Bankruptcy Alternatives

Debtors should be aware that there are several alternatives to chapter 7 relief.  For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.  In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. Indeed, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be a substantial abuse of the provisions of chapter 7. 11 U.S.C.  § 707(b). A number of courts have concluded that a chapter 7 case may be dismissed for substantial abuse when the debtor has the ability to propose and carry out a workable and meaningful chapter 13 plan.

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

The following is a summary of some of the available alternatives to filing for personal bankruptcy:

Make a Settlement

Should your debt be somewhat manageable with your everyday financial resources, you may wish to contact your creditors and make arrangements for repaying the debt. You should not consider borrowing money for this purpose. Many creditors would prefer avoiding a legal process because it frequently results in expenses that decrease the amount they hope to recoup. Take a good hard look at your finances and make an offer that is based on an arrangement you know that you can keep.

Debt Consolidation

Debt consolidation consists of taking out a loan to pay off your other debts. However, this can be a risky proposition because your personal assets are typically at risk if you default on your payments. The interest rate and other terms must be carefully evaluated before taking this course of action. Insure that you can pay your other bills as well as the monthly note from any debt consolidation loan.

Ignoring Creditors

Many people ignore creditors when they come calling. While this "stick your head in the sand" approach may provide some short term relief, it is a very dangerous strategy. Your debts and financial obligations will continue to pile up and can spiral out of control very quickly. Creditors will seldom allow you to ignore them indefinitely. Your best course of action is to face your creditors, no matter how painful or hopless your situtation may seem to be. Often, you will find that if you begin an honest dialog with your creditors you can get back on the road to solvency.

Credit Counseling

Credit counseling agencies have increased in numbers in recent years. These organizations can assist you in the negotiation process with your creditors. Many of them are quite effective in helping you negotiate with your creditors, stop calls from the creditors and sometimes have your interest rate lowered and/or have your interest payments stopped.

Be sure to take a look at the terms for engaging a credit counseling agency and your obligations should you retain their services.