Faced with the deep recession and more consumers filing bankruptcy, banks and lenders are feeling the squeeze.

Not only are many consumers backed into corners with unmanageable debt and few options, debt collectors are realizing that their options are limited too.

Many people are simply unable to repay their debts--and as the old saying goes, you can't get blood from a stone.

According to a recent article in The New York Times, lenders and debt collectors are now scrambling to get what they can from borrowers, even if it means forgiving a portion of the debts.

Some creditors are now accepting greatly reduced payments, allowing debtors to clear the debt.

This new wave of debt forgiveness has nothing to do with charity and is not an act of kindness.

Creditors are reacting to the devastating economy and working with debtors may keep them from losing everything.

Creditors Know of Chapter 7 Bankruptcy

Make no mistake; lenders are fully aware that if a debtor files Chapter 7 bankruptcy, many debts could be completely discharged.

As the recession deepens and more Americans are losing their jobs in mass layoffs, banks and credit card companies are preparing for more defaults in 2009. As a result, these creditors are competing for payment.

While some companies are scaling back consumer credit lines and hiking up fees, others are giving customers more leeway.

The New York Times reports that Bank of America said in 2008 it waived late fees, lowered interest charges and, in some cases, reduced loan balances for more than 700,000 credit card holders.

American Express and Chase Card Services are reportedly working with customers too, and the Times reported that every major credit card lender is giving debt collectors more options to help distressed debtors.

Debt collectors are also feeling the squeeze, as they are generally paid based on the amount of money they are able to recover. The number of borrowers who are receiving payment extensions has reportedly doubled in recent months and deals to forgive 20 to 70 percent of credit card debts are becoming common.

Just a few years ago, banks and credit card companies were far less likely to work with debtors. However, as the number of people filing bankruptcy grows so does the amount of bad debt that credit card companies are forced to write off. This has forced many creditors to change their debt collection strategies.

Creditors realize that consumers now have fewer options to pay off debts.

Debtors who may have used equity in their homes to pay off debts in the past no longer have home equity.

As costs of food and fuel have soared and many consumers have lost their jobs, savings have been depleted and filing bankruptcy becomes the only option.

So, if you have outstanding debt, consider giving your lender a call a having a chat. Perhaps you could pay off that account for less than you think.

Tags: chapter 7 bankruptcy, creditors, debt, lenders