By Lisa E. Spiwak

I have found that there are four things in life one can always count on. They are change, death, taxes and that when entering into settlement negotiations with a debtor, at some point in the discussion the debtor will threaten to file bankruptcy.

In fact, this happens so frequently that I find myself making bets with my associates as to how many seconds into the conversation these magic words will be spoken. Why do debtors do this? Simple.

They do it because they feel powerless against the creditor and they believe that threatening to file bankruptcy will give them an edge in the settlement discussions.

As a creditor, the most effective posture you can take when a debtor makes this threat, is to react exactly the opposite as the debtor expects you to. The debtor is expecting that you will become frightened of the possibility of the bankruptcy, and therefore agree to a large discount of the debt or agree to a lengthy payment arrangement for repayment of the debt. Therefore, as the creditor, I encourage you to do neither of these.

When I am in the middle of settlement negotiations for one of my clients, and those magic words are issued, the first thing I usually say is, "I absolutely agree that you should file bankruptcy and may I recommend an excellent bankruptcy attorney to you." This line usually results in a long silence on the other end of the line.

When the debtor regains his composure, he usually then states, "You know that if I file bankruptcy, your client will end up with nothing." To this I reply, "Sir, you are quite mistaken. The tax laws are structured so that the tax savings to a creditor when a debtor files bankruptcy are incredible. If you filed bankruptcy, that would be the best thing that could happen to my client."

After this last statement, the debtor usually begins to hyperventilate and puts me on hold while he goes to get a glass of water. When he returns to the telephone, his posture has changed dramatically. The next words to leave his lips are usually, "You know I don't really want to file bankruptcy but you are pushing me to it." To this I respond, "If you wish to enter into a reasonable settlement of your debt, this can be discussed. If you wish to file bankruptcy, do so immediately and save everyone a lot of attorney's fees." It is at this point in the conversation that settlement negotiations ensue and the word bankruptcy is never mentioned again. Good luck!