When you are filing for a bankruptcy under either Chapter 13 or 7, as a way to solve your financial crisis, you also have the option to select a bankruptcy substitute, which also depends on your plight. Here are some plausible alternatives for you to choose from:
One of the options other than bankruptcy is to merge your debt, to make it easier on your part, wherein you will be paying only one creditor. Here are some options under debt consolidation:
• Make use of a loan to consolidate debt – Under this scenario, the process merges your entire amount due into a single loan. The total amount due is still the same, but the payment a debtor makes each month and interest rate are usually a bit lower than paying these creditors one by one.
• Transferring of debt to a low point interest rate credit card – There are times when credit card corporations present a low transfer rate, especially if you are a new customer. When you are given a low transfer rate for the whole length of your loan, you will be lessening the cost in terms of actual interests paid, which is comparable to that of a low point interest financing.
• Take advantage of a home equity line consolidation – One excellent alternative to merge debt with a low point interest and is a possible tax deductible advance, especially if the debtor has a home equity, then the debtor can apply for a home equity line. However, one needs to be vigilant when applying for a loan versus a property because the creditor can take back the property if the debtor fails to make payments. In a solid real estate market, this is one good option.
Create a repayment plan with your Creditors
This is another option that you can consider other than filing for a bankruptcy. You can work with your creditors to create a repayment plan and most creditors will likely cooperate especially if your other alternative is to file for bankruptcy. A lot of creditors will be cooperative in lowering your monthly payment, reduction of interest rate or debt and creation of a long term schedule for repayment terms rather than facing the possibility of the debtor filing for a bankruptcy, because the debtor may have the chance to be discharged of his debts under chapters 13 or 7.
Creating a Debt Management Plan
If a debtor finds it hard to deal with lenders, a debtor can ask the help of credit-counseling agencies to negotiate in the debtor’s behalf for a debt management plan. Based on the debtor’s earnings and liabilities, the agency can formulate a repayment plan. Once the creditors consent, the debtor can now make monthly payments to the agency and the agency in return will be the one to handle the repayment to the creditors, until such time that the debts are fully paid. This is done by an agency for a minimal fee. However, there are times when these credit counseling agencies have conflicts of interest because most of their funding comes from the creditors themselves.
Further, there are disadvantages gained from availing of a debt management plan. Once a debtor fails to pay a single payment, the plan can be ended by a creditor. Compared to a Chapter 13 repayment plan, when a debtor defaults on payment, the debtor is protected from the creditor’s collecting actions. Also under the chapter 13 bankruptcies, a debtor only needs to partially pay his unsecured debts but in a debt management plan, the debtor must pay the total sum of his debts. But, the disadvantage in filing for a bankruptcy is that this bankruptcy will dwell on the credit record of a debtor for a span of ten years.
Default on the Debt
Another bankruptcy substitute is just to cease disbursing the creditors, especially when the debtor no longer has a source of income or property. The creditor still has the right to collect payments but the creditor needs to follow the state rules and Fair Debt Collection Practices Act. Creditors are bound by rules like avoiding calling a debtor many times in a day, calling the debtor at a specific time of day as forbidden by law and engaging in abusive behavior. A debtor can ask for monetary damages when a creditor engages in such abusive collecting acts.
Creditors can also file a legal case in court just to collect payment from you. If a debtor does not have an income or only owns exempt property or properties, then the debtor is judgment proof. Examples of exempt property are: furniture, clothing, public assistance benefits and Social Security. As a result, the creditor has no means to collect payment from the debtor’s property. There are cases, when the creditor will just dismiss the loan as a bad debt and part of a business loss. But, the unpaid debt will remain in the debtor’s credit record for as long as seven years.
The Things That You Can Do and Cannot Do With Bankruptcy
Bankruptcy is a very effective and useful means for a debtor to escape his liabilities; however one must keep in mind that not all debts can be dismissed by filing for a bankruptcy. Examples of these debts that a bankruptcy cannot discharge are: student loans, alimony, secured debts, most tax debts and child support.
