Non-Bankruptcy Alternatives

April 17, 2017 By: Carrie Weir

Bankruptcy is not the best option for everyone.

If your financial problems look like they can be solved other ways, those alternatives should be explored. Consider both their advantages and disadvantages honestly.

Here are three bankruptcy alternatives, highlighting their risks and concerns:

1. Debt Settlement:

Once a debt goes into extended default, you may be able to settle the debt for less, often much less, than the amount due. This is especially true if the debt has gotten to be quite old and has been bought and sold by collection agencies multiple times.

But consider these risks or concerns:

• While a debt is in default, the accruing interest and fees can contractually increasethe balance significantly, even shockingly so. So you may well be settling at a relatively low percentage of the debt, but that debt is usually much larger than you expected.
• There are important tax consequences to debt forgiveness—you may have to pay income taxes on the portion that you don’t have to repay!
• You have to come up with enough cash to make realistic offers to your creditors.
• Be extremely cautious of companies which specialize in debt settlement work, because many are not legitimate.

2. Debt Consolidation

If you can almost keep up on your debt payments but just need better payment terms, consolidating your higher-interest unsecured debt into another loanwith lower interest might make enough of a difference.

The practical risks in this are significant:

• Converting unsecured debt into secured debt (credit card debt into a home equity line of credit, for example) changes debt that could be easily discharged in bankruptcy into debt that likely cannot. And it putsthe collateral, such as your home,in danger.
• If the paid-off accounts are not closed, absolutely avoid the temptation to use them again. Even for necessities! Racking them up again would likely put you hopelessly far behind.

3. IntentionallyNot Paying Your Debts

In some situations youcan simply stop payingyour debts. If you are not working, have no assets, and are living off a stream of income which is protected (“exempt”) from creditors, this can be a sensible short-term, and possibly even long-term, tactic.

The risks here:

• Most likely you will eventually get sued on one or more debts, and so you need to be prepared about how to react.
• As your circumstances or the laws change, you could inadvertently move from being fully protected to being exposed to collection.

Two Considerations

As you think about these three alternatives to bankruptcy, consider these:

1. When you go to see an attorney, legally and ethically that attorney works for you. That’s true even during a free initial consultation. The attorney is obligated to advise you about what is in your best interest. In contrast, people who work on behalf of a debt consolidation or settlement company are understandably motivated to sell you on whatever service they offer.
2. Good common sense says that you should get information and advice about your alternatives way before your situation becomes desperate. If you wait until the last minute, you could well lose some important maneuvering room, missing opportunities that could have saved you money or fulfilled your goals much better. Getting advice from a lawyer early about your options can help you prevent major mistakes and would likely save you a lot of money in the long run.

Conclusion

If you are in the Dallas-Fort WorthMetroplex, contact us at the Law Offices of Carrie Weir to talk about all your alternatives. It’s what we do, all day, every day. My clients live or work mostly in and around the towns of Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please call me for a free and confidential consultation at 972-772-3083. Or if it’s more convenient,use the contact form here.