What is debt negotiation?

Debt negotiation is a general term that includes various application processes such as pre-negotiation, debt rehabilitation, and liquidation. When a debtor encounters repayment problems, regardless of the reason, they can apply for debt negotiation with the bank to resolve their debt issues.

It’s important to note that applying for debt negotiation does not mean you no longer have to repay your debt. Instead, it allows the debtor and the creditor (usually the bank) to work out a new repayment plan that both parties can agree on. This may include adjusting the repayment period, reducing the monthly payment amount, or lowering the interest rate. The goal is to turn a situation where repayment seemed impossible into one where the debt can be gradually paid off.

In debt negotiation, the debtor can choose to negotiate with the bank to which they owe the largest amount.

How to negotiate debt with a bank: Things to understand before negotiating

The most basic stage of negotiation is called pre-negotiation, a procedure established under the “Consumer Debt Clearance Act.” It involves the debtor proactively applying to the creditor (usually the bank).

Anyone who has never applied before, whose past negotiations were unsuccessful, or who has not been engaged in business activities within the past five years, can prepare the required documents and apply to the bank holding the largest share of their debt.

The application documents include:

• Pre-negotiation application form
• Copy of both sides of the national ID
• Statement of the applicant’s assets and income/expenditure status
• List of creditors
• Asset inventory for the past month
• Comprehensive income information for the past two years
• Proof of salary for the past three months
• Original labor insurance card

These forms can be obtained from banks, financial institution websites, or government offices.

Sharing years of experience in debt negotiation: Tips and strategies you should know

Many people have a negative impression of debt negotiation, often thinking things like, “If you’re already out of money, why keep borrowing?” However, sometimes life circumstances or sudden events can drastically affect one’s finances. In such cases, rather than borrowing from one place to pay off another, it’s better to use debt negotiation — not only can it help stop further financial loss, but it can also help rebuild your credit.

For example, Mr. Z from Zhongli, after divorcing his wife, was left to raise two children on his own. In addition to daily living expenses and school fees, he also had a car loan and mortgage. Later, due to changes in his industry and the overall economic environment, his financial situation deteriorated, and over time, his debt piled up. Eventually, he went through a debt negotiation process and applied to his largest creditor. As a result, his debts were successfully settled. While there were some impacts on his daily life, for the most part, everything continued as normal.

What are the consequences of debt negotiation? Will it affect your credit status?

Some people may worry that entering debt negotiation will damage the credit they’ve built up over many years. However, in reality, the harm caused by repeatedly failing to repay debts is even more serious. For those who need to apply for debt negotiation due to major life events, banks will typically place a mark in the Joint Credit Information Center’s records to prevent the debtor from borrowing from other banks during the repayment period — effectively setting a stop-loss point.

If you have already been consistently late or have failed to make payments, your credit is likely already affected. In this case, applying for debt negotiation and successfully repaying your debts is actually the best way to restore and protect your credit standing.