Negotiating Business Debt Settlements Yourself vs Using a Lawyer[yoast-breadcrumb]
Negotiating Business Debt Settlements Yourself vs Using a Lawyer
If your business is struggling with debt, you may be wondering whether to try settling the debts yourself or hire a lawyer to help. Both options have pros and cons to consider.
Trying DIY Debt Settlement
Doing it yourself can save you money on legal fees. However, DIY settlement is complex and time-consuming. You need to thoroughly research the law and your rights. Creditors may try to take advantage if you lack experience.
Know Your Rights
Get familiar with debt collection laws like the Fair Debt Collection Practices Act (FDCPA);–it limits when and how collectors contact you. Collectors can’t harass or mislead you. Know your defenses against creditors. For example, if you think the debt amount is wrong or already paid, you can dispute it.
Negotiation Takes Time and Patience
Don’t expect creditors to immediately accept low settlement offers. You’ll likely go back and forth negotiating for weeks or months. Collect documentation on your finances to show you can’t afford the full debt. Be firm and don’t take the first offer.
If your business debts are overwhelming, bankruptcy may be a better option than settlement. Consult a bankruptcy attorney to discuss if it makes sense for your situation. Bankruptcy discharges many debts and stops collections.
Hiring a Lawyer for Debt Settlement
An experienced lawyer can often negotiate better deals than you could on your own. Legal expertise helps level the playing field against creditors. But hiring a lawyer costs money.
Look for Related Experience
Find a lawyer who specializes in debt relief, particularly business debt settlement and bankruptcy. Avoid lawyers without specific experience negotiating business debt. Ask about their success rate settling similar debts.
Understand the Fees
Lawyers typically charge hourly fees or a flat rate retainer. Get fee estimates in writing upfront. Contingency fees based on savings from settlement are rare. Make sure you can afford the lawyer’s fees on top of your debt payments.
They Handle Negotiations
Your lawyer deals directly with creditors on your behalf. This saves you time and stress. They know what tactics work to get optimal settlements. It also prevents direct harassment from collectors.
Avoid Debt Settlement Companies
Debt settlement companies often promise unrealistic results for high fees. Yet they may fail to deliver or make your situation worse:
- High fees – Settlement companies charge hefty upfront fees from your savings account, but deliver little value.
- Harm credit – They advise stopping payments, which ruins your credit score.
- Collection lawsuits – Creditors can still sue you over unpaid debts despite settlement promises.
If you need professional help, lawyers are usually a much safer choice than debt settlement companies.
Key Factors to Consider
Assess your specific situation to decide if DIY or lawyer settlement is best:
- Your debt load – Lawyer help is useful for large, complex business debts.
- Your financial expertise – DIY works better if you have background in finance/accounting.
- Time commitment – Lawyers save you time negotiating.
- Costs – Factor in legal fees vs. your time costs for DIY.
- State laws – Some states restrict collection agency activities more than others.
Create a Debt Settlement Plan
Before negotiating settlements, make a detailed plan:
- List all business debts with amounts owed.
- Gather documentation on your finances.
- Prioritize which debts to tackle first.
- Calculate realistic settlement offers per debt.
- Draft settlement letters to send creditors.
- Decide negotiation strategy – DIY or lawyer.
- Know your alternatives if settlement fails – bankruptcy, payment plans, etc.
What Debts Can You Settle?
Not all types of business debt can be negotiated, but many can:
- Credit cards – Most suitable for settlement.
- Medical/utility bills – Often open to negotiations.
- Leases – Depends on contract terms.
- Bank loans – Difficult without collateral.
- Court judgments – Settlement may satisfy judgment.
- Tax debts – Requires proving financial hardship; consult a tax attorney.
Negotiation Tactics and Tips
These tactics can help you negotiate debt settlements successfully:
- Get everything in writing – Document all terms and new payment plans agreed.
- Don’t accept first offers – Negotiate lower amounts; counteroffer.
- Offer lump sums – Propose paying a % of balance at once.
- Use deadlines – Set a date to make final payment if they accept settlement terms.
- Mention bankruptcy – Creditors may settle to avoid business bankruptcy.
- Request debt validation – Ensure amount owed is legitimate.
- Appeal to goodwill – Note financial hardship; ask for empathy.
Sample Settlement Letter
A formal settlement letter kicks off negotiations. Outline an offer and your situation. For example:
I am writing regarding my outstanding business debt with your company, account #XXXXX. Due to [financial hardship, economy, COVID, etc], I am unable to pay the full $20,000 balance owed at this time. I am proposing a settlement agreement to resolve this debt.
I can make a lump-sum payment of $8,000 (40% of balance) on MM/DD/YYYY to settle this account. This is the maximum I can afford based on my current finances. In return, I ask that you release me from further obligation or collection on this account. I have attached documentation of my income and expenses.
I hope you will consider this reasonable settlement offer. It will avoid the need for bankruptcy. Please contact me by [date] to discuss or accept this settlement. Thank you for your consideration.
What If Creditors Sue for Payment?
Creditors may still file lawsuits for repayment despite settlement attempts. Options if sued include:
- Negotiate with plaintiff – Many lawsuits aim to prompt new settlement talks.
- File bankruptcy – This halts collections and discharges debts.
- Raise defenses – Challenge improper service, statute of limitations, etc.
- Settle before court – Resolve case via mediator vs. trial.
Consult a lawyer ASAP if your business is sued over unpaid settled debts. Act fast to respond within deadlines.
Other Alternatives Beyond Settlement
If you can’t reach affordable settlements, other options exist:
- Payment plans – Creditors may accept smaller installment payments over time.
- Credit counseling – Non-profit agencies offer debt management plans.
- Debt consolidation loan – Combines debts into one lower payment.
- Balance transfers – Shifts credit card balances to a lower APR card.
Most importantly, address the root causes that led to unmanageable business debt. Revise budgets, increase profits, and monitor cash flow closely going forward.
When to Hire a Lawyer vs. DIY Settlement
Here are signs it may be best to hire a lawyer to negotiate your business debt:
- Total debts exceed $100,000
- Complex legal issues like personal guarantees
- Multiple creditors and accounts
- Lawsuits have been filed over the debts
- You lack time, energy, or skills for DIY negotiating
- The business is at risk of bankruptcy
- Creditors won’t accept reasonable offers from you
On the other hand, DIY settlement tends to work better if you have accounting expertise, ample time, and limited debt amounts. Know when it’s prudent to seek professional legal help.
The Bottom Line
Negotiating business debt settlements yourself can save money but requires time and knowledge. Hiring an experienced lawyer to handle talks typically delivers better results. Avoid debt settlement companies and focus on alternatives like payment plans or bankruptcy if settlements fail. Analyze your specific situation to determine the best approach.