Alternatives to Filing for Bankruptcy

Because bankruptcy is not the best option for everyone, there are lots of alternatives available. Also, for those who want to file bankruptcy, different types of bankruptcy can work better for different types of people and situations.

It’s important to look at each individual’s situation to determine what’s best for them. For example, if someone is having trouble with just one debt, like a credit card company that’s suing you because you haven’t been able to make your payments, it might be better to negotiate a settlement with them, perhaps for a lot less money than what is actually owed. In that case they may come out better in the long run than if they’d filed bankruptcy, especially considering the adverse effect bankruptcy has on credit.

On the other hand, most of the people for whom bankruptcy is a good thing aren’t having problems with one particular creditor, but are having problems with their financial situation in general. They have gotten into a spot where they are over their head and they are just not able to keep up with the monthly payments. Their credit has been adversely affected and they are behind on a number of different payments.

What Chapter 13 bankruptcy allows you to do is to just get everything consolidated into one manageable payment so that you’re not trying to catch up and keep track of many different things. Also, Chapter 13 bankruptcy takes your budget into account and allows you to pay with the amount that’s left over. That amount is paid into the trustee and he takes care of distributing that to your creditors.

In other words, it takes care of all debts at once. Therefore, if you have several credit card companies threatening to sue you and you’re trying to negotiate with each one, and each wants a certain amount per month to keep from sending you to collections or garnishing your wages or something like that, it becomes difficult and stressful to keep up with that. Chapter 13 bankruptcy allows you to on a plan and pay all of them back and move on from there.

There are other benefits, too.

Stripping a second lien on a home could be a huge benefit to someone who’s in financial trouble. Someone with a second mortgage could save tens of thousands of dollars or more in some situations. Cramming down a car loan can also save thousands, as well. Chapter 13 bankruptcy is the only way you can do either of those things.

Is a Chapter 13 Bankruptcy Preferable to Chapter 7?

Chapter 7 is a classic straightforward bankruptcy where you liquidate your assets and discharge your debts right away. Everything you own is put into the bankruptcy estate and whatever the trustee can sell, he will, and distribute whatever cash he receives to your creditors, before discharging all of your debts, leaving you with a totally clean slate going forward.  The entire whole process takes about four months.

With a Chapter 13 bankruptcy, nothing will be liquidated. Instead, you will enter a repayment plan with your creditors based on your disposable income, which you will continue for between three and five years, depending on your income.

Once you have completed the payment plan and paid back all of your debts, your remaining debts will be discharged, which means you’ll be rid of all the extra debt from credit cards, car loans and medical bills, and you will just pay your regular secured loans just as you had before you filed bankruptcy.

Which one is better depends on your situation, but a Chapter 13 bankruptcy is better for people who generally have a home or a big asset that they don’t want liquidated. In Chapter 7, if a debtor has a lot of equity in their house, they don’t want to file under Chapter 7, especially, in Utah where homestead exemption limits re pretty low.  The first advantage to Chapter 13 is that you don’t lose equity, but as noted above, it also allows you to cram down certain loans and strip certain liens as well. You don’t get those extra benefits from a Chapter 7.

Another benefit to Chapter 13 over Chapter 7 is that a person can use funds from a retirement benefit to make payments, as long as the budget works and you can verify that you are receiving Social Security or a pension.

For more information on Alternatives to Filing for Bankruptcy, please call (801) 441-2013 today to schedule a free initial consultation. Get the information and legal answers you’re seeking.

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