Settling debt vs Bankruptcy

April 6th, 2007 by Questions

Certain websites that I have been browsing suggest that once the debt goes to a collection agent it may be better to offer to settle the debt for a low percentage threatening them that bankruptcy may get them even less rather than actually going through with a consumer proposal or bankruptcy.

Example: You have 50K in debt , 30K salary a year , you have a dependant and about 15K in non-exempt assets. You offer to settle the debt for 20K. If you declare bankruptcy the creditor gets 15K minus the trustee fee plus whatever surplus they get over 9 months.

What is a trustee’s take on that? It does sound a bad idea to me as it doesn’t offer any real legal protection against the creditors


One Response to “Settling debt vs Bankruptcy”

, Barton Goth GCO Bankruptcy Trustees said:

It never hurts to attempt to negotiate informally, however there are usually 2 problems associated with this:

1. You will need cooperation from all your creditors and unfortunately the more creditors you have the more difficult this becomes; and
2. Often the creditors are only willing to settle if you have cash in hand today.

The key thing is make sure that when you are able to get creditors to agree, get something in writing. You wouldn’t believe how many times I have seen someone be involved in negotiating a settlement, had everything looking positive and once they had paid their money mysteriously the representative they were dealing with is nowhere to be found and the new representative is unaware of the settlement arrangements. This is one of the biggest advantages of a using consumer proposal to negotiate the settlement as it is court sanctioned so you never have to worry about a creditor playing this type of game.

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