Our Bankruptcy Attorney Blog

Although the entire bankruptcy process in the United States is designed to help prevent people from ending up utterly destitute; due to the social stigma that surrounds bankruptcy, most people do not file for it until they are realistically facing destitution. Therefore, most Americans would prefer to avoid this circumstance if at all possible. Obviously the key to this is keeping your financial position in proper proportion to your financial means: not borrowing more than you can pay back; not spending more than you have; and not accepting responsibilities that you cannot handle.  These common sense tips notwithstanding, there are usually at least some options available to people before bankruptcy.

If you are still receiving a fairly dependable income and still have some assets and holdings, then there are more options available such as debt settlement, debt consolidation, and so on. Of course in this case it may actually make more sense to aim for a Chapter 13 bankruptcy then to deal with all of the tricky negotiation that is involved in debt settlement and similar arrangements. Essentially, for any lender to agree to debt settlement and similar arrangements the lender has to believe that agreeing to such terms is better than the alternative. Therefore, as long as you have a degree of income and some assets, the lenders are much less likely to agree to such proposals. This is, in fact, precisely when most people should consider bankruptcy, though there are a decent range of alternatives available.

If, on the other hand, you are already facing extreme financial hardship – due to a dramatic decrease in household income (as comes from unemployment) or a dramatic increase in financial liabilities (as happens with adjustable mortgages) – then the alternatives to bankruptcy have more appeal to the lenders. In this case, the lenders are already very concerned that you are likely to file for bankruptcy, in which case they want to agree to terms that will see them get more than would be given them by a bankruptcy court. Bear in mind that this is only true insofar as unsecured debt is concerned; secured debt (like a home mortgage or car payment) cannot be discharged by Chapter 7 bankruptcy without surrendering the underlying asset. So, as a consequence, unsecured lenders will be far more receptive to debt settlement or modification proposals than secured lenders will be.

As anyone that has ever dealt with a Chapter 13 bankruptcy restructuring agreement knows, personal finances can be very complicated. Therefore there is no “one size fits all” advice that makes sense for everyone. A lot of your personal options are tied directly to your personal circumstances; therefore one of the best ideas would be to have a personal finance expert review your overall situation and offer advice on how to proceed. Before you can even file for bankruptcy there is a legal requirement to under go credit counseling through a government approved credit counseling service. These credit counseling services are recognized by the government and have a specific mandate to look for viable alternatives to bankruptcy where possible. As a consequence, undergoing this credit counseling – which is required to file for bankruptcy anyway – may offer you the best alternatives.

Tags: banktruptcy

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