Debt Relief Solutions- Bankruptcy Alternatives and Avoiding Bankruptcy
*This article is for informational purposes and is an example of the average consumer. For your specific decision as to whether to file bankruptcy or not, you will need to speak to an attorney in your state. The information here has been collected in the most correct and proper manner, but there are no guarantees as to the accuracy of the content of this article, which is strictly educational.*
Most people see bankruptcy as their very own eraser that allows them a 'do-over' in their financial life. This free pass to credit relief is not as 'free' as it might seem. Most people realize that bankruptcy filing stays on credit reports for 7-10 years, but most don't realize that the debt usually winds up being paid back in most cases. Chapter 7 bankruptcy does wipe the slate clean, but at the expense of liquidating assets that they might not necessarily want to get rid of. Then there is Chapter 13 bankruptcy, where the debtor is placed on a payment plan where all the money has to be repaid over the course of 3-5 years, and their personal credit will still be marred by a bankruptcy filing. Sometimes it can be a lose-lose situation.
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Bankruptcy is not an easy solution. It is actually one of the most difficult processes to go through, and there is often more hassle than what it is worth when you get involved with bankruptcy. Consider other debt relief solutions as bankruptcy alternatives if you don't want to have to repay your debts and still wind up with bad credit or a bankruptcy on your record. To avoid having to pay back debts when filing bankruptcy, here are some things that you should keep in mind:
-- If you make more than the average income in your state, you will be required to file Chapter 13 instead of Chapter 7, which both scars your credit and forces you to repay all of your debts. The courts determine how much 'disposable income' you have and then creates a payment plan based on that amount that you are required to pay. Missing even one payment can get you booted from the program, leaving your credit scarred and leaving you with mounds of debt still. Plus, the court might not approve all of your expenses, which might require you to change the way that you live. Say goodbye to expensive cars and private schools, because these will be considered luxuries that you cannot afford when you are put on a chapter 13 plan.
-- If you have a lot of assets, you want to avoid bankruptcy at any cost. Whether it's a car, a home, or a non-exempt piece of property that is worth a lot of money, you don't want to file bankruptcy if you have it. The courts will force you to sell these things in many cases, leaving you with nothing to call your own. If you have a savings account or other money stashed in retirement accounts or other accounts that aren't exempt, you can't afford to give that all up just for the sake of being out of debt. Having assets is bad when it comes to being unable to afford debts. You say that you have no money to pay, while the courts see a $400,000 home that you could sell, a $50,000 car that is way above the exemption limits, and other property that can become payment for your debts. You want to make sure that you don't take the easy road for the short term just to sacrifice the outcome in the long run.
An example: If you have a home worth $100,000 and you owe $75.000 on that home, you will be forced to sell it and pay back the mortgage company what you owe. You would then take your exemption out of the remaining $25,000 depending on what your state allows, and use the rest to pay off debts. If your state allows an exemption of $15,000, you will get that and give the other $10,000 to the court to pay off your debts. The court makes the rules, and you will have to follow them if you file bankruptcy.
-- If creditors can prove that you borrowed money with no intent to repay or lied about your income in order to get higher credit limits, you might want to stay away from bankruptcy. Putting yourself in a situation like this is just like putting the handcuffs on and throwing yourself in jail for credit fraud. You will still owe a debt if you do this, plus you'll have a bankruptcy filed on your credit report, which is never good. The case can be dismissed if you are caught committing fraud that can be proven, and that's the least of your worries. In order to determine if this is the right solution, you want to consult with an attorney to ensure that you are safe.
This article does not constitute or act as a substitute for legal advice, whether expressed or implied, and is strictly for informational purposes. If you have questions regarding your situation, contact an attorney in your state for more information.
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