Legal Debt Relief: Bankruptcy vs. Alternatives

As far as debt relief goes, filing for bankruptcy is typically the culmination of multiple other debt relief attempts, which have failed to rectify a debtor’s financial woes. Even further, within the general realm of bankruptcy, different chapters of bankruptcy (most notably Chapter 7 and Chapter 13) are varied debt relief options, with Chapter 7 being reserved as a last ditch option. As a debtor, knowing what options are available, what options may work for your specific case, avoiding debt relief scams, and simply staying afloat financially is a monumental task. Most debtors are simply not equipped to handle the vast amount of information and knowledge required to handle a debt relief strategy on their own accord, and in turn, the only viable method of resolving debt woes is typically through the insight of a debt relief or bankruptcy lawyer.

Alternatives to Bankruptcy for Individual Debtors

As a requirement of filing for bankruptcy (especially Chapter 7), debtors must show they have attempted to resolve their debt problems in other manners. Typically, these efforts are part of any debtor’s attempt to resolve their debt problems over time, and ultimately, bankruptcy relief is turned to as a final option. The following list outlines common debt relief attempts that often prelude filing for bankruptcy:

• Budgeting: As simple as it may seem, many debtors fail to recognize that their spending, in light of their income, is preventing debt relief. In certain cases, a frank assessment of income versus expenses can rectify a number of debt problems, or at the very least, place an individual on the path of financial recovery.

• Negotiating with Creditors: Although most debtors first instinct is to avoid a creditor they feel they cannot repay, this is simply counterproductive. If addressed early enough, a creditor may be willing to negotiate a repayment plan. Further down the line, after a debt is in default or reported to the credit bureaus, a debtor may still be able to negotiate a settlement with the original creditor, involving a partial lump sum repayment or negotiated repayment terms, often with a significantly reduced principal amount owed. Keep in mind, however, that any repayment plan or negotiated deal with creditors will not only require a debtor adhering to a budget (see aforementioned bullet point), but also, avoiding incurring further debt in most cases.

• Debt Consolidation Strategies: This alternative is laced with the warning caveat emptor or buyers beware. In certain cases, a debtor (often with the counsel of a debt professional or lawyer) may be able to refinance all outstanding debt obligations under one manageable debt obligation though some form of debt consolidation and refinancing program. Scams targeting individual debtors, as well as debtors knowingly taking on debts they cannot handle, permeate this bankruptcy alternative, and in all cases, a debtor should honestly consult with a lawyer before agreeing to anything.

• Negotiating with Creditors via a Third Party: In many cases, debtors can find higher rates of success when negotiating with creditors if they seek outside assistance, preferably from a debt consolidation lawyer. Again, scams and other predatory businesses seek to take advantage of debtors via this method, but with legal counsel, the chances of reducing debts and managing repayment of negotiated debt settlements is ideal.

• Allow Statutes of Limitations to Pass: With the advice of a lawyer, sometimes it may be in the best interest of a debtor to simply take no action, and thereby, not reaffirming any outstanding debt obligation. By doing so, depending on state laws and the nature of the debts themselves, a debtor may become judgment proof by allowing the statute of limitations to expire.

How Bankruptcy Becomes Relevant to Debt Relief

Should none of the aforementioned options work for a debtor, the final two choices will revolve around Chapter 13 or Chapter 7 bankruptcy. For most debtors, the first place to consider is Chapter 13, which is a repayment plan supervised by the courts and under the protections afforded to debtors by the Bankruptcy Code. Granted, any bankruptcy filing with pose serious credit implications, but in reality, using Chapter 13 bankruptcy can allow debtors to prevent liquidation of assets, prevent liens and garnishments, and outline a court-approved repayment plan, often with negotiated terms of settlement.

As a final option, which is not available to all debtors, Chapter 7 can allow discharge of certain unsecured debts, while also liquidating certain non-exempt assets of a debtor. The ability of a debtor to use Chapter 7 is only determined on a case by case basis by the courts, and in reality, the state exemptions allowed in a given state will also influence whether a debtor will even want to file Chapter 7.

Getting Legal Help with Bankruptcy and Bankruptcy Alternatives

The only definitive source of information and insight about your individual debt relief options will be from a bankruptcy lawyer practicing in your state. Consult with a debt relief lawyer before attempting any action to rectify outstanding debt obligations.