Alternatives to Bankruptcy

Debt Consolidation/ Debt Negotiation

Some people do not want to file for bankruptcy because they want to pay their creditors. They often choose to participate in widely advertised "debt consolidation" or "debt negotiation" programs.

Debt consolidators take a monthly payment from you and attempt to negotiate a better interest rate for you. Sometimes this works; sometimes it doesn't. Unfortunately the companies that sponsor such programs are not subject to regulation. Sometimes they take your money, pay their own fees before making payments to your creditors and actually make your credit scores worse. Sometimes, they go out of business and consumers have no recourse.

Debt negotiators take a monthly payment from you and promise to negotiate discounts from your creditors. Dealing with these companies are subject to the same risks as with Debt Consolidators, plus there are additional risks: they don't' tell you that you will receive a 1099 form from the lender for the discount and will have to pay income tax on the amount of the debt which is forgiven. Also, you will often find in the "fine print" that the fees taken by these parties (often law firms) will exhaust any savings you may have (e.g. they take an up-front fee from the first monthly payments you make before making any payments to your creditors, plus a percentage of the savings, measured by subtracting the negotiated settlement from the amount due at the time of the settlement - often years from when hire them and start your monthly payments).

Chapter 13 Repayment Plans

The best way to protect your funds and obtain time to pay is often to use a court-supervised repayment program known as Chapter 13 bankruptcy. The Bankruptcy Trustee receives a 10% commission for administering this program, is bonded, and subject to supervision of the U.S. Bankruptcy Court and the U.S. Department of Justice. Repayment programs can last as long as five years and carry no interest, penalties, or hidden fees. During this period your creditors are prohibited from harassing you, and you are free to immediately start rebuilding your credit history.

Bankruptcy is Not Always a Good Idea

Bankruptcy is not always a wise choice. Only a highly experienced bankruptcy attorney can evaluate your individual situation. If we determine that bankruptcy is not the best option for you, we will assist you in developing a non-bankruptcy strategy for dealing with your financial problems. Sometimes this involves negotiating settlements with your creditors; sometimes it involves explaining the risks and benefits of competing strategies.

Most clients, having experienced the abrasive conduct of debt collectors, do not understand the rights and protections that they have under federal and state law. We will work with you so you fully understand your rights and help you act accordingly.

Misconceptions about Bankruptcy

Most people are afraid of filing for bankruptcy because they believe they will not be able to get needed credit again. This is simply not true.

First, you must remember that by the time you are considering filing for bankruptcy, your credit score has been substantially impaired.

Second, it is important to understand that bankruptcy doesn't have the negative impact it used to. From advertisements, you will see that car companies are anxious to provide credit to anyone willing to buy or lease a new car.

The important thing to recognize is that each person has the ability to build a new credit history showing their post-bankruptcy track record. When you meet with us, we can give you specific steps you can take to start building that new record.

Even if you have to initially pay a higher interest rate, your payment history on the next car loan will help you obtain a better interest rate when you trade that car in for a new one.

If you file a chapter 13 case, and make payments to a bankruptcy trustee (who then distributes the money to your creditors), the payment report you receive from the trustee will serve as documentation to a future lender that you have the ability to make timely regular payments now, notwithstanding the difficulties you may have faced in the past.

Our clients who have implemented our suggestions on how to improve their credit scores have reported that they have obtained car loans within a year after filing for bankruptcy. If you have filed for chapter 13 bankruptcy, there are loan programs which enable you to get a new mortgage in one year. In chapter 7 cases, we have helped people get new mortgages two years after discharge.

Since it is illegal for a government entity to discriminate because of bankruptcy, it will not interfere with student loans you may need to obtain for your children.

The key fact that many people overlook is that the very fact of the bankruptcy filing eliminates all the pre-bankruptcy bad credit issues, and allows you to start fresh, showing a post-bankruptcy credit history when you seek new credit. We are happy to work with you after the bankruptcy discharge to assist you in monitoring your credit report, and improving your credit scores.