The things that Bankruptcy can Do
When faced with grave problems on loans and debts, one of the most potent solutions to the problem is filing for bankruptcy. Here is a list of the things that you can do when you file for bankruptcy:
Dismissing your unsecured and credit card debts – Credit card debts are one of the debts that can be easily dismissed by bankruptcy, unless if your credit card debt is a secured one or there are properties tied to your credit card debt that can be repossessed by the creditor. Aside from credit card debt, if you have other debts that are not secured debts, you can also eliminate payments for them with bankruptcy filing.
However, in bankruptcy cases, if you file for a chapter 13 bankruptcy rather than a chapter 7, you need to partially pay your unsecured debts. Once you have reached the term of your repayment plan and there are still balances on your unsecured debt, these amounts will be considered forgiven.
End any collection action and creditor harassment – If the form of collection actions done by your creditors against you is only in the form of mails and phone calls, this can be stopped by other forms of actions aside from filing of bankruptcy. However, if your creditor’s collection actions are already harassing you and your possession are in imminent danger of being repossessed, bankruptcy can be of great help to you.
Eliminating a selected number of Liens – A lien is a hold of a creditor on your property. This creditor’s hold may last even after your bankruptcy filing so; you need to appeal on certain procedures while your bankruptcy case is still ongoing.
The things that Bankruptcy cannot do
Here is a list of things that bankruptcy cannot protect you from:
Prevent a secured creditor from repossessing property – When you file for a bankruptcy, your unsecured debts are discharged but it cannot do away with the liens on your property. Example if you have a secured debt, where you can stop the creditor taking hold of your car for example, your bankruptcy filing can erase your debt but it cannot stop the creditor for repossessing your car.
Eradicate alimony and child support obligations – Even if you have filed for bankruptcy, these types of debt cannot be eradicated by the bankruptcy process. Even after the end of your bankruptcy, you ar still obliged to pay your alimony and child support responsibilities, and in cases under chapter 13, you have to pay these debts in full.
Eliminate student loans, but there are very limited exceptions – Discharging your student loan debt is possible but very hard to attain because you need to prove that paying for your student loan will cause you undue hardship and that you will not even be able to pay for the loan in the future. These are very tough standards to meet just to prove your case.
Wipe out most debts on tax – In order to wipe out tax debts is not easy and there are a lot of requirements that needs to be done. It may be possible to discharge debts on income taxes.
Getting rid of other debts that are non-dischargeable – Under Chapter 13 or 7 bankruptcies, the following debts listed are not dischargeable:
• Loans that you have omitted in your bankruptcy papers save for when a creditor hears of your bankruptcy filing.
• Due to your intoxicated driving, you have incurred debts for personal death or injury.
• Imposition of penalties and fines for law violation such as criminal restitution or traffic tickets.
Even if your bankruptcy case is over, under chapter 7 bankruptcy, these debts still stay. If you have filed for bankruptcy under chapter 13, these types of debts are included in your repayment scheme. If there is still an amount due after the full term has elapsed, you are still obliged to pay the balance, even at the conclusion of the case.
Further, there are certain forms of debt that may not be written off, if and when the creditor has fully convinced the bankruptcy judge that they ought to last your bankruptcy. The debts that can be included in such cases are: debts from a credit card, wherein during the credit card application you have committed fraud or applying for a secured loan with someone else’s property as collateral.
The Things that only a Chapter 13 Bankruptcy Can Achieve
Halting a mortgage foreclosure – When you file for a Chapter 13 bankruptcy, this can eventually halt the foreclosure proceedings and give you the needed time and leverage to make a repayment scheme for the missed dues while keeping up with the regular dues. For this scheme to succeed, you need to be able to prove that you are capable of paying for the repayment plan like estimates of future income.
