The danger of negotiating debt workouts one issue at a time
There is a general tendency for business owners in deep economic trouble to approach the myriad of issues threatening them…. one at a time, addressing the most pressing issue first and then moving onto the next one screaming the loudest.
Who knows or even considers which one us truly the worst or the most dangerous or is simply threatening you the hardest and loudest. It may be a natural thing to do but it is not in your best interest to approach your debt workout issues in this manner.
The best workout plan deals with all the issues at once, and resolves them all simultaneously.
There are a number of good reason why this is so. For example the problem you choose to address first may not be the most strategically correct one to deal with first for many possible reasons. It is most important to look at all the issues confronting you and determine the best way to resolve them all which may require a specific order or processions to yield the best results for you.
Remember each creditor is only concerned with collecting its own debt but you are concerned with all of them, thus order is a very important matter to consider. You must realize that as you workout each problem you get stronger and more valuable as layers of priority debt protection are peeled away from you revealing more and more value for the next workout creditor.
A workout strategy must work on all debts simultaneously to make certain all the debts are effectively handled while you are in the worst possible condition and at the lowest possible liquidation value. Using one debt against the other to reduce the payoffs and secure releases, demonstrating a lower likely return to the creditor should he attempt anything other then working with you as you offer and provide.
Its a win win situation under the worst possible conditions. An effective workout strategy takes all the issues and uses the secured creditors to fend of the unsecured and then the highest priority secured to fend of the lowest priority secured.
Of course there is nothing better then a priority tax lien to bring fear to and cooperation from most creditors collection efforts. On the other hand, imagine being the last workout creditor in a long line of workouts and realizing all the previously unpaid debt has been cleaned up and all the assets are once again vulnerable… what a huge opportunity for the least likely creditor getting paid because he was the last one to be confronted and thus ends up getting paid in full!
The assets are then vulnerable and exposed without any other barriers between the collecting effort and the valuable assets.
The key to success is designing a plan that takes all this into consideration and with one overall strategy and a number of sub strategies supported by the major theme, all the debt is worked out simultaneously and within the same context and at the same time realizing the best results for the debtor.
This requires skill and experience and someone who has successfully designed many of these plans before, and thus knows exactly how to accomplish this feat.
Call me if you need some help. 413-549-2966.
GMAC offered to have me pay $2000 to forgive a $25,775 line of credit that I took out as a second mortgage (on my house that just foreclosed). Can they file a 1099 on that? She said that it is not likely, but that it is not guaranteed because the Relief act does not cover debt forgiveness. If I do not pay it, they could sue me for the entire amount. What should I do? (The house is in Michigan, if that helps)
How typical, debt collectors giving out wrong information to the people they are attempting to collect from, itrs a lesson we should all learn for once and for all…. debt collectors will say anything to intimidate you into paying INCLUDING BOLD FACED LIES.
The answer is the exct opposite, The debt relief act of 2007 SPECFICALY removes the conversion of debt forgiveness to ordinary income. No 1099, no conversion, you need not worry, In fact given the circumstances i would call them back and tell them all you can possibly pay them is $1000 and you will require a letter stating that upon receipt of the payoff they will forgive the remaining debt and costs of collection…get the letter and then pay and you are done with the issue, no 1099, no further problems,,, before you end the money…thats THE PLAN.
Yes they can always sue you but given their wilingness to accept two thousand its clear they will settle. Make certain you get a committment to forgrivness before you send them the money.
don
Thank you for writing back so quickly. They said that because it’s a “line of credit” technically, the balance would not be covered under the debt forgiveness act. So, in your opinion, would it be better to pay something on this debt to try and forgive it or tell them I don’t have anything and risk them coming after me?
Call their bluff, I do not believe they are correct, although its untested and unchartered ground. There is no point in them pursuing this matter as what is there to gain, the house is gone and you are probably judgement proof. offer them $1000 and walk away.
don
I feel very peaceful after reading your web blogs. I am currently in a situation where my SBA loan for my small business is in default. Bank has a buyer and he is willing to pay 200K less then I owe for my SBA loan. Court has approved the property transfer. Now my question is if bank offers me compromise or I offer a bank a compromise for the deficiency, how much should I offer? I do not own any other real estate personally or any large amount of property. Please reply. Thank you.
If that was business property debt then can they issue 1099-C? Business property sold in short sale.
It is impossible to answer without seeing your personal financial statement, however my guess is your net worth has been destroyed and thus you should offer a very low amount what ever you can actually afford, Remember they will allow you to pay over a two year term so it may come down to what you can afford monthly. THAT’S THE NUMBER.