Bankruptcy is not necessarily the best option for resolving debt problems. When someone contacts me regarding their debt problems, I take the time to explain all of the available options for that person’s specific situation including both bankruptcy and non-bankruptcy alternatives. In my opinion, bankruptcy generally should be an option of last resort. With that in mind, here are some non-bankruptcy alternatives you should consider:
Increase Your Income
Depending on how deep in debt you are or how aggressive your bill collectors are being, it may be possible for you to get back in control of your finances by simply taking on a 2nd or even 3rd part-time job. You can put the extra income toward paying down your debt.
Or you may have a relative or good friend who is willing and able to loan you the money you need to pay off the debt that is causing you so much grief. While borrowing money in this manner may help put out a fire, it doesn’t really help get you out of debt because now you owe your relative or friend. Borrowing money to get out of debt usually isn’t a good idea. However, if your relative or friend was willing to pay off your debt as a gift to you, now that’s another matter entirely.
Debt Collection & Lawsuit Defense
Sometimes a person comes to me regarding one specific debt that is causing them trouble. Usually he or she has just been sued or has received a letter from a lawyer demanding payment of the bill. Other than the demand letter or lawsuit, the person has no need to file bankruptcy AND has a valid defense to the collection attempt. In these circumstances, I can represent this person by writing letters to the other lawyer and/or defending the lawsuit in court.
Asset Protection
If you own substantial assets, you could consider arranging ownership of your assets in such a way to make it difficult for creditors to collect against your property. There are attorneys who offer legal services to protect assets but you should be very careful in preparing such an asset protection plan in order to avoid fraudulent transfers of property. If you made a “fraudulent conveyance” and then decided to file bankruptcy, the property you transferred could be taken away by the bankruptcy trustee.
Payment Negotiations
Another alternative to bankruptcy is to negotiate with your creditors and persuade them to settle the debt for an amount less than what you owe. Whether or not a creditor will make such an agreement depends upon several factors including how likely it is that the creditor will win against you in court, how easy it will be for your creditor to collect from you after winning in court, and how much of a difference there is between how much you owe and how much you offer.
Consumer Credit Counseling
A credit counseling service will help you set up a budget and develop a payment plan to pay your bills in full but over time. Usually the credit counseling service will ask your creditors to reduce interest rates and monthly minimum payments. However, these plan are voluntary and creditors cannot be forced to cooperate.
One of the biggest problems with credit counseling programs is that even though you are paying your debts over a long-term plan, your credit report will be damaged. Many people do not know that consumer credit counseling programs are treated as a negative on credit reports. So even though you are voluntarily living on an extremely tight budget just so you can try to do the right thing and pay your debts as best you can, your credit report will suffer severe negative consequences.
Also you should be aware that not all credit counseling services are reputable. Some credit counseling services are under investigation by the Federal Trade Commission and the Internal Revenue Service for making unrealistic promises to their clients. So please check out these agencies and their services carefully.
Debt Settlement Companies
Unlike credit counseling services, debt settlement companies attempt to persuade your creditors to accept less than the full amount you owe. This is similar to the “payment negotiations” section above, but instead of you doing your own negotiating, here you hire a debt settlement company to do the negotiating.
Generally, if the negotiations are successful, you will need to come up with a lump sum of money in a short amount of time. This may work if you have equity in a home or retirement account, but not if you are living paycheck-to-paycheck.
Keep in mind that debt settlement, like credit counseling, will usually show up as a negative on your credit report.
Also be aware that many debt settlement companies are scam artists. I have written several articles on this topic which you can read by going to the Categories heading on the right side of this page and clicking on Debt Settlement Companies.
In My Experience …
Most people who have tried the above alternative, especially consumer credit counseling or debt settlement, have not been happy with the results and end up wishing they had just filed bankruptcy to begin with.
If you are struggling with debt problems and being harassed by bill collectors and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation. I would count it a privilege to be able to visit with you in a relaxed and confidential environment where I’ll answer all of your questions in plain English and give you the straight scoop on the pros and cons of bankruptcy as related to your specific situation.
