Bankruptcy Alternatives

Considering Bankruptcy Alternatives

Changing laws regarding bankruptcy

In October 2005, changes in the bankruptcy law became official. To encourage alternatives to economic failure, the law has made filing for bankruptcy stricter. For example, the new law does not practice the liberation of tax liability with unrecorded tax returns ending more than three years prior to bankruptcy filing. Also, both private and government student loans became non dischargeable, which will encourage people to seek alternative revenues in order to pay off loans rather than hoping to waive outstanding balances by filing for bankruptcy. Applying more rules to the bankruptcy law also restricts attorneys from automatically putting their defaulter clients into bankruptcy without exploring alternatives.

What are the alternatives?

Renegotiating secured loans may help the defaulter get a couple hundred dollars every month and use the money to pay off unsecured debts. If the debtor’s home loan is a few years old, he/she may be able to dramatically reduce the interest rate. Or if there is only a few years left on a house mortgage or car payment plan, the debtor can extend the loan or payment plan over a longer time period, generating some extra cash for the time being.

Debt consolidation removes multiple payments per month and allocates the money to one big payment. For example, if the debtor takes on a first or second mortgage and uses the money to pay off smaller bills, such as credit card bills, hospital bills, and the likes of it, bankruptcy procedures may halt since the debtor has two or few main bills to pay, which might be the house mortgage or car payments. Consolidating debts also improves the debtor’s credit history, as he/she ends up owing money to fewer creditors.

Since most merchants are afraid of losing their customers’ outstanding balances to bankruptcy, they are willing to allow their debts to sit and collect interest while their customers pay off other bills. Debt deferment basically means making arrangements to make payments at a later time. Most secured loan holders would be reluctant to do this because this plan does not affect them in a positive light at all, but negotiating with all the creditors will get the defaulter some debt deferment, giving them the chance to pay off their debts to merchants that do not agree with the plan. However, in this situation the defaulter must be aware that their credit might be fully terminated.