|Budget Software||Credit and Financing||Financial Aid||Filing Bankruptcy||Expense Reduction||Financial Library|
|Legal Resources||Income Resources||Financial Resources||U.S. Tax Center||Insurance Center||Financial Bookstore|
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. In most cases personal bankruptcy is initiated by the bankrupt individual. Bankruptcy is a legal process that discharges most debts, but has the disadvantage of making it more difficult for an individual to borrow in the future. To avoid the negative impacts of personal bankruptcy, individuals in debt have a number of bankruptcy alternatives.
Take No Action
Bankruptcy prevents a person's creditors from obtaining a judgment against them. With a judgment a creditor can attempt to garnish wages or seize certain types of property. However, if a debtor has no wages (because they are unemployed or retired) and has no property, they are "judgment proof", meaning a judgment would have no impact on their financial situation. Creditors typically do not initiate legal action against a debtor with no assets, because it's unlikely they could collect the judgment.
If enough time passes, seven years in most jurisdictions, the debt is removed from the debtor's credit history.
A debtor with no assets or income cannot be garnished by a creditor, and therefore the "Take No Action" approach may be the correct option, particularly if the debtor does not expect to have a steady income or property a creditor could attempt to seize.
Self Money Management
Debt is a result of spending more than one's income in a given period. To reduce debt, the most obvious solution is to reduce monthly spending to allow extra cash flow to service debt. This can be done by creating a personal budget and analyzing expenses to find areas to reduce expenses.
Most people, when reviewing a written list of their monthly expenses, can find ways to reduce expenses. Common areas for expense reduction would include reducing food expenses by eating out less often, taking public transportation instead of driving a car, and eliminating enhanced telephone and cable television services.
Alternatively, the best method to resolve financial hardship is to increase one's income to a level sufficient to satisfy their monthly debt service. While this is often easier said than done, nonetheless, it should be an approach taken by debtors to get out of debt.
Negotiate With Creditors
Creditors understand that bankruptcy is an option for debtors with excessive debt, so most creditors are willing to negotiate a settlement so that they receive a portion of their money, instead of risking losing everything in a bankruptcy.
Negotiation is a viable alternative if the debtor has sufficient income, or has assets that can be liquidated so that the proceeds can be applied against the debt. Negotiation may also buy the debtor some time to rebuild their finances. To learn more about debt settlements request a free debt consultation by completing the form above.
Debt is a problem if the interest payments are greater than the debtor can afford. Debt consolidation typically involves borrowing from one lender (typically a bank), at a low rate of interest, sufficient funds to repay a number of higher interest rate debts (such as credit cards). By consolidating debts, the debtor replaces many payments to many different creditors with one monthly payment to one creditor, thereby simplifying their monthly budget. In addition, the lower interest rate means that more of the debtor's monthly payment is applied against the principal of the loan, resulting in faster debt repayment. It may be necessary to have a co-signor or other security, such as a car, if the borrow's credit is not sufficient on their own. To learn more about debt consolidation request a free debt consultation by completing the form above.
Formal Proposal to Creditors
If the debtor cannot deal with their debt problems through personal budgeting, negotiation with creditors, or debt consolidation, the final bankruptcy alternative is a formal proposal or deal with the creditors.
Different countries have different legal procedures for compromising debts. In the United States, a debtor can file a Chapter 7, Chapter 11, or Chapter 13.
In Canada, a Consumer Proposal can be filed with the assistance of a government-licensed proposal administrator. Forty-five days after filing the proposal the creditors vote on the proposal, which is considered accepted if more than half of the creditors, by dollar value, vote to approve the proposal.
Individual Voluntary Arrangement
In the UK the Individual Voluntary Arrangement (IVA) represents the main formal alternative to a debtors bankruptcy petition. The IVA is part of the Insolvency Act 1986 and essentially allows a debtor to reach a formal repayment arrangement with their creditors usually over a 5 year period. In most cases the debtor does not repay their debts in full to their creditors however the IVA proposal essentially allows for any remaining debt to be written off by the creditors at the end of the 5 year repayment period. As with bankruptcy petitions the number of IVA proposals has been increasing rapidly in the UK in recent years.
FREE Debt Consultation
We strongly suggest that prior to filing for bankruptcy that you first speak to a certified debt counselor. Bankruptcy should be a last resort and it is important that you know all of your options. A certified debt professional will be able to guide you and help you to make the best decision for your particular case. The counselor will be able to place you in the appropriate program for your situation, if you choose to, but there is absolutely no obligation on your part to do anything.
Before You File For Bankruptcy
Filling for bankruptcy is a major event in one's life and should only be taken as a last resort. Before filing we suggest that you first speak to a certified debt counselor who has a number of alternatives that are appropriate for many debtors contemplating bankruptcy. We highly suggest that you call 1800 DEBT.COM (that's 1800-332-8266) and speak to a debt professional prior to making a final decision whether filing for bankruptcy is the right decision for you.
If you do believe that filing bankruptcy is the right decision for you, to locate a qualified and affordable bankruptcy attorney in your local area, we suggest that you call toll-free 877-828-0606.
Professional Debt Help! Call Right Now — 1800 DEBT.COM