several Alternative Offers May be Sought and Evaluated  – Typically we go back and forth and make and/or receive up to three offers which we evaluate for resolution. There are diminishing returns when one does not act on offers after several have been made and/or received. There is a need to seize on potentially good offers after they are made since they are typically retracted if they are not finalized. Sometimes an offer is less than ideal but is the best option under the circumstances. We will evaluate all offers with our clients to assess them in relation to the client’s goals  and circumstances and alternatives.

4. Finalizing the Debt Negotiation with a Settlement Agreement and Other Final Documents –

         a. Settlement Agreements – When we have settled with a creditor on the terms of an agreement we would need to draft and/or review a settlement agreement that lays out these terms with precise detail, including what would happen if the agreement does not go as planned and if the client is late with payments. Typically we also negotiate noticing provisions, default warnings and situations where it may be difficult or impossible to comply.  The settlement agreement when it is finalized needs to be signed by all parties in front of a notary.

         b. Satisfactions – Especially where there is a judgment, a satisfaction of judgment document needs to be prepared when the client has fully satisfied the settlement agreement. The satisfaction document is filed with the court to show that the judgment is fully paid and needs to be vacated.

         c. Lien Release – Where the creditor has a lien agains the client’s property, which can be a judgment lien, or a voluntary secured lien or a mechanics lien, a settlement agreement should also reference and entail a lien release document being prepared and filed to release the lien against the client’s property.

The Differences Between Our Law Office Negotiating Your Debt and Debt Consolidation or Debt Reduction Companies

The majority of the marketing that solicits persons seeking debt relief is for Debt Consolidation or Debt Reduction companies that work differently than our law office. The difference between those methods and our own debt negotiations and settlements approach is large, as follows:

1. Debt Consolidation –  “Debt Consolidation”, which is a prevalent method of negotiating debt that is very heavily advertised, is a limited remedy in that it only reduces the interest paid by the client and does not generally try to reduce principal. It is staffed by a large clerical group that does not generally negotiate debt down but seeks to reduce the client’s monthly payments by reducing the interest rates across the board for as many credit cards as would agree to do so. They consolidate the total monthly payments into one monthly payment and add their monthly fee and try to regulate the client into eliminating their debt in a long range plan that spans usually at least five years. The problems with this method are that the reduction of debt and payments is not usually sufficient for most clients in financial hardship and that often because of delays or misallocations in payment by either the client, the debt consolidation company or through misunderstandings, some cards fall off the plan resulting in at best a partial solution for only part of the client’s debt. Furthermore, the alleged advantage in terms of appearances on the credit report only comes at the end of the payments when the credit report may state “settled not according to terms”. Usually within several years most clients realize that Debt Consolidation is not a satisfactory solution.

2. Debt Reduction –  “Debt Reduction”, is also a a heavily advertised method of negotiating debt and also has even more severe limitations and problems. It is marketed as a way to reduce the actual principal of debt and what is implied is that it can be a total solution to the client’s debt. Debt Reduction Services are also staffed by a large clerical staff. Unfortunately the marketing by most of the Debt Reduction companies is misleading. They seek to build up lump sums by having clients pay them for several months at a time before they approach one of the client’s creditors to strike a lump sum  that dispose of that debt at a discount. They then start the process over again with the client again paying them monthly for a period of time, until they have enough of a lump sum to approach another one of the client’s creditors to settle their debt at a discount. In this manner they usually can only negotiate one to two debts which they settle at a discount before all of the client’s other creditors, who were not paid while they built up a settlement amounts, take matters to collections and eventually court. Usually within a year most clients come to the realization that the Debt Reduction services are not working for them in solving their entire debt situation.

3. Our Method of Debt Negotiations and Settlements – Our method reduces individual debt, and unlike Debt Consolidation:  a) we eliminate rather than reduce interest, and b) we seek significant reduction in the principal.  Our method approaches all the creditors in the early part of the negotiation process, and unlike Debt Reduction, we do not approach one creditor at a time. Rather, we approach all the creditors and seek resolutions at once. By not ignoring any of the creditors, our method does not cause neglected creditors take matters to court. Under our method if a client lacks the the ability to do a lump sum agreement, we seek a hybrid or installment payment agreement. Essentially, under our method, the client eliminates interest AND cuts into the principal AND seeks settlement from most or all of the client’s important creditors. We combine the better aspects of Debt Consolidation and Debt Reduction services, without their problems. 

4. Our High Level Negotiation Department Staff Seek Customized and “Smart Solutions” Tailored for Each Debt – The relatively small staff of our law office’s Negotiations Department is composed of graduates or attendees of law school or other higher level education who have good experience and high abilities. In this way we are very different in our staffing from Debt Consolidation and Debt Reduction companies, which are staffed with large clerical staffs. Because of their  staffing and business model these large companies engage in easier, across the board approaches to debt settlement which do not seek to strategize, optimize and customize each negotiation and settlement. Instead they seek to simplify, aggregate and mechanize the negotiation process, resulting in an approach that helps their business model at the expense of the client’s interests. Our staff concentrates separately on each debt, each client and each negotiation to obtain the best outcome for that individual debt, client and/or negotiation. Where this is possible and advantageous, we move forward with such negotiated solutions and where negotiations become difficult our negotiations staff are able to help us consider other alternative and tools to best give our clients overall relief from their debts.

How Our Law Office Can Help You With Credit Card Relief

The experience of the attorney representing the client is a critical factor in the client’s success when attempting to obtain relief from credit card  and other unsecured debts. Since 1993 we have successfully represented thousands of clients residing in Long Island, Nassau County & Suffolk County finding relief for their credit card and other unsecured debt. We have helped many of them permanently eliminate unsecured debt and re-establish their financial stability. When an  individual owes unsecured debt, all of their legal options need to be carefully pursued: a) Negotiated Settlements, b) Bankruptcy, and/or c) Litigation Defense. Let us help you in your efforts to save your home with experience and expertise that is both affordable and personable.

Our consultations are free, the advice may be invaluable.

Please call us at (631) 271-3737, or e-mail us at weiss@ny-bankruptcy.com for a free consultation with an attorney, at our Long Island law office to discuss credit card negotiation options in greater detail.