What is a way can I avoid paying more money than my debt is worth?

Avoiding mistakes when negotiating debt requires that a debtor understand the options available to him when negotiating debt settlement agreements. Never cash out or take out a loan against your retirement account. Be sure to negotiate debt settlement agreements in good faith. Finally, if filing for bankruptcy is necessary, debtors may use the cramdown feature to reduce the amount of secured loans.

Retirement Accounts

One of the most common mistakes debtors should avoid is taking the advice of a collector to cash out a retirement account. In addition to the penalty fees associated with cashing out, retirement accounts are protected in bankruptcy cases. Money that could have been exempted from bankruptcy is lost.

Debt Settlement

In many cases, creditors with unsecured loans understand that settling debt with a debtor is better than receiving nothing in a bankruptcy situation. A debt settlement workout agreement can be negotiated to reduce interest rates, extend payment due dates, and waive late penalty fees. These agreements require that the debtor show true financial difficulty. A recently purchased vehicle can be viewed by creditors on the credit report.

Using the Cramdown Feature of Bankruptcy

For both Chapter 7 and Chapter 13 bankruptcy, most secured debt can be “crammed down” meaning that the amount of the loan can be reduced to the value of the asset. However, this option is only available to those that file for bankruptcy, which can have undesirable consequences, such as the loss of other assets.

If you are considering bankruptcy, contact a qualified attorney in your state. An attorney specializing in personal bankruptcy can assist in choosing the best option for your situation.