Bankruptcy Alternatives

When you consider bankruptcy, you should also consider the alternatives to filing bankruptcy. The are three main bankruptcy alternatives:

1. A Credit and Debt Counseling Service

Some credit and debt counseling services are fee based where you pay them a fee for their services. Others claim to be non-profit agencies. If you deal with one of these services, be sure that you know and understand how they will be paid for their services.

Basically, these services will work with you and your creditors to help you manage your finances. Often, these services will help you set up a payment plan similar to a Chapter 13. However, there are some major differences.

First, many of these payment plans require that you pay your unsecured creditors in full whereas in a Chapter 13 bankruptcy, you will likely pay your unsecured creditors only a portion of what you actually owe. Also, these payment plans cannot remove liens from property (unless the creditor agrees to removal) whereas a bankruptcy may remove some liens against property such as judgment liens.

Second, with a voluntary payment plan, a creditor can refuse to go along with it. And this refusal does not have to be justified. The creditor can just simply refuse to go along without any reason whatsoever. With a Chapter 13 bankruptcy, a creditor can object to a plan or a part of the plan, but once it is approved by the bankruptcy court, the creditor has not choice, but to go along with the payment plan. Also, with a voluntary plan, if you miss a payment, a creditor can immediately take action to collect. With a Chapter 13 payment plan, a creditor has to go to the bankruptcy court and ask to be allowed to take action to collect.

Third, when you follow a voluntary plan, you will not have a bankruptcy on your credit report because you did not file bankruptcy.

You should be aware that some consumer advocates question the "independence" of many credit and debt counseling services because they receive a large portion of their funding from creditors.

A good place to go first if you want to check out a credit and debt counseling service is to go the United States Trustee Program's site at http://www.usdoj.gov/ust, click on Credit Counseling & Debtor Education under Bankruptcy Reform, and then click on Approved Credit Counseling Agencies. You can check state by state for a list of agencies that have been approved by the US Trustee to provide the credit counseling that people are required to have before filing bankruptcy. There is not guarantee or warranty of any nature concerning these agencies, but it is a starting point.

2. Negotiate Yourself With Your Creditors

Depending on the number and amount of debts that you have, you may want to simply talk with your creditors yourself. You may be able to set up a payment plan with them or they may be willing to settle for a lesser amount than is actually owed. Some creditors will be glad to work with you and others may not be willing to work with you under any circumstances. You won't know until you contact them.

You can either call your creditors or write them. If you write your creditor, I suggest that you make a specific proposal to pay your creditor so much per month and request that your creditor respond in writing and not to call you. Otherwise, your creditor will call you and probably pressure you into agreeing to pay more than you can pay. Whether your call or write your creditor, be sure that you fully understand any and all agreements with your creditor and be sure that all agreements are in writing (you may need proof of the agreement later, especially if you deal with someone else at your creditor's office).

3. You Can Do Nothing

If you do not have any property that you are concerned about losing and you do not have enough income to pay your debts, you can simply do nothing. We do not have debtors' prison, so you won't go to jail for not paying debts regular debts. Please note that if you owe child support or some other similar debt, you can go to jail for contempt of court if you refuse or do not pay.

With secured debts such as home or car loans, as long as you make your payments, the respective creditor can not take any legal action to get the property. However, if you decide to do nothing and do not pay your secured creditors, they can and will take legal action to get the pledged property (home or car, etc.) and may seek a deficiency judgment as well.

If you decide to do nothing, I suggest that when your creditors call you, you tell them not to call you at home or work and to communicate with you in writing.

All of the above information is general information only. For specific information or if you have any questions of any nature whatsoever, talk with a lawyer licensed in your state.