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Using Bankruptcy as Leverage to Negotiate a Debt Settlement

There are several pitfalls to dealing with debt collectors. Firstly, they know the lay of the land better than the average individual. They know the law and how to work it. Generally, they don’t fall into traps that protect consumers from illegal debt collection practices. 

However, debt collection companies fall into different categories. You may not be aware, but there is a statute of limitations on the collection of any debt. In Indiana, a debt becomes unenforceable after six years. 

How is a Debt Enforceable?

A debt is enforceable when it falls within the statute of limitations, and the creditor takes some action to collect the debt. The creditor can get a judgment against the debtor, which would then allow them to place a lien on their real property, garnish wages, or levy bank accounts. After six years, the creditor can take no such actions.

What Happens to the Debt?

The debt becomes expired. Expired debt does not have to be repaid. There is no situation in which paying expired debt benefits you. The company had the opportunity to collect the debt, failed, and now they are out of luck.

However, the debts get sold to collections agencies for pennies on the dollar. While the debt is expired, it can be rehabilitated at any time. The debt collector only has to trick you into making one payment.

Using Bankruptcy to Negotiate a Debt Settlement

Before you make any repayment on any debt, you want to ensure that the debt is still collectible. If it’s not, you can safely ignore efforts to collect it. However, if you make a payment of even $1, then the entire debt becomes enforceable. So tricking people into making small payments gives the debt actual value.

That being said, if you know the debt is legit, you can threaten bankruptcy to negotiate a lower settlement. The collector knows that the debt will likely be discharged in bankruptcy, so collecting any amount of money is superior to nothing. Hence, it becomes possible to play that card, but you have to know when to play it, when paying off the debt is better than declaring bankruptcy, and there are risks to negotiating a debt settlement that include rehabilitating an expired debt.

How Can a Bankruptcy Attorney Help?

Chris Arrington provides representation to Indiana residents who are buried in debt and cannot escape. The law understands that there are situations, especially presently, that have strained the finances of American families. As a result, many Americans have filed for bankruptcy. This gives them the breathing room they need to start fresh, rebuild their credit, and move forward.

Ultimately, you can use bankruptcy as a tool to leverage a lower settlement, but you can also use bankruptcy as a tool to avoid paying money you do not have. Call Chris Arrington today, and we can begin discussing your options immediately. 

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