Alternatives
to Bankruptcy - by Tony Arnest
Learn
when an alternative may be better than Chapter 7 or Chapter 13
bankruptcy
In
many situations, filing for bankruptcy is the best remedy for debt problems. In
others, however, another course of action makes more sense. This article
outlines your main alternatives.
Stop
Harassment from Creditors
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 Creditors
If
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.
Design
a Repayment Plan With Outside Help
Many
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. (To find out about agencies
in your area, go to the website of the United States Trustee at www.usdoj.gov/ust, and click "Credit
Counseling and Debtor Education"; this will lead you to a state-by-state list of
agencies that the Trustee has approved to provide the credit counseling that
debtors are now required to complete before filing for
bankruptcy.)
Debt
Counseling vs. Chapter 13 Repayment Plans
Participating
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 come up with 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 one 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.
Consumer
advocates have also raised concerns about credit counseling agencies, because
these agencies 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 the interests of their clients.
Do
Nothing
Surprisingly,
the best approach for some people deeply in debt is to take no action at all. If
you're living simply, 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.
So,
if you don't anticipate having a steady income or property a creditor could
grab, bankruptcy is probably not necessary. Your creditors probably won't sue
you, because it's unlikely they could collect the judgment. Instead, they'll
simply write off your debt and treat it as a deductible business loss for income
tax purposes. In several years, the debt will become legally uncollectible. And
in seven years, the debt will come off your credit record.
(The
presenter, Tony Arnest, is a licensed attorney in California. He is a debt
relief agency and helps people file for bankruptcy. This information is being provided solely for
educational purposes, and is not intended to offer legal advice or serve as a
solicitation for business in anyway.)
Tony Arnest - Alternatives to Bankruptcy
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