The following are some alternatives to bankruptcy:
1. Talk with your creditors.
Your creditors may be willing to work out a modified payment plan. A creditor
is not legally bound to follow through with the plan even if the creditor
agrees to the plan. If you have a lump sum of cash you may try to negotiate an
offer and compromise with all your creditors. If you can get your creditors to
agree to settle with you make sure you do so in writing.
The balance of the debt owed to each creditor will often be reflected on your
credit record as a charge off. A charge off has a negative impact on your
credit record. Make sure to investigate how settling with creditors will be
reflected on your credit report.
2. Contact a credit counseling service. Credit counseling services are
private or public organizations that work with you and your creditors to
develop debt repayment plans. Such plans may require an up front fee. Also, the
plans require you to deposit money each month with the counseling service. The
service then pays your creditors. Some nonprofit organizations charge little or
nothing for their services. The creditors can choose to withdraw from
acceptance of the terms of the repayment plan at anytime. If your debts are
already in the hands of collection agencies it may be too late to negotiate a
repayment plan through credit counseling.
3. Obtaining a second mortgage or home equity line of credit is another
alternative to bankruptcy. It is an alternative that you should be cautious of
taking. When you consolidate debt with a second mortgage or home equity line of
credit you convert unsecured debt to secured debt. Under the bankruptcy law you
can exempt from the bankruptcy estate, depending on each state, a certain
amount of equity in your home. If you take out a second mortgage or home equity
line of credit you create a secured debt which would not be discharged in
bankruptcy with one exception. If the appraised value of your home is less than
the amount of the first mortgage then you may be able to discharge the amount
of the second mortgage (an attorney should be consulted regarding this
exception). By putting your house up as collateral, you may lose all or part of
your “homestead exemption” if you later are forced to file for protection under
the bankruptcy code. I recommend consulting a bankruptcy attorney before
consolidating debt by putting your house up as collateral.
(425)252-5567
Email: maryschmitt@help4debtrelief.com
Copyright © 2002 Mary E. Schmitt