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Alternatives to Bankruptcy
However, bankruptcy may not be for everyone. There are alternatives that you should first consider when examining your financial options. Depending on your economic condition, employment status and individual circumstances, you may find an alternative to bankruptcy that better suits your situation.
Do Nothing Approach
For an individual who is unemployed or retired and has no assets, income or property, there is always the option to do nothing about hassling creditors who call about overdue debts. They can simply ignore persistent phone calls and letters.
Debtors with no assets or income are deemed by creditors to be "judgment proof." This means that even if the creditors were to take the debtors to court, it's unlikely that they will be able to collect their judgment and recover their overdue payments.
The Do Nothing Approach is a viable solution for an individual who will not be collecting any income or assets in the near future that creditors would be able to seize. Most individuals and families will not benefit from this approach.
Negotiate with Creditors
The creditors' main concern is to recover the money that they lent you. They would prefer to work out a payment plan with you and get back their loans than lose the money when you file for bankruptcy. Many creditors are willing to renegotiate payment plans, cooperate on a settlement or decrease the overall amount owned in order to ensure that they receive payment.
If you have a steady income or if you have valuable assets that you are willing to sell so that you can use the money to pay off outstanding debts, you may be able to negotiate with your creditors. It is important to work out a viable payment plan that you can realistically stick with, so that you don't end up filing for bankruptcy after entering the repayment plant.
Refinance Debts
Debtors may be able to consolidate -- combine -- debts by taking out a low interest loan (usually from a bank) to pay for high interest debts (such as credit cards). Instead of paying off many debts to a number of creditors, you're able to pay off your debt to one major creditor. This makes monthly payments easier, and you may end up paying your high interest debts off faster.
When taking out a low interest loan from a bank to consolidate debts, you may be required to secure the loan by having a relative co-sign or provide collateral, such as a car or real estate. It is important to keep in mind that if you continue to have financial problems, bankruptcy will not be able to erase your secured loans.
Bankruptcy can release you from paying unsecured debts, such as credit cards, but if you take out a secured loan, you may be at risk of losing your assets or the assets of your co-signer.
Create Repayment Plans with Credit Counseling Agencies
There are many credit counseling agencies available to people who are considering bankruptcy. Credit counseling agencies work as brokers between you and your creditors. For a fee, they try and find a manageable method for you to pay creditors and ease your debt. For people who are not strong negotiators or are intimidated by creditors and banks, credit counseling agencies do the talking for you.
Working with a credit counseling agency to design a repayment plan may be advisable for individuals and families with a steady income and a manageable debt.
Ensure that you and credit counselor come up with a practical solution to your payment plan. If you begin a payment plan that you can't afford, you may end up filing for bankruptcy in the end anyway.
Dispute Debts
There are instances when you may be hassled by creditors for a debt that you don't think that you owe. If you had your house renovated and the contractor did a careless job or didn't finish the work, you shouldn't be expected to pay the outstanding payments. Also, if there are disagreements over the payment of a large purchase, such as a car, you may have a disputable debt on your hands.
In situations such as these, often creditors and debtors will take the case to court. This may be a reasonable option if you're facing a large debt that you don't believe you owe. However, disputing a debt takes a lot of time, effort and money in legal fees. If your disputed debt is not high, you may spend more in legal fees than the amount that you owe.
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Next Step
With so many alternatives to managing debt, it is important to discuss all of your options with an experienced and knowledgeable professional.
Call us at 201-478-7412, or fill out the form below, to schedule an initial FREE phone consultation.
Our first conversation will simply be to talk about your financial situation and identify the best solution to fit your circumstances.
Whether you qualify for bankruptcy, need to respond to a foreclosure or other lawsuit from a creditor, we will provide you with valuable information for you to make an informed and educated decision that is most appropriate for your situation.
With so many alternatives to managing debt, it is important to discuss all of your options with an experienced and knowledgeable professional.
Call us at 201-478-7412, or fill out the form below, to schedule an initial FREE phone consultation.
Our first conversation will simply be to talk about your financial situation and identify the best solution to fit your circumstances.
Whether you qualify for bankruptcy, need to respond to a foreclosure or other lawsuit from a creditor, we will provide you with valuable information for you to make an informed and educated decision that is most appropriate for your situation.