INSTEAD OF BANKRUPTCY: WHAT ARE MY OPTIONS? WHAT MIGHT HAPPEN?

No one’s first choice when faced with a financial hardship is to file bankruptcy.   And filing bankruptcy is not on many people’s “bucket list”.     So, it makes complete sense that when someone experiences financial hardship that they should look at all of their non-bankruptcy options. And that is what we help you do.   In each case we help you explore any non-bankruptcy options you might have to address your financial hardship.

 NON-BANKRUPTCY OPTIONS

What are some of the potential non-bankruptcy options to help “deal with” financial stress?  I have created a list below.  The list includes both good and bad ideas.   I include both good and bad ideas because, I guarantee, desperate people sometimes try anything to handle their debt. See if you can tell which ones are “bad” ideas (normally).

  • Take a financial management class to gain knowledge on what you can do better.
  • Review and adjust your budget to spend less on non-essential items.
  • Get a consolidation loan for all debt with a reduced payment you can afford and that you can pay within a reasonable period of time.
  • Call the creditors to set up better payment plan/terms
  • Settle with each creditor by paying a lump sum payment (you get the best deals with a lump sum payment) to get rid of your debt
  • Consider a mortgage modification if you have mortgage arrears and want to keep your home.
  • Consider mandatory mediation if you have mortgage arrears and you want to keep you home.
  • Consider a short sale if you do not desire to retain a home.
  • Get a second job or work more hours to create income to catch up and pay debt.
  • Sell items of value that you do not need to help pay bills.
  • Take out loans against your paid off car or other free and clear household assets.
  • Borrow money from friends or family to pay debt.
  • Use one credit card to pay another.
  • Get “pay day” loans and hope that you can escape the trap of this financial “crack”.
  • Pawn items for cash.
  • Play the lottery and hope to win.
  • Cash out your (protected from creditors) 401K to pay bills.
  • Move out of town and hope that your creditors do not find you.
  • Allow yourself to be sued and wages/bank accounts to be garnished.
  • Ignore the creditors – which is not the worst idea if you are “judgment proof”, i.e., you do not have anything they can take from you.

WE CAN HELP YOU during a FREE INITIAL CONSULTATION  review these options to see if you have any reasonable non-bankruptcy options.   We can also help you avoid wasting time, money and stress on efforts that will not likely work out.  At least you’ll know your options and we can help you choose the one the fits your situation.

No review of this subject would be complete without an explanation of what creditors can do to collect from you.  After all, if you owe money but the creditors can’t do anything to you, then how you respond might drastically change.

 CREDITOR COLLECTION OPTIONS

So, what might creditors do to you if you do not pay your bills on time (before you seek bankruptcy protection) ?   The list includes, but is not limited to, the following:

  • Foreclose upon a financed home.
  • Repossess a financed vehicle.
  • Call you – over and over – and ask when they can expect payment.  Sometimes they are nice, sometimes they are not.    They might even call you at work.
  • Note the past-due payment history on your credit report.
  • Send you “pay us” demand/threat letters that tell you all the bad things they might do to you if you don’t pay.
  • Send the bill to a collection agency and report that to your credit reports.
  • Sue you for the amount due, plus interest, plus costs, plus attorney fees, etc.
  • If they obtain a judgment, they can garnish your wages and take 25% of your take home pay (if you take home at least $800 a month).  That means that if you are normally paid $1,600 net a month, they get $400 and you get $1,200.
  • If they have a judgment, they can garnish your bank account and take ALL the wages that are on deposit.  And, no, they don’t have to tell you it’s coming.
  • If they have a judgment, they can record that judgment as a lien on any real property you own.    If you go to sell the property, the lien has to be paid.
  • In Washington, a creditor on a written contract can sue you any time before the account becomes six years past due (3 years for an oral contract).  A judgment obtained is good for 10 years.  That judgment, if unpaid, may be renewed for another 10 years.  That’s 26 years you might have to deal with a past due debt.

There are really some good nonbankruptcy options to resolve certain debts AS LONG AS you have some money to work with and you don’t wait too long to try working on it.  So, yes, we do look at your nonbankruptcy options as well.    Sometimes, it’s just too late and bankruptcy is often the best option.

 “BUT BANKRUPTCY WILL HURT MY CREDIT REPORT, RIGHT?” –  IT DEPENDS

As a final note, many people are worried about the impact of bankruptcy on the credit report and credit score.  That’s a fair concern.   But it is not a bad as you might think. First, I will note that it is quite possible that your credit score will actually go UP after you file bankruptcy.   After you file bankruptcy, high balances and other information is removed from your credit report (because you no longer owe money after entry of the discharge order).   This can improve your score.  So, if your credit report is “not good” when you file, then your score may go up. The second key point to make is that your credit report might be “OK” now, but if you can’t pay your debts on time or you can but that is only because you borrow more money to make the payments, then your credit report might not look “OK” for long.    If you don’t make the payments, then your credit report will note late payments.  You might have collections.  There might be lawsuits.   You might even end up with a garnishment that prevents you from paying the bills you want to pay.   So, if you know your credit report is going to receive a bunch of negative entries in the near future, sometimes it better for you to file bankruptcy before those negative entries occur.    If you file bankruptcy after all the negative entries are made on your credit report, your report will show that you filed bankruptcy BUT it will also show all the past-due payment history and public records such as lawsuit, etc.    Once you file, the creditors cannot submit negative credit report entries. THE POINT:  If you can’t pay your debts as they come due, then your “great” credit report (assuming you have one) will be damaged by the expected future negative credit entries.  If you really do “need” to file, then I suggest that your credit score will be better after filing bankruptcy than not filing and having numerous negative entries AND still trying to find a way to pay the debt.

 FREE INITIAL CONSULTATION

At the Robert Russell Law Group we offer a free initial consultation to look over your circumstances to see what NON-BANKRUPTCY and bankruptcy options you have to address your financial problems.  To schedule a free initial consultation, please contact us using our contact form, give us a call, email us or use our live contact option.  We hope to help you soon.   [insert links to the various contact options]

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