15 March 2021

Everything is negotiable

Many reports from around the globe are that many countries are sliding toward recession – and with that many lenders, both large and small are starting to feel the pinch of credit risk.

Credit risk is the risk of default on a debt or loan that arises when a borrower fails to make repayments.

For lenders, this means lost principal and interest repayments, disruption to cashflow and substantial enforcement costs which often results in having to spend money attempting to enforce a loan and often without success.

Banks and other lenders are constantly aware of credit risk, its their bread and butter- failure to manage the risk can see them suffer huge losses when loans fall into default, or where their underlying securities diminish in value, ultimately leading to the loan being worth more than the property its secured against.

This is a surprisingly regular occurrence – banks and other lenders need to manage the credit risk inherent in their entire loan portfolio as well as the risk in individual loans and transactions.

We hear from distressed businesses and individuals, feeling the pinch of the downturn, loss of employment and for some, very bleak financial horizons. Our colleagues in restructuring and insolvency tell us that they are also seeing a significant uptick in calls from financially strained businesses and individuals, but at the same time they are seeing strong appetite from banks and other creditors to manage their credit risk by negotiating debt forgiveness agreements with distressed borrowers.

Offloading some or all your personal or business debt via a negotiated settlement can seem like a daunting task when you might otherwise feel crippled with mounting debt and interest charges, with no sign of relief in sight.

But thankfully, one of the realities of dealing with creditors both large and small is that just about everything is negotiable. Even when the amount or terms of a loan are contractually set in stone, getting a discount is often as easy as knowing when, how and who to approach for a friendly chat. This is because exposure to credit risk continues to be the leading source of problems for banks world-wide.

A debt forgiveness agreement is an agreement where a creditor (such as a bank, credit card provider or other lender) agrees to accept a lesser sum than they are owed in forgiveness of a larger debt.

Whilst it might sound too good to be true, it is a perpetual reality of finance and banking business that credit risk is real, and lenders are especially motivated to stem their mounting losses through settling outstanding debts for a fraction of what they are owed, where a lower amount (and often significantly lower) can be paid as a lump sum.

We are experienced in these negotiations- we lay all a debtors cards on the table, and persuade the creditors that accepting a small lump-sum payment in discharge of a much larger debt represents a superior outcome for the creditor than legal action or bankruptcy or insolvency proceedings.

We offer a range of fixed-fee options for those looking to negotiate a debt forgiveness agreement with their creditors and if you wanted just to chat, feel free to take advantage of our 15 minute free advice offer.

Andrew Bower began his legal career as a law clerk in 2008, whilst studying a Bachelor of Laws and a Bachelor of Commerce majoring in finance at Murdoch University.