In many cases, filing for bankruptcy is the best option for debt relief. However, it never hurts to look into alternatives to bankruptcy before you file for Chapter 7 or Chapter 13 bankruptcy. Whether you are struggling with severe mortgage problems or outstanding credit card debt, there are non-bankruptcy options available to you. It is important to discuss all of these options with an experienced professional as each case is unique. A bankruptcy lawyer can help you explore all of your options, including bankruptcy alternatives.
Debt consolidation is a way of combining all of your debt so you have only one payment instead of several. By reorganizing your debt, it makes it easier to manage without having to deal with different interest rates, multiple payments, and due dates. There are several ways to consolidate debt, including the use of a debt consolidation loan, low-interest credit cards, or a home equity line. It is important to note that filing for Chapter 13 bankruptcy is also a way to consolidate debt. The difference between Chapter 13 bankruptcy and other debt consolidation options is that Chapter 13 will allow you to pay less on certain types of debt. In some instances, you may only be required to pay back as little as 1% of your debt.
Negotiate with Creditors
In certain cases, you can negotiate with your creditor to receive a lower interest rate or a payment plan extension. It may not be much, but if you have income or assets to negotiate with, you may be able to find a route that works for your specific case. If a creditor knows that bankruptcy is your only other option, they may be motivated to work out a lower monthly payment, an extended payment plan, or a reduced interest rate. Usually this is more appealing to a creditor than having the debt dismissed in a Chapter 7 bankruptcy or put in a court-approved payment plan in a Chapter 13 bankruptcy. In these cases, negotiation with the creditor is essentially non-existent since you can propose to pay whatever amount you can afford.
Negotiate with Mortgage Lender
If you are struggling with your mortgage payments and looking for options to stop a foreclosure, negotiating with the mortgage lender may be in your best interest. By speaking with the loss mitigation department at your mortgage company, you may be able to work out a loan modification agreement. This is still an option if you choose to file for bankruptcy, but then a bankruptcy attorney can finalize the loan modification agreement for you. This option works especially well if you owe more money than your home is worth.
Debt Management or Settlement Plans
A debt management plan or settlement plan are alternative options for debt resolution. A debt management plan is run through a credit counseling agency who will distribute your money to the creditor in an agreed upon timeframe. Similarly, a settlement plan can be negotiated with your creditors to determine a lump sum they’ll accept that is less than the full amount you owe. If you have assets or additional income to negotiate with, a debt management or settlement plan could be an acceptable option. However, it is best to discuss this with a bankruptcy lawyer in advance — especially if you are unsure that you’ll have any wiggle room to negotiate. Bankruptcy is a better option if these alternatives are not affordable.
Home Short Sale
A home short sale is when you sell your home for less than the outstanding mortgage on it. This can be an alternative to bankruptcy if you are struggling with your mortgage payment. This is often more appealing to homeowners than a foreclosure since it is not as detrimental to a credit rating. Short sales, however, can be lengthy and involve certain taxes and liabilities. When you file for bankruptcy, you won’t have to deal with the stress of a home sale and may even be exempt from potential liabilities involved with the sale of your home.
Default on the Debt
It may sound odd, but sometimes doing nothing can be the best option — especially if you are living simply with no assets of value. If this is the case, then there is nothing for a creditor to take from you. They are obliged to abide by the Fair Debt Collection Practices Act and Virginia state laws, which don’t allow a creditor to take essentials from you (personal effects, food, public assistance benefits, etc.). If there is nothing to take, a creditor will typically write the debt off as a business loss. Every financial situation is different so be sure to speak with a bankruptcy attorney about your situation. There may be certain alternatives that are available to you that do not apply to everyone. At Rich Law, we offer a free bankruptcy consultation to discuss viable options and alternatives for you to pursue.
Give us a call to discuss your options today!