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Non-Bankruptcy Alternatives

I divide a debtor’s options into bankruptcy alternatives and non-bankruptcy alternatives. The main advantage that bankruptcy alternatives have over non-bankruptcy alternatives is that you can force a creditor into forgiving a debt when it normally would not or into accepting a repayment plan which it normally would not accept.

The non-bankruptcy alternatives are hard to specifically define because all they are are ways of dealing withnumbers-web your creditors which are acceptable to you and the creditors but different than your original agreement. There is no Non-Bankruptcy Code. Thus, there are as many non-bankruptcy solutions to your credit problems as there are ways you might propose a solution to your credit problems to your creditor which the creditor will accept and does not involve bankruptcy law.

First, you need to understand that, generally-speaking, the terms of the agreements you signed with your creditors govern your arrangement with the creditors, unless the agreement happens to be illegal or something like that. Just because your life has changed for the worst (lost job, sick spouse, etc….) does not usually give you a legal right or excuse.

A laundry list of non-bankruptcy alternatives would include:

Trying to work out a more favorable repayment plan with your creditors, including extending the payments farther than agreed, lowering the payments, changing the interest rate, reducing the principal balance, stopping interest entirely, etc. The problem with these options is that it is entirely up to the creditor to decide whether it will work with you.

Using a professional workout specialist to accomplish a better payment arrangement. Be careful, as this industry has been under close scrutiny by the US Justice Department and the IRS for not doing things properly. You need to understand whatever arrangement you obtain before you agree to it.

Also, understand that any debt which is forgiven may be taxable income for you for the calendar year in which it was forgiven. Your tax preparer can advise you on the impact of the 1099 you might receive for forgiven debt.

Obtaining a consolidation loan or mortgage loan in order to consolidate your debts and increase your cash flow. You want to make sure that you are not making your situation worse by giving up equity in an asset which the creditors cannot legally take if you do not pay them and get yourself in a situation which will cause you to have higher debts than you had before the loan.

Selling assets to pay off your debts. However, if you liquidate assets which could be protected if you filed bankruptcy and it does not create a long-term resolution of the problem, then you have flushed those assets down the toilet.

Just hanging on and dealing with your creditors on a case-by-case basis, hoping that they do not sue you before you are able to work things out.

In summary, and to repeat myself, all of the above would be better than filing bankruptcy if you could get a deal worked out with the creditors which actually makes your situation better and is a solution that will work, rather than the postponement of an eventual decline. Any good attorney will go over all of your options, in addition to bankruptcy, when you meet with him. It is good to know the impact of all options on your life before you make a decision.

Gone are the days when you could merely move to the colonies of Georgia or Australia, or just pack up and head to the Wild West. Credit runs everything these days and it is hard to ignore it for too many years because we are in the computer age.  At least Congress didn’t create Debtor’s Prisons in 2005, although I am sure that some members felt that the new bankruptcy law fell short in that regard. Sadly, some members’ offices have indicated that they did not even read the Bill and they were just told to vote for it.

  • Learn More About Bankruptcy

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