Creditors’ internal policies can vary greatly, but many will agree to reduce interest rates or waive penalties upon a consumer’s direct request, particularly if the consumer has a good payment history or is viewed as a bankruptcy risk.

Bankruptcy - Self-Help 2

Some creditors are also willing to settle for a lower amount than the total amount of debt due if you are able to offer a reasonable lump sum payment. Before enrolling in programs that promise to do the same, it’s worth a shot to try and negotiate directly with your creditors.

Am I Judgment Proof?

You may be considered “judgment proof” if you have no assets or income that could be garnished or seized by your creditors. Being “judgment proof” does not mean that your creditors cannot sue you; it just means that even if they do obtain a judgment against you, there is nothing they can do to collect the money that is owed. Claiming that you are “judgment proof” in court can be risky and usually entails a lot of harassment from your creditors because you are basically telling them that you aren’t ever going to pay them back even though a court has determined that you owe them money. Without the protection of the bankruptcy code, your debts are not officially eliminated, and the Fair Debt Collection and Practices Act (FDCPA) offers much less protection than a bankruptcy automatic stay.

The Pros and Cons of Self-Help

Low Cost
You will avoid payment of fees to third party professionals if you handle the matter yourself.
Lack Expertise and Experience
You will not be able to take advantage of the knowledge and experience of licensed professionals who are trained to obtain the best results for you.
May Not Stop Harassment
The FDCPA provides you with some protection from your creditors, but your original creditors will still be allowed to contact and/or sue you.
Other Disadvantages
The majority of the “cons” listed above for debt negotiation or debt consolidation plans will also apply if you attempt to settle with your creditors by yourself.

Consider Self-Help Options If…

  • You are experienced and knowledgeable working with finances
  • You don’t work or own a home, car, bank accounts, or any other significant assets
  • You have a relatively small amount of debt that you can easily handle yourself
  • Your creditors are willing to work with you
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