Why should I want to avoid personal bankruptcy anyway?
There are a number of reasons that people prefer alternatives to bankruptcy instead of actually filing. First and foremost, the long-term credit consequences of declaring bankruptcy can be profound. Chapter 7 Bankruptcy, for one, can remain on your credit report for 10 years. Chapter 13 is a less severe and stays on your credit for seven years, but this is still a very long time, not to mention the fact that in a Chapter 13 "reorganization" bankruptcy, you may have to pay the debt back in full anyway. It is for this reason that in spite of the fact that the credit impact is less exacting- more people prefer Chapter 7 as a bankruptcy option.
So the financial effects of bankruptcy are obviously not ideal from a credit standpoint. What makes it even worse is the fact that it stays on legal records for up to 20 years, and with the easy access to information provided by the internet and more employers doing background checks when determining the qualifications of a job candidate, a bankruptcy filing can have even more of a long-term impact. Along the same lines, many lenders ask, "Have you ever filed bankruptcy?" on mortgage home loan applications, and answering "No" when you have in fact claimed bankruptcy in the past is a federal crime.
Even though so many of the effects of bankruptcy are so unappealing, Congress decided to make it even less attraction of a debt help option in 2005 by passing the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA). Colloquially referred to as the "new bankruptcy law", this legislation dramatically overhauled the bankruptcy legal system, making qualifying much more difficult to do. The biggest change is that now more and more consumers are being forced into Chapter 13 payment plans. Under this type of arrangement, the debtor's disposable income is turned over to the court for up to five years before the debt is officially discharged.
Before determining your eligibility for bankruptcy, your income, expenses, and debts are scrutinized to ascertain whether you can pay your obligations back without bankruptcy or whether your debts were fraudulent. In other words, if you make more than the average person in your state and/or had some recent luxury purchases, did a balance transfer or cash advance recently, it is possible that you will not be eligible for Chapter 7.
What alternatives to bankruptcy are there for unsecured debts like credit cards, medical bills, personal loans, and repossessions?
The main options that consumers turn to before bankruptcy are Consumer Credit Counseling and Debt Negotiation. Depending on your circumstances, either one can be an appropriate choice for you. Credit card counseling is often compared to Chapter 13 bankruptcy because they both involve restructuring your debt into one consolidated payment. In a credit counseling debt management plan (DMP), your payment is lowered, as well as any interest or late payment fees. Debt negotiation, also known as debt settlement or debt reduction, aims at reducing the debt you owe, not just the interest. Due to the fact that you can in some cases save as much as 40 to 60 percent off your balances, it offers much greater potential for debt relief. Like debt counseling, it offers one low monthly payment and shortened timeframe for becoming debt free from credit cards.
I am really in over my head with credit card debt. Which replacement bankruptcy option do you suggest?
For consumers who are extremely overextended, the best alternative is most likely debt settlement because it has the lowest monthly payment of your debt consolidation options and the shortest timeframe for getting out of debt.
Are there alternatives to bankruptcy for secured consumer debts?
Generally, there are not. The reason is simple: creditors have far more leverage with loans that are secured by your property and therefore they have little reason to work with the consumer and offer interest or payment concessions. There are "foreclosure rescue" companies, but by all accounts they are a risky choice.
How can I get started learning more about bankruptcy options?
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