By the time you are even considering bankruptcy, chances are debt is so overwhelming you feel you have no other avenue. But, bankruptcy is a serious step with long lasting consequences. Are there alternatives to bankruptcy? Yes, but usually by the time the average individual has reached the point to seek help, his or her debt load is such that alternatives won’t fix the problem and may even add to your burden. Duluth bankruptcy lawyers can counsel you on the best avenue for you.
Informal arrangements with creditors
Making informal arrangements with mortgage holders or credit card companies may seem like a good idea, but can often carry unforeseen consequences and even worsen your financial problems. Credit card companies often have in the fine print of your contact with them the provision that they can raise your interest rate and lower your credit limit at any time and for any reason. Hence, a well-intentioned phone call to the credit card company to try and delay or reduce the payment due may result in your interest rate being increased or worse, doubled. And, as an added bonus, some credit card companies retain the right to apply this higher interest rate to your existing balance, not future balances, leaving you more indebted than when you started
Consumer credit counselors
This term covers a wide variety of businesses with a wide variety of intentions and expertise. As debt levels have risen, so have the number of shady businesses advertising themselves as saviors to your credit woes. They claim to be able to repair your credit or negotiate with your creditors – all for an upfront fee, usually a large one. However, oftentimes, the debtor is left with more arrearages and emptier pockets as the professed credit counselor slips away into the night with the upfront money.
The workout
A different more formal arrangement is the workout. A workout is a mutually negotiated and agreed upon agreement between a debtor and his or her creditors in which terms for repayment are defined. A “composition” workout is a contract between a debtor and his or her creditors in which the creditors agree to accept a reduced amount of money for settlement of the debt in full. In an “extension” workout, the creditors agree to accept less money for a longer period of time until the debt is paid in full. A Chapter 13 bankruptcy does all of the above, except you are negotiating these payment terms while under the protection of the Chapter 13 and its auspices. Duluth bankruptcy lawyers can help you decide, under the new bankruptcy reforms, whether a Chapter 13 bankruptcy is for you or if a Chapter 7 bankruptcy would better fit your situation.
Under a Chapter 13, a number of these debts may be discharged, if the court deems you eligible. Additionally, filing bankruptcy results in an “automatic stay” on any evictions, collections and court actions imposed upon you while the court works out your situation.
Duluth bankruptcy lawyers would be happy to discuss all these option with you and help you chart your path back to financial stability.