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Bankruptcy Alternatives

Agency Option Debt Management Plans to Consider

Agency Option Debt Management Plans to Consider

Especially after the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005
(BAPCPA), as part of ones
process infiling for personal bankruptcy, consultation with a credit counselor
is required. However, meeting with a credit counselor does not make bankruptcy
a foregone conclusion. Ideally, debtors will be informed of all of their
potential options with the proper weight and risks considered for each.

 

One such service that an agency may propose to a client, depending
on his or her circumstances, is a debt management plan. Debt management
plans may not be a wholly familiar possibility for prospective bankruptcy
petitioners, but they are recognized by credit counseling agencies around the
United States. Prior to assent to a debt management plan, parties should make
sure they do their homework. The following are some considerations for engaging
in debt management plans:



Despite the rather generic terminology,
a debt management plan is a specific debt adjustment strategy.
Within debt management plans, debtors work directly with their credit
counselors rather than continuing to have to field a battery of questions from
creditors day after day. Debtors will make monthly payments to the credit
counseling agency that go towards existing financial obligations such as
student loans and credit cards, effectively making the latter party an
intermediary in these affairs. Said monthly deposits will be commensurate with
figures predetermined in an agreement between debtors, creditors and
the
coordinating agency.

         

A debt management plan may be more
advantageous to the debtors than other repayment schemes in a number of ways.
First, debt management plans are not the same thing as
filing for bankruptcy. While the act of repaying lenders according to a debt
management plan and through a third party resembles the way trustees
manage
payments
in Chapter 13 bankruptcy,
it is much less forma l and does not carry the negative consequences  that come with filing for bