Consumer Bankruptcy:


Bankruptcy is not the only option for dealing with debt, even considerable debt, and the alternatives should be examined. Some of them include:

Negotiation: Rather than filing for bankruptcy, you may consider attempting to rework your payment arrangement with your creditor. If it is a credit card company, you might explain the situation, and ask for a temporarily reduced minimum payment, a waiving of late fees, and/or an extended payment period with smaller payments.

Credit Counseling: The Consumer Credit Counseling Service is a nonprofit organization that provides nationwide help to debtors by coming up with repayment plans that are manageable. This is similar to what happens in Chapter 13 bankruptcy and while it does allow you to escape bankruptcy, it does not provide the same protection from creditors that actual bankruptcy does. You should also be aware that there are agencies that present themselves as credit counseling services but are actually for-profit companies. Their scam works by forcing the debtor into a debt consolidation program, but surrounding it with inordinate administrative fees, many of which go to the company instead of to the creditors, making the financial situation of the debtor worse, not better. Keep in mind that companies which advertise exclusively on TV or the radio are probably for-profit companies that are taking advantage of consumers.

Selling Assets: Much like Chapter 7, though not officially, you might consider selling assets of any value and using the proceeds to reduce your debt. If any amount remains, you could attempt to negotiate with the creditor and find some reasonable repayment plan.

Consolidation of Debts- A possible solution, though with potential pitfalls, is to transfer your debts into a single loan (often this is done through credit card balance transfers). Before considering this, read our caution about balance transfers, here. Consolidating your debt can be helpful in that it takes debts from multiple creditors and provides a single lender to whom you can make payments. Also note that borrowing against your home, in order to pay off credit card debt, is probably a foolish idea, as it involves taking debts that could possibly be discharged (credit cards) and exchanging them for a secured loan, which is not dischargeable and could result in you losing your home.

Stopping Harassment: If your main concern is the harassment of creditors, there are ways to escape this. Both federal and state laws provide protection from the harassing conduct of creditors.

Do Nothing: Though it may sound ludicrous, it is possible that doing nothing is your best option. If you are living a simple life, without much income or property, and are fine with continuing living that way, then you may be a “judgment proof.” This means that any creditors who might sue you would not be able to collect anything because you do not have anything that they can legally take. Only in extenuating situations (like being a tax protestor or willfully not paying child support) can you be thrown in jail for not paying off your debts and creditors cannot take away necessities (basic clothing and household furnishings, personal effects, food, Social Security, unemployment, or public assistance benefits). If you do not have a steady income or property that a creditor could take, then there is probably no reason to file for bankruptcy. The odds are that you will not be sued, because creditors would not be able to collect a judgment against you. Your creditors will probably write off your debt, treat it as a deductible business loss for tax purposes, and in seven years the debt will no longer legally be collectible and come off of your record.