Bankruptcy isn’t always the right fit for people in financial distress. Luckily, there are bankruptcy alternatives that can provide relief under the right circumstances.
Bankruptcy is intended to provide relief for innocent people who find themselves in unfortunate circumstances. Typical issues that lead to bankruptcy include the loss of a job, an investment gone south, or the cumulative effects of too much debt.
Not everyone wants to file bankruptcy. Others don’t qualify for a Chapter 7 Bankruptcy and Chapter 13 Bankruptcy isn’t the right fit. Luckily, there are alternatives that might provide some relief.
Bankruptcy Alternative: Voluntary Debt Repayment Plan
One alternative is to work out a debt repayment plan directly with your creditors. Depending on your creditor, this might be a viable option. Other creditors aren’t so willing to help a distressed consumer.
The time to work out a repayment plan is prior to the creditor filing a lawsuit. Without proper representation, a lawsuit by your one of your creditors will typically result in a judgement including attorney’s fees, interest, and court costs. With a judgement in hand, not many creditors will be willing to work out a favorable deal.
Bankruptcy Alternative: Restructure Your “Bad” Debt
Another option is restructuring your debt. This is an option for a person that finds him or herself with too much “bad” debt. When I say bad debt, I mean high-interest debt or debt that is draining too much of your monthly income.
A person in this situation may try to restructure the debt by obtaining a new loan at more favorable terms from a different creditor, and then using those funds to pay off the other loan. A high interest car loan comes to mind. A person seeking to restructure their debt must do so before their credit is impacted by late pays, no pays or collection activity. So it isn’t always an option.
Bankruptcy Alternative: Do Nothing!
This other bankruptcy alternative might sound like bad advice. But sometimes it is the best option: do nothing. You might have heard a lawyer say that a person is “judgement proof.” What they are really saying is that the person has no assets or income worth taking. All the judgements in the world won’t get any money out of such a person.
Ignoring the phone, changing bank accounts, or even moving, can help provide short-term relief from your creditors. But beware: I have seen judgement creditors come back 10 years post-judgement and wipe out thousands of dollars from a client’s bank account. Without any warning! Hiding only works for so long.
Choosing the right tool for a given task is very important. Ultimately, it is up to you to determine how best to manage your finances and legal affairs. I really enjoy answering questions regarding Chapter 7 or Chapter 13 bankruptcy or bankruptcy alternatives. Please call my office at (916) 333-2222 for a free bankruptcy consultation.