Alternatives to Bankruptcy
Few, if any, consider filing for bankruptcy as their first choice and no one considers filing as a form of financial planning. In other words everyone is in some form of distress, even trauma over the mere thought of filing for bankruptcy.
Almost everyone first considers alternatives on this hardly exhaustive list before ever going forward with bankruptcy:
- Create a new budget
- A balance transfer
- An unsecured loan
- Reducing expenses
- Increasing income
- Debt consolidation-in my considerable experience, the worst alternative!
- Takling to your creditors
- Ignoring your debt
Let us examine some of these alternatives and the effectiveness of each as reported to me by our clients.
Create a budget: This makes sense for everyone, no matter how much money you have. Unfortunately, not everyone has a budget, or maintains the one they have. In the simplest terms, a good budget allows you to prioritize your spending, make purchases that are necessary to live a decent life, make purchases for items you need to improve your life, while supporting yourself and your family. A budget should also plan for foreseeable financial setbacks, plan for the future, and prioritize financial goals. Unfortunately, you may be at a point where creating a budget will not solve your financial problems because your debt is too much to overcome given your income and expenses. A budget that makes sense for every family’s given situation is ALWAYS a good idea, but it may not be the only solution to your particular financial problems.
Balance transfers: Sometimes you can greatly decrease the interest rate you are paying on your credit card or other unsecured debt by transferring the balances from a credit card(s) with a high interest rate to a credit card with a much lower interest rate. Make sure you can actually afford the new payments, and determine how long it will take you to pay off your debts under the new rate. Realize though, that incurring more debt is not a good idea when you are already in trouble. In addition, credit card companies see you coming and lay “minefields” such as “cross-default clauses” which will greatly increase interest rates if you are late on ANY of your payments, not just the credit card bills!
Unsecured loans: You may want to think about obtaining an unsecured loan or line of credit from a bank, credit union, or other financial institution to pay off your debt. The loan may offer a better interest rate than your credit card(s) or other applicable debt. Also, the length of repayment may greatly decrease your monthy payments on your unsecured debt. The “catch-22” here is, of course, if you have bad credit you may have difficulties obtaining an unsecured loan, never mind a favorable unsecured loan.
Reducing expenses: Again self-evident and more under your control than finding more income. Yet, was the cause of your adverse financial condition too high expenses that were always under your control to incur or was the cause of your adverse financial condition due to expenses you did not expect and you did not intend to incur? In other words, are we talking about bad planning or bad luck? Both? Does it matter? What’s more, regardless of cause, if you have waited too long to cut expenses, you will not have relief until much later; meanwhile your creditor(s) are, more than likely, on a different time-frame than you are and may bring lawsuits, wage garnishments, etc.
Increasing income: This is self-evident, however, considering that the government-reported umemployment rate hovers somewhere around 9%, that the real estate market is terrible and many homeowners owe more than their homes are worth, that the American Journal of Medicine says over 3 out of 5 personal bankruptcies are due to medical debt, this recommendation is not possible for many and is a bit cruel to even suggest.
Debt consolidation: A very close cousin of “talking to your creditors” below, except you are paying people up front to talk to your creditors for you.
Talk to your creditors: Recently, I spoke to an individual in my office who said she had made a deal with one of her credit-card creditors who negotiated a deal with her. Later, the deal was suddenly rescinded for no reason at all. Say too-big-to-fail banks and credit-card companies in one breath and you have just uttered the reason this method will not work. Bank officers have no reason to heed your implicit or explicit statements about filing a bankruptcy as a way to get them to deal with you. Multiply your effort by the number of credit cards you have (most people have 5-10 cards) and you see the monumental task you have in front of you.
Ignore your debt: Ignoring your debt is an all too common response and a very bad idea. However, if you don’t own property, don’t have an income, don’t need credit, and don’t care to own property in the future, you may be considered judgment proof and have no need to worry about a lawsuit. Our law firm is SOCIALLY RESPONSIBLE AND ETHICAL and you will be advised if you are judgment proof.
Be very concerned if you get served with a Summons and Complaint. This is a LAWSUIT; DO NOT INGNORE it. Contact an attorney immediately to fight the lawsuit or possibly file a bankruptcy. Generally, you must file a Response (or an Answer) within thirty (30) days and DO NOT miss any court dates including case management conferences. You can show up without an attorney to get more time to meet with a lawyer and obtain legal advice. If you do not show up to any court hearings, then you will have a default judgment entered against you. This means that a creditor has won the lawsuit because you did not appear and a DEFAULT JUDGMENT was entered against you.
If you call an attorney and he or she tells you that a 473 Motion, brought on the basis of your claim that you were not served, sets aside the judgment, then you should know that this does not mean the judgment is terminated. The judge will set aside the judgment only temporarily, giving you more time to file an answer. Equally important, the attorney must bring the motion within six (6) months after the judgment was entered. Savy creditors will wait six months for your right to file a 473 motion has transpired and then seek whatever remedy they see fit. So do not think you are safe if a judgment was entered against you and you have not heard from anyone in a couple of months.
Do you believe you do not owe the money? Fight it. Do you owe the money? If you do owe the money, then setting aside the judgment will only bring another judgment later. Add to that the cost of paying an attorney to file a 473 Motion and you can see the money would be better spent paying the judgment, if you owe the money. Owe more than one creditor? How many 473 Motions or judgments can you pay for?
Any one of these or a combination thereof may work. The problem, in my experience, is that people even wait too long to work the alternatives. Time is not on your side. Your debt is aging and you will be facing lawsuits, wage garnishments, bank account levies, vehicle repossessions, notices of sale and the creditors’ telephone calls.
If you owe the money, particularly if you owe credit card companies, file a BANKRUPTCY, it’s your right. At the Mentis Law Group, PLC, our attorney’s fees are not generally based on the number of creditors you have; based on complexity, yes; number of creditors, not really.
If you decide that Chapter 7 bankruptcy is the right solution to your financial woes, we will guide you through each step of the process. Done right BANKRUPTCY is truly a fresh start that is safe and reliable and the outcome will convince you that it was worth every penny you paid.