Alternatives to Filing Chapter 13 Bankruptcy

For many debtors struggling to make ends meet, filing Chapter 13 bankruptcy is often a far better option than filing Chapter 7. However, many times filing Chapter 13 is the only available option, simply because the individual may not be eligible for filing Chapter 7.

However, in other cases it is important to consider other alternatives because Chapter 13 bankruptcy could potentially have a dramatic impact on your current lifestyle.

It is always important to fully assess all the advantages and disadvantages of filing bankruptcy, while exploring available options for debt relief.  While Chapter 7 is designed to help the debtor abolish their loans and credit card debt, Chapter 13 requires a reorganization plan of an extensive payment schedule to pay off the debt as a long-term installment solution.

Do Nothing

This often surprises people, but in life, sometimes the best course of action is to do nothing.  By “doing nothing” we are not suggesting you stop paying your bills or attempting to resolve your financial issues.

Instead, what we often find is that people in dire financial straits have very few assets to lose and may not have much to lose legally.  So taking legal actions to end their financial issues is not necessary.  In these cases, filing for bankruptcy or undertaking credit counseling may not be as effective as simply contacting your creditors to work out alternate payment arrangements.

That said, one of the biggest reasons people choose bankruptcy is for the protection against the harassment of creditors.  The bankruptcy laws were designed to provide a legal process for settling debts, and often puts an end to the abuse some debtors feel their creditors put them through.

Settling Debt

If the debtor is willing to sit down and negotiate with every creditor (through letter writing, phone conversations and other means), it might be possible to reduce the debt in lieu of filing Chapter 13. This can sometimes be performed without damaging the debtor’s credit rating.

Additional funds can be found from a variety of solutions that include the following:

  • Reducing Monthly Household Expenses
  • Taking on Loans or Financial Gifts from Relatives
  • Selling off Unnecessary Items Such as a Second Car, Boats, etc.
  • Refinancing the Home to Gain Access to Its Equity
  • Sell the Home and Rent Instead
  • Cashing out Retirement, 401(k) accounts
  • Convert Guns/Jewelry/Family Heirlooms into Cash to Pay Down Debt

Credit Counseling

It is possible to use the services of a consumer credit counselor without filing for Chapter 13 bankruptcy. The creditor can help to evaluate the debtor’s current standing and financial situation and make suggestions on how best to settle the debt without going through the court system. However, this process is not always effective, and credit counseling does not always stop creditor harassment.

Chapter 7 Bankruptcy

Many individuals are just too far in debt to be able to ever crawl their way out of their financial hole. In these times, the most likely solution is filing for Chapter 7 bankruptcy. It is important to recognize that Chapter 7 remains the least desirable solution for maintaining credit worthiness. However, individuals that file can typically move through the bankruptcy process quickly.

In addition, Chapter 7 bankruptcy eliminates the need to ever repay any debt. One of the major disadvantages is that the debtor will have the bankruptcy appear on their credit report for one decade from the date of the bankruptcy filing. In addition, creditors will severely tighten the requirements for obtaining credit on any individual that shows a completed bankruptcy in their credit file. Additionally, it may be more challenging to obtain any financing in the near and distant future.

To date, there is still no magic pill that allows individuals to simply get out of debt. Anyone suggesting that there is a quick and easy solution should not be believed.

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