If you are struggling with debt, bankruptcy might be a good option. But before you file for Chapter 7 or Chapter 13 bankruptcy, explore alternatives to bankruptcy. In some situations, a non-bankruptcy course of action may be your best remedy. If your main concern is that creditors are harassing you, bankruptcy is not necessarily the best way to stop the abuse. You can get creditors off your back by taking advantage of federal and state debt collection laws that protect you from abusive and harassing debt collector conduct. Negotiate With Your CreditorsIf you have some income or you have assets you’re willing to sell, you may be a lot better off negotiating with your creditors than filing for bankruptcy. Negotiation may buy you some time to get back on your feet, or your creditors may agree to settle your debts for less than you owe. Get Help From a Credit Counseling AgencyMany people aren’t comfortable negotiating with their creditors or with collection agencies. Perhaps you aren’t confident with your negotiation skills, or the creditors and collectors are so hard-nosed that the process is too unpleasant to stomach. If you don’t want to negotiate on your own, you can seek help from a nonprofit credit or debt counseling agency. These agencies can work with you to help you repay your debts and improve your financial picture. Debt Counseling vs. Chapter 13 Repayment PlansParticipating in a credit or debt counseling agency’s debt management program is a little bit like filing for Chapter 13 bankruptcy. The agency will help you develop a plan to pay back your creditors over time, somewhat like a Chapter 13 plan. But working with a credit or debt counseling agency has one advantage: No bankruptcy will appear on your credit record. However, a debt management program also has some disadvantages when compared to Chapter 13 bankruptcy. First, if you miss a payment, Chapter 13 protects you from creditors who would start collection actions. A debt management program has no such protection: Any single creditor can pull the plug on your plan. Also, a debt management program usually requires you to repay your debts in full. In Chapter 13 bankruptcy, you often pay only a small fraction of your unsecured debts. Finally, debt management and debt settlement scams abound. Many companies don’t care about helping you; they want to collect fees for their services. So tread carefully before you sign up for a plan. Consumer advocates have also raised concerns about credit counseling agencies because they receive most of their funding from creditors. As a result, critics say, these agencies could face a conflict between the interests of their funders and their clients. Surprisingly, the best approach for some people deeply in debt is to take no action at all. If you’re living with little income and property and look forward to a similar life in the future, you may be what’s known as “judgment proof.” This means that anyone who sues you and obtains a court judgment won’t be able to collect from you simply because you don’t have anything they can legally take. Except in unusual situations (for example, if you refuse to pay taxes as a protest against government policies or you willfully fail to pay child support), you can’t be thrown in jail for not paying your debts. Nor can a creditor take away such essentials as basic clothing, ordinary household furnishings, personal effects, food, or Social Security, unemployment, or public assistance benefits. Consolidate DebtOne bankruptcy alternative is to combine debt. Sometimes it is easier to repay debt when only one payment to one creditor is necessary. Here are some different debt consolidation options: Another bankruptcy alternative is to ask creditors to agree to a repayment plan. Many creditors will consent when bankruptcy is the only other alternative for the debtor. The possibility of a debtor filing for bankruptcy will motivate some creditors to agree to one of these options: This is a much better option for the creditor than if the debtor has the debt discharged in Chapter 7 bankruptcy or placed in a court-approved repayment plan in a Chapter 13 bankruptcy. Create a Debt Management PlanIf it is difficult to negotiate with creditors, a credit-counseling agency can work on your behalf to create a debt management plan. The agency will create a repayment plan based on your income and debts. If the creditors agree, you will make one monthly payment to the agency. For a fee, the agency will disburse the money among your creditors until full repayment of the debt. A conflict of interest may exist, however, since many debt-counseling agencies receive the majority of their funds from creditors. A debt management plan does have some disadvantages. If you miss a payment, any creditor can terminate the plan. If, on the other hand, you miss a payment under a Chapter 13 repayment plan, you receive protection from a creditor’s collection activities. Additionally, under Chapter 13, you usually pay only a portion of the debt owed to unsecured creditors, while you must repay the full debt owed in a debt management plan. There is one significant disadvantage to filing for bankruptcy, however: a bankruptcy will stay on your credit record for up to ten years. Default on the DebtIf you have nothing left that is valuable, such as property or income, another bankruptcy alternative is simply to stop paying creditors. A creditor can attempt to collect the debt, but they must abide