Bankruptcy Alternatives: What You Should Know

Bankruptcy is a big step, even if you’re having difficulty paying off debts. It stays on your credit report for seven years and can impact your ability to get a mortgage, apartment rental, car loan, or even a full-time job. If you have debts but don’t want to declare bankruptcy, there are several other options for you to consider.

Take No Action

If you have no income or are retired, you may choose not to declare bankruptcy because your creditors are unlikely to initiate legal action against someone with no assets. People with no assets, or insufficient assets to cover their debts, are considered judgment proof. It would not be worth it for them to try and get money back from someone who has no money to give, so declaring bankruptcy would have no real impact on your financial situation.

While taking no action may not impact your current financial situation, it can affect your immediate family after you pass away. Your estate must pay outstanding debts. Since Nevada is a community property state, individuals are responsible for their spouse’s debts even if their estate lacks the funds to cover those debts. Failure to comply with state laws will also shift the debt burden to your spouse.

Better Money Management

If your debts are more manageable, you can pay off at least some of your monthly payments by reducing household expenditures. If you take a good look at what you’re spending each month, you’ll probably be able to find places where you can spend less. One way to do this involves using popular apps such as the Ramsey EveryDollar App to track your spending.

Housing Costs

You can talk to your mortgage lender about refinancing. You may qualify to refinance, reduce your monthly payments, and use your savings to pay off your debts.

Electric Bills

Saving money on your electric bills is an effective way to reduce your expenses. Some electric companies charge less for energy use during off-peak hours, enabling you to save money by running your washing machine, dryer, or dishwasher overnight. Adjustments, such as turning your water heater down 20 degrees (Fahrenheit), can also produce notable savings.

Transportation Costs

Carpool with coworkers or family members to reduce transportation costs. You can also consider using public transit to decrease gas consumption. Negotiate to work from home one or more days per week to further reduce your transit costs.

Negotiate with Creditors

Most creditors are willing to negotiate a reduced payment because the only alternative is for you to declare bankruptcy, which would result in them getting none of the money you owe them. Therefore, it’s worth trying to see if you can develop a debt management plan with your creditors to avoid bankruptcy since it could work out better for everyone.

Schedule a meeting with your creditors. Prepare in advance for the meeting, and outline factors you plan to share about your financial situation. Whether recovering from a job loss or illness, you should present your creditors with a straightforward, consistent narrative about the reasons for your financial struggles.

Review the Fair Debt Collection Practices before your meeting. You’ll be confident about your rights, which can prevent you from being bullied into an unfair repayment agreement.

Make sure you get a written agreement for your repayment plan. Documenting your arrangement ensures both sides agree to the same terms.

Tax debt can’t be discharged in a bankruptcy filing, and bankruptcy also doesn’t cover debts such as student loans. If you can’t discharge most of your debt with a bankruptcy filing, you’ll need to pursue options such as negotiating payments.

Debt Consolidation

Debt consolidation involves borrowing money from your bank at a low interest rate to repay your debts with a higher interest rate. You will then be able to have lower monthly payments to the bank that gave you the loan.

Alternatives to bankruptcy include turning to a debt consolidation company instead of a bank. Debt consolidation companies include non-profit companies. Some companies offer consolidation loans and free financial counseling, ensuring you make informed financial decisions. Debt consolidation loans can hurt your credit score, but the advantages of eliminating or reducing debts outweigh the short-term impact on your credit.

The Internal Revenue Service (IRS) considers forgiven debts to be income. You may have a higher tax burden if you consolidate your debt. This should be considered when determining the best way to address your debts.

Participate in a Debt Management Program

Debt management plans are a viable alternative to dealing with relentless collection practices from collection agencies or filing for bankruptcy. Debt settlement programs involve developing a payment plan to eliminate credit card debt. You don’t take out a loan to achieve this goal, but you must cancel your credit cards while working with a debt settlement company.

Debt management programs aren’t quick solutions to financial issues. Participants can expect to take up to five years to resolve their debts. Still, you’ll benefit from lower interest rates and reduced monthly bill payments, which enables you to apply your savings to other debt payments and avoid bankruptcy.

Find a Way to Earn Extra Income

Extra income can enable you to earn the funds you need to pay off debts. Taking on a second job is a potential short-term solution; however, there are some factors to consider. You’ll change your taxable income base if you take a second job. You may also have increased expenses, such as childcare and transportation costs. Consider those factors when determining whether taking on more work will enable you to meet your financial goals.

You may also generate revenue by selling possessions. Selling possessions may cover short-term expenses, depending on what you sell and its value.

What to Expect if You File Bankruptcy

Federal bankruptcy laws govern the bankruptcy process. If you conclude you should file for bankruptcy, you’ll benefit from familiarizing yourself with bankruptcy terms and processes, so you know what to expect.

Different Types of Bankruptcies

Bankruptcy options include Chapter 7, Chapter 11, and Chapter 13 bankruptcy. Businesses can file Chapter 7 bankruptcy or Chapter 11 bankruptcy, while individuals have more options. A bankruptcy attorney can explain each option so you make an informed decision if you decide to file bankruptcy.

You Can’t File Immediately

The government approves credit counselors qualified to meet with individuals considering bankruptcy to discuss their financial options. The credit counselor will help you create a budget during this meeting.

The Paperwork is Complicated

Filing for bankruptcy involves preparing court paperwork, which can be complicated. Your bankruptcy lawyers can prepare your paperwork, which will prevent mistakes.

Temporary Reprieve

Once your paperwork is filed, creditors aren’t allowed to contact you about your debts. Creditors may contact your attorney but cannot pursue repayment from debtors once an automatic stay is in place.

Meetings and Courses

Attending a creditor’s meeting is part of the bankruptcy process. Although creditors can participate in this meeting and oppose the bankruptcy, this is rare.

Every bankruptcy applicant must complete a debt education course. Approved courses provide financial information about money management, budgeting, and using credit.

Discharge

Once all steps are complete, you’ll receive notice that your debts have been discharged. If you opt for a repayment plan, you’ll continue making payments per the terms established during your creditor’s meeting. Repayment can take up to five years.

You are absolved from all discharged debts. That means you aren’t obligated to pay creditors, even if they contact you after your bankruptcy.

Credit Score

Your bankruptcy will impact your credit score, and it can be challenging to qualify for loans or rental agreements after a bankruptcy. Some people opt for a Ch 13 bankruptcy because it takes less time to clear them from credit reports.

There’s a lot to think about when determining how to reduce your debt while still having the standard of living you want. Contact a bankruptcy attorney today to learn how they can help you resolve your financial issues. The best chapter 13 bankruptcy lawyers in Las Vegas are available at (702) 941-6309 for a free consultation. Our bankruptcy lawyers in Las Vegas will explain your options and fight to ensure you receive the best financial settlement available.

Sources

Debts and Deceased Relatives. (2021).

Fontinelle, A. (2021). 5 Things Debt Collectors Are Forbidden to Do.

Sheehy, K. et al. (2020). 15 Ways to Lower Your Energy Bill.