Even with filings for bankruptcy in the
United States at such a high level, the average person’s understanding of how
bankruptcy works is suspect. For one, some people might believe that declaring
bankruptcy automatically equates to having no money or other assets. However,
this is not necessarily the case.
Bankruptcy is more of a manifestation of an
individual debtor’s inability to meet their regularly-scheduled payments to
creditors, or in some instances, a willful disinclination to keep up with
lenders. Plus, as regards reorganization plans represented by Chapters 11
through 13 of the Bankruptcy Code, debt restructuring is often
the best option. Some notes about doing nothing as an alternative to
bankruptcy:
Before we begin, it should be stressed that
people should not openly disregard their debts as a means of evading
bankruptcy. After all, ideally the best solution one could list under the
category of “bankruptcy alternatives” is to be reasonable about one’s
ability to pay off credited funds before charging items to a credit card or
taking out additional loans, and whenever possible, to pay bills on time. That
said, unexpected changes to an individual’s financial situation giving way to
persistent low income may serve as somewhat of a mitigating factor. In general,
doing nothing as an alternative to bankruptcy is usually only feasible for
those people seen by creditors as “judgment proof,” meaning they have
very little in the way of viable properties for liquidation and distribution to
creditors.
Besides this, regardless of whether debtors
are actually filing for bankruptcy or entreating various bankruptcy
alternatives, there are some assets that may be more than just imprudent for
creditors to seek; it may be downright illegal to go after certain possessions.
As listed under the Bankruptcy Code, there
are a number of exceptions to what may be collected by creditors pursuant to their
interests, known commonly as “exempt property.” Moreover, while wage
garnishment is possible, there is a limit to the percentage of each paycheck
which may be taken out to satisfy a creditor’s claims.
As noted, though, compared to other
bankruptcy alternatives, doing nothing may be a tenuous proposition. Even if it
makes little sense for a creditor to go
through the rigors of bankruptcy court to try to collect on delinquent debtors,
they may still opt for a lawsuit and judgment instead. Also, the decision to
let debts to creditors remain is not likely to bode well for one’s credit
rating, so people who employ this alternative to bankruptcy should plan to
make living simply their raison d’être. In addition, in the event
the insolvent party does wish to repay their debts down the road, unseen rises
in interest rates and even the standard compounding of interest may dramatically
increase the total amount owed by the debtor in a short time.
