Q & A Table of Contents
Earnestly Seeking Relief
From: Eddie in Maryland
Question: During my financial problems, I need to negotiate positive settlements with my creditors to avoid personal bankruptcy. What are the key factors in this type of negotiations?
Response:Dear Eddie,
Thanks for your question. It raises some very serious issues.
Your creditors have one very obvious series of interests: collecting the
money that is owed to them.
What you need to do is find out, creditor by creditor, whether there are any peculiar aspects of their interests in collecting that money: Are some creditors in a bigger rush? Do any of the creditors have any interest in maintaining a long-term relationship with you? Are any creditors concerned about their reputation with other borrowers, for example borrowers in the same business or neighborhood or sharing other characteristics with you? Does any creditor have an interest in keeping you financially 'alive' for personal or business reasons.
Fundamentally, your biggest job is to ask questions and listen very carefully to your creditors, seeing whether there are interests they share with you, whether there are small or even larger openings for potential agreements. It is important to talk with each creditor independently; once they act as a group, your capacity to influence them will be reduced enormously.
In addition, your creditors need to realize that in bankruptcy creditors tend to recover pennies on the dollar. If you can encourage them to think that they'll collect a larger proportion of the amount owing if you don't go through bankruptcy, that is certainly in their interest. Don't forget, however, that you cannot cut separate deals if a bankruptcy is looming. That is against the law and such agreements are voided by the process.
For positive offers you can make: Time extensions, guarantees of future business once you're on your feet, payment schedules based on your income (the more you make, the more they collect) -- and also such non-financial things as being willing to stand in line for them to buy tickets to the new Star Wars movie, offering them introductions to the best garage mechanic in town, etc. In one case I mediated, the debtor agreed to let his lender use the debtor's vacation house four weeks a year rent-free (during an agreed-upon portion of the year). It didn't cost the debtor any money, but gave the creditor an ego boost -- as well as a nice place to go for vacation.
In other words, you need to be attentive, curious, and creative.
An additional possibility is to find out what your creditors think you
should be interested in: reputation, creditworthiness, preserving your
relationships, being able to focus on your work, keeping certain assets,
etc. When you know what they think you're willing to trade, that may also
open doors to agreement.
Good luck,
Steve
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