Allows you to keep non-exempt properties – In Chapter 13 bankruptcy, there is no need to let go of any of your properties because the money that will pay for the repayment scheme you have created is based on your remuneration.
Decimate secured debts that are worth less than the collateral – Chapter 13 bankruptcy can sometimes be used to decimate a debt to the replacement value of the property that secures it, then paying the debt through your repayment plan. An example is you have loaned a car for an amount of $8,000 but its real value is just $5,000, you can have the excess discharged and create a repayment plan that will pay the creditor for the real value of the car which is $6,000.
One of the latest laws on bankruptcy has stipulated that you cannot cram down a debt that was purchased during the 30-month period before the bankruptcy filing. Further, with regards to other types of debts especially personal ones, you cannot cram these down especially if these debts were purchased within one year of filing for bankruptcy.
When Filing For Bankruptcy, It Is Best To Lay All your Cards Down
Never think that you can get away by hiding properties while filing for bankruptcy. These actions will only go against you in the future.
When filing for bankruptcy, you will be signing a lot of papers pledging that what you have placed in them are truths or else you will face the penalty of perjury. Just to make it clearer, one of the things that you are avowing is that your declaration in your forms are complete, because these forms are asking you to list all of your debts, income and properties. Your bankruptcy case can be dismissed if you fail to file a bankruptcy form that is complete and the worse thing is if the court deems that you have made false statements or intentionally omitted information.
The law is quite lenient on people who make an honest mistake. If you have unintentionally written something not true or have forgotten to state a detail in your form, you are still given a chance to correct your wrong and have it justified to your trustee. However, if you have left a lot of significant information out, this may come out that you are very careless and is taking for granted your bankruptcy filing which can lead to your case being dismissed just on those grounds.
Further if you are intentionally using a bogus Social Security Number or are hiding your properties, this will really disturb you deeply compared to your current financial situation.
You need to record each creditor
If you are hiding a lot of information, then bankruptcy filing won’t be able to help you maximally because all your debts won’t be included in the discharge since there are debts which you have not divulged. Therefore, it is crucial to list all of the loans that you have to a person or persons, even if you believe that you do not owe them money. These types of debts are categorized under disputed debts and the debts were a legal case has already been file is categorized under contingent debts.
Once your bankruptcy has already reached its term, you will be discharged of all your debts. Once you are discharged of your disputed debt, the whole dispute over that debt will already be immaterial. Legally, your creditor will be banned and will no longer have the right to collect the debt, in spite of who is correct.
Never Exclude Creditors on the Basis of your Good Relationship
A number of filers will omit listing creditors just because they have a good relationship with them, especially if these creditors are a friend or relative. Filing for a bankruptcy will not give you a favor by playing favoritism. Because the key point of a bankruptcy filing is to be able to give all your creditors their fair allotment of payment and to ensure that certain responsibilities have to be fully compensated such as child support. Once a bankruptcy trustee knows about the omissions you have made on your creditors list, you will then be obliged to add the persons you have omitted. This will now put you in a bad light regarding the truthfulness of the information in the forms you have submitted.
Include all forms of income you have
In the bankruptcy forms, you need to add and list all of your assets. You need to include the properties that are presently yours and future properties that you believe will become yours. Examples of these are:
• A heritage that you are going to inherit from a relative who just died.
• Tax refunds, trust fund or stock options
• Life insurance, pensions, annuities and retirement funds
• A court case that you can file or have already filed, based on a personal grievance
All of the items stated above should be included in your bankruptcy form when listing your properties. You need to divulge this in order for the court to have a complete scenario of your financial status and you need not worry because you can have these properties exempted.
Never Intentionally Hide Any Details of Your Financial State
If you intentionally use a false Social Security number to cover your identity as a previous filer or omit material information regarding your financial state or fail to mention a property and the court discovers this, the court has the right to dismiss your application and in worse cases, can even file a case against you for fraud.