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Debt Management: The Compromise Agreement
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by: stickystebee
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If you are a person for whom bankruptcy is the very last resort, you might
consider offering compromise agreements to your creditors. A compromise
agreement differs from an installment plan because in a compromise
agreement you are offering to pay a percentage of the outstanding debt you
owe, say 20 to 30%. Creditors will work with individuals who are trying to
avoid bankruptcy and for a compromise agreement to make sense to them you
must show them that you have little income and few assets, debt consolidation is also an option in this situation. If you filed
for bankruptcy they would receive nothing, and if they sought judgement
might not even receive lawyer's fees!
What creditors will require is your budget. If you can show concrete
evidence of a reduced standard of living, due to something like loss of
job and making sacrifices that are significant and important, they will be
comfortable with your sincerity and accept you as an honest, contrite
debtor who simply has fallen on very hard times. For this to be effective,
your situation must be dire, and you must be honest about all the
hardships you have endured. Cite job loss, layoff, disability, death in
the family, health problems or conditions that required your money. Most
people wind up in this position due to inability to cover one or more of
those issues from current income, and the creditors know this.
Coming to agreement with them through compromise has advantages over
bankruptcy in that you can settle in a fair manner and preserve in part
your credit rating. Moving all the creditors to negotiation at once has
real advantages, and if you can get the majority of your creditors to
agree, you can schedule a reduced amount of payment. Be sure to get
everything in writing! With compromise agreements, it is better to pay the
agreed-upon sum all at once than attempt to put it on an installment
basis, so if you can come up with an amount, gather money from any source
you can (family, friends etc.) -- after you've gotten agreement from your
creditors -- and be sure to get a discharge of debt paper from the
creditors once you have paid them off.
About the Author
Creditors will work with, and give debt advice to individuals who are trying to avoid bankruptcy and for a compromise agreement to make sense to them you must show them that you have little income and few assets, debt consolidation is also an option in this situation. If you filed
for bankruptcy they would receive nothing, and if they sought judgement
might not even receive lawyer's fees!
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