by the Fair Debt Collection Practices Act and applicable state laws. Under this law creditors may not: If a creditor’s actions violate the law, you may seek monetary damages. Creditors may also attempt to collect a debt through a court judgment. If you have no assets or only have “exempt property,” however, then you are “judgment proof.” Exempt property may include: Consequently, a creditor cannot legally collect the debtor’s property to fulfill the judgment. Typically, a creditor will not sue a debtor when it is impossible to collect the debt. Instead, the creditor may choose to write off the debt as a business loss. The default may remain on the defaulter’s credit record for up seven years, though. Chapter 13 bankruptcyThis type of bankruptcy is a less severe form of bankruptcy and is sometimes referred to as the wage earners bankruptcy. As the name implies, this bankruptcy is reserved for those with an income who can pay all or part of their financial obligations without having their assets repossessed. This particular type of bankruptcy helps borrowers who have access to funds but are under pressure from their creditors to pay back their debts as soon as possible. With Chapter 13 bankruptcy, you have 3 to 5 years to pay back your outstanding obligations. You are also required to use all your disposable income to meet your monthly payments. In line with this, you’ll need to submit what is known as a reorganization or repayment plan. Similar to Chapter 7 bankruptcy, a trustee is appointed to manage the finances and this trustee is responsible for collecting payments from you the debtor and paying the creditors’ their money. This type of bankruptcy may be appealing to you if you are concerned about losing your home to foreclosure and want to keep your assets in place. How to file for Chapter 7 bankruptcyTo file for Chapter 7 bankruptcy, you will need to go through the following steps outlined below. The entire process will take you about 4 months to complete. To get started, it is essential to find and work with an experienced bankruptcy attorney. The steps are as follows: When evaluating the cost of filing for bankruptcy, it may be tempting to file the required paperwork on your own. However, the importance of working with a qualified attorney cannot be overstated. Working with a qualified professional is worthwhile. Especially because of the paperwork required to go through the process coupled with the potential that it could get rejected by the bankruptcy court if paperwork is filed incorrectly. How to file for Chapter 13 bankruptcyTo file Chapter 13 bankruptcy, you need to follow the steps outlined below. Before you start, you need to ensure that your unsecured debt e.g. credit cards, personal loans, etc, do not exceed $394,725 and your secured debt does not exceed $1,184,200. These thresholds are periodically reviewed to keep up with inflation. Step 1: Find a bankruptcy lawyer Consequences Of Filing BankruptcyChoosing to file for bankruptcy is not an easy decision to make and it is one to take seriously. Specifically making sure you have a good understanding of the potential consequences. Some of the major consequences of filing for bankruptcy include: Limited ability to borrow money in the future• Once you’ve gone through bankruptcy proceedings, it will be extremely difficult to gain access to any lines of credit as a permanent public record will exist in your name. If you’re not used to a lifestyle of paying for items in cash, this may prove to be a challenge for your lifestyle going forward as credit cards are very commonly used in society. Your credit report will display your bankruptcy record for up to 10 years Alternatives To The Different Types Of BankruptciesDeciding whether to file for bankruptcy or not can be a tough decision. If you’re wondering what to do, it may help to know that there are alternative options out there. Some options include: Debt Management PlansYou may be able to negotiate a debt management plan where you as the debtor are able to pay back the full principal over an agreed-upon period of time. This creates a monthly payment plan that is tailor-made to cover your specific needs and it can help to provide some structure to your payment process. One thing to note however is that the lender is under no obligation to agree to it. Debt ConsolidationDone correctly, debt consolidation combines all your outstanding debts into one lump sum with a lower interest rate and a more sustainable monthly payment. Debt consolidation is typically in the form of a loan and the interest rates are typically much lower than those charged by individual credit card companies. Debt SettlementThis is an alternative to debt consolidation. Debt settlement seeks to allow a debtor to make a lump sum payment that is usually less than what the debtor currently owes. This amount is typically 50 – 75% of the original value of the debt. Lenders will report this as “settled for less than agreed” to the credit bureaus. This record will remain a part of your credit report for seven years. Personal LoansEven with bad credit, you can apply for a personal loan depending on the specifics of your situation. However, interest rates will be incredibly high and so will the monthly payment. So you’ll need to determine if this option is right for you. Free Initial Consultation with LawyerIt’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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