Bankruptcy Alternatives - Other Ways to Survive Overwhelming Debt

Bankruptcy is a lot like divorce - sometimes it's necessary, but it should be avoided whenever possible. Just as couples should try to work things out, with outside help if need be, debtors considering bankruptcy should also look for alternative solutions. Bankruptcy has never been the "easy way out" that some people thought it was (only to find out the hard way), but especially in light of the new bankruptcy laws, some alternatives to bankruptcy are actually much less difficult than bankruptcy itself.

Be Proactive - Do Nothing!

Sometimes the best action is no action. This would seem to fly in the face of most advice, which suggests that you "take charge of your situation," but in reality, confronting creditors with a form of proactive inaction can be the best way to take charge. Why is so-called "proactive inaction" the best course for some people? Well for one, creditors must sue you in a court of law in order to collect. This means that they will have to invest thousands of dollars in attorney fees in order to even have a chance of getting a dime out of you. If you owe less than what the court costs are likely to be, what are the odds that your creditor will sue you? While it's not entirely impossible that a vengeful creditor will sue you out of "principal" or "to make a point," these type of businesses don't stay in operation long, because "smart money" knows that "you don't throw good money after bad," as the saying goes.

You Can't Squeeze Blood from a Stone

There's also the question of whether you could pay even if you wanted to. If not, then why should your creditor waste his time or money trying to "squeeze blood from a stone?" Assuming he is a good businessman, he won't. Let's say you owe three creditors $500; $1,500; and $4,500, respectively. The creditor to whom you owe $500 is highly unlikely to take you to court since doing so would cost her more than $500. Even if she succeeded in getting a judgment against you, then she would have to work even harder (and spend even more money) trying to get it enforced. After all, much of your property is out of a judgment-holder's reach: Clothing, household furnishings, food, Social Security payments, unemployment benefits, public assistance, and 75% of your wages are all exempt. Even the $1,500 and $4,500 creditors are unlikely to find it worth their time to pursue a court case against you, so it may be best to do nothing at all. As far as annoying phone calls and threatening letters go, debt collection agencies (although not necessarily the creditors themselves) must stop attempting to collect a debt once you tell them, in writing, that you do not intend to pay it. It is also a good idea to deny knowledge of the debt whenever you correspond with your creditor, since any acknowledgement restarts the "statute of limitations" that will eventually wipe your debt clean, by law.

Negotiating Your Debt Away

With these things in mind, creditors are often anxious to settle debts out of court. Although you can undertake this process on your own, having an attorney on your side lets your creditors know that you mean business. Meet with a bankruptcy attorney and let her know that you want to negotiate with your creditors in order to avoid bankruptcy - a competent lawyer will recognize when bankruptcy is not the right option for you. Then have her draft a letter stating your inability to pay the debts in full and your desire to pay them to the best of your ability. The lawyer will normally throw in that you've come to see her about possibly filing bankruptcy, so your creditors will be anxious to settle in order to avoid getting nothing at all. Debt negotiation can be done informally, as described above, or as part of a debt settlement plan. There is much more information about credit counseling and debt settlement available here at Debt Relief USA. Browse around and evaluate all of your options before making the very serious decision to file bankruptcy. You owe it to yourself and your financial future.

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