Alternatives to Chapter 13 Bankruptcy

Information Provided by a Maryland and Washington DC Bankruptcy Attorney

Although Chapter 13 bankruptcy has less severe consequences than Chapter 7 bankruptcy,it still has a negative impact on your credit rating and may negatively influence your ability to receive loans in the future. However, keep in mind, you should not wait too long to file bankruptcy, because it can hurt in the long run. If you wait too long you may have your wages garnished and you may drain all of your exemptible assets, such as savings, 401 Ks and other pensions. In addition, if you wait too long, you may face the possibility of losing your home and/or vehicle. If you waited too long, and as a result have a foreclosure or repossession on your credit report, this, combined with a bankruptcy, will make your credit score lower. Therefore, it is important that you contact a Washington DC and Maryland Chapter 13attorney who can help you explore all alternatives to bankruptcy and decideon the option that best fits your current needs.

Debt Reduction

One relatively simple alternative to Chapter 13 bankruptcy is to re-evaluate your current lifestyle and work to reduce your expenses so that you can afford to pay off your debts. You may be able to reduce your expenses or obtain money to repay your debts by:

• Selling a second vehicle
• Obtaining a loan from a relative
• Selling your home or other real property
• Cashing out on your 401K or other retirement benefits
• Selling personal property assets that may be of value

Debt Consolidation Plans

Debt consolidation consists of borrowing money at a lower rate to repay other debts that bear higher interest rates. Taking out a debt consolidation loan to pay off your current debts sometimes makes sense when you have:

• High interest rate debts, such as credit card debt
• The ability to borrow at a lower rate
• A steady job with good income streams to demonstrate that you are capable of repaying the loan
• Outside security, such as a car or a home

While such plans are often a good option, if the financial turmoil that you are facing is temporary and you know that you will be able to repay the loans in a timely fashion, you should be wary of any scams or deceitful practices by debt consolidation companies. When dealing with debt consolidation companies, be wary of the following warning signs:

• Promises that sound too good to be true
• Claims that you can “get out of debt fast”
• Up-front fees and charges for initial consultations
• Extraordinarily high fees or monthly service charges

Additionally, when you are choosing a debt consolidation company, check with state consumer agencies and the Better Business Bureau to ensure that no serious complaints have been raised against the company. You should also choose an agency that offers counseling services to assist you in remaining financially stable once you have repaid your current debts. You should also have a Maryland and Washington DC bankruptcy attorney review any contracts with the credit organization prior to signing to ensure that it is an equitable agreement.

Workout Agreements with Creditors

Similar to Chapter 7 bankruptcy, workouts are a viable alternative to Chapter 13 bankruptcy. Workouts are modifications of debt that are agreed upon by both the debtor and his or her creditors. Workout agreements include both compositions and extensions. Compositions are contracts entered into by at least two creditors where the creditors agree to accept partial payment of the debt owed in full satisfaction of the debtor’s claims. An extension, on the other hand, is a contract, also between a debtor and two or more creditors, in which the creditors agree to extend the time for repayment. Some agreements are both compositions and extensions, where creditors agree to accept less money over an extended period of repayment.

Workout agreements are generally governed by contract law, rather than the debtor-creditor rules that govern general creditors’ rights claims. While there is no requirement that all creditors enter into a composition or extension, most creditors must voluntarily enter into the agreement for it to work effectively. This is because creditors who do not agree to the composition or extension retain their rights under state and federal law to collect any debts owed, including filing for involuntary Chapter 7 bankruptcy against the debtor. The majority of creditors enter into such agreements because they are more likely to recover the debt owed and can avoid the hassle of going through the bankruptcy process.

Assignment for the Benefit of a Creditor

While workouts, including compositions and extensions, are similar to the Chapter 13 bankruptcy reorganization process, assignments are similar to the Chapter 7 liquidation process. An assignment occurs when a debtor assigns all non-exempt property to an assignee that liquidates the assets and distributes the proceeds among the creditors. An assignment must be entered into by all creditors, including secured creditors of the debtor, to be enforceable. While general assignments are often used as an alternative to Chapter 7 bankruptcy, they are less commonly used by individuals considering Chapter 13 bankruptcy. This is because most individuals facing the possibility of Chapter 13 bankruptcy wish to retain their assets and avoid liquidation.

Conclusion

If you are considering filing for Chapter 13 bankruptcy, a Washington DC and Maryland Chapter 13 attorney should assist you in viewing all alternatives and making an ultimate decision on which course of action to take. Contact Maryland and Washington DC bankruptcy attorney Kevin D. Judd today to answer any questions you mayhave and to assist you throughout the bankruptcy process.

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