Senior America's Information Magazine


Bankruptcy Alternatives

Bankruptcy isn't the only way

Bankruptcy can be devastating both economically and emotionally.  Though most bankruptcies are granted, it isn't meant to be an easy way out of your debt.  Extensive damage to your credit and long-term economic issues from bankruptcy will cause many problems in the years to come and it is far better to explore any and all other alternatives before making the decision to file for personal bankruptcy.

Renegotiate secured loans instead of bankruptcy

Bankruptcy does not get rid of all your debt.  Secured loans are generally for items such as cars and/or your house.  These secured loans are generally the largest debts that most people have, yet filing bankruptcy will not reduce or terminate these debts.

If your debt hasn't completely caught up with you and ruined your credit already, you may be able to renegotiate these loans with the creditors or take the loan elsewhere.  

For instance, if you have a home loan that is several years old, you may be able to reduce your interest rate significantly.  Depending on your principal balance and current terms, you may see your payment go down several hundred dollars per month.  That's money in your pocket that you can use to pay other debts.

If you only have a few years left on a house mortgage, you may also be able to extend that loan over a longer period and reduce your payments even more.

Debt consolidation

Most people have multiple payments that they must make every month.  High interest credit card bills, car loans, house mortgage, doctor/hospital bills, etc. can add up to some very serious payments every month.

If you have equity in some real estate, especially your home, you can often get rid of these debts by taking on a first or second mortgage and use that money to pay off your other debts.  In most cases, you should be able to significantly reduce your monthly payments and perhaps stave off bankruptcy proceedings.  

Be sure to run the numbers first.  There isn't any point in consolidating debts if it isn't going to make a significant difference in your ability to pay.  Consolidating unsecured debt under a home mortgage will make the entire debt secured and bankruptcy wouldn't do you a bit of good.

Debt deferment 

Debt deferment means to make arrangements to pay certain bills at a later time.  Rather than lose a good customer as well as the debt owed, some merchants may be willing to let your debt sit and collect interest while you pay your other bills.  Few secured loan holders will go along with this because they generally have nothing to gain.  However, other merchants may be more willing to do so.

Renegotiation of unsecured loans

Unsecured loans are far more at risk and there may be more wiggle room here.  Some merchants are willing to reduce or even eliminate any interest or carrying charges in order to let you pay off your entire debt load.  If they think their other option is to lose it all through bankruptcy, you can get some real deals here.  

In any such situation, you should however, expect that your credit will be immediately terminated.  Merchants that aren't being paid now are seldom willing to extend even more credit.

Interest debt reduction

When people get into a credit mess, it's often due to extensive interest that has accrued on the original balances.  This interest is however, often carried separately by creditors and there may be room to negotiate part or all of this credit away.  

Creditors may not be willing to negotiate the principal balance but are generally more amenable to working with you on the accrued interest because it isn't reflected in the books the same way.

Professional debt negotiation

Doing much of the above sounds like it can be a great deal of work.  It is.  If you've never been through it before, you may be uncertain as to whether you can handle the emotional aspects of dealing with these creditors or fear that they will use the opportunity to harass or intimidate you.  Sometimes they will.

Debt negotiation companies can do much of the work for you by developing, and then taking your case to the creditors.  Since your negotiation company has no personal involvement, discussions remain purely about resolving the business relationship, leaving both parties more amenable to working out a solution.

Volunteer organizations 

Some communities have volunteer organizations that can do some of this negotiation for you.  This may be the way to go if your debts are relatively small and few.  They may have limitation as to the extent of their involvement but often go to work for seniors in negotiating payment plans with telephone and utility companies.

Debt reduction attorneys

In cases where your debt load or asset level is high and/or varied, you should probably seek professional legal help from an attorney that specializes in debt reduction.   

Debt reduction attorneys have a wide variety of skills and can often do a better job of working with some creditors.  When your attorney calls on your behalf, it is generally received as a strong indicator that the merchant should take such discussions seriously. 

A debt reduction attorney will also take a look at any contracts you may have.  Since most contracts include a lot of legalese, they are often hard to interpret.  Your attorney will review these contracts to make sure that you are taking full advantage of any provisions within the contract and make sure that the contract provisions are legal.  Illegal contract provisions can be repudiated.

A good debt reduction attorney will also become very familiar with your case.  This can come in handy if other actions must be taken and therefore reduce some redundancies. 

Disclaimer:  These pages are created to inform and educate the public only.  They are not and should not be considered legal opinions or advice.  You do not and cannot have any client-attorney relationship with SeniorMag or any of its employees.  You should not act upon legal advice found on SeniorMag and are advised to seek professional counsel before taking any action based upon information found on this site. 


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