Debt Settlement

Since I founded Jeffrey Freedman Attorneys, PLLC in 1980, our firm has helped 35,000 people eliminate their debt by filing chapter 7 or chapter 13 bankruptcy.

But there are some clients we helped without the need for filing a bankruptcy case. In certain circumstances bankruptcy may not be the best option.

We generally don’t file a bankruptcy for clients who would lose assets if they filed. And we may not want to file a chapter 13 that requires a client to re-pay most of his or her debt.

Let’s take the situation where a client has plenty of debt but he or she will receive money in the near future from an accident case, an inheritance, or from family members.

In many situations we have successfully reduced debt by negotiating an agreed payoff with the creditors without the need to file bankruptcy. There is never a guarantee that a creditor will accept a partial payment of a debt. But in several cases we have been able to reduce clients’ debt substantially outside of bankruptcy.

One of our most successful cases involved a man who owed $100,000 to a Buffalo bank. I was able to settle that debt for $10,000. It involved extensive negotiations, and the client’s family paid $10,000 to the bank to settle. If a settlement wasn’t reached the client may have filed chapter 7.

The Process

Debt settlement, also known as debt arbitration or debt negotiation, is a process of negotiating with creditors to reduce debt in exchange for the payment of a lump sum of money. In exchange for the agreed upon payment, the creditor agrees to forgive the balance. In some circumstances we want to avoid a bankruptcy case, and our goal is to reduce the amount due through negotiation.

Cases We Accept

In order for us to handle debt reduction for a client, the client must be able to obtain a lump sum of cash. We are not able to help if the client doesn’t have the funds to offer in settlement. Many of the cases we accept are those where the client will receive money from an accident, an inheritance, or where family members have stepped forward with a lump sum.


An advantage of using our firm is that we have filed many bankruptcy cases since 1980. Creditors know we have filed more bankruptcies in WNY than any other law firm. We are often able to use the threat of a bankruptcy as leverage. In the current economy, collection agencies and creditors would sometimes prefer to settle than to receive a notice of bankruptcy.

Tax Consequences

Depending on your financial situation, the amount you save may be considered income and taxable. Creditors may report forgiven debt to the IRS, and the IRS may consider the forgiven debt as income unless the debtor is insolvent. Insolvency is defined as a situation where debts exceed assets. Determining insolvency can be complex, and, therefore we require our clients to consult with a CPA to determine if the debt reduction will result in tax liability.

Even in cases where clients will have to pay tax on the reduced debt, the client is farther ahead than if he or she had to repay the entire debt.


There are both pros and cons to clients looking to settle debts outside of a bankruptcy case. There are never any guarantees that a creditor will accept a settlement. Always check with the Better Business Bureau and the Attorney General’s office if you are retaining a firm with which you are unfamiliar.

If you retain our firm we are only paid if we are successful in negotiating your debt down. Our fee is a percentage of the savings obtained for you. We are paid when we complete our work and not before. Our agreement with you will be in writing and will be easy to understand.

If you have an excellent credit score, debt settlement will have a negative impact.

If your credit score is already bad, debt reduction may have less of an impact.

You must consider all facts and circumstances before you retain a firm to handle debt reduction for you. But in the right case and if handled properly it can work well.

Contact us today for your Free Consultation: 1-855-847-8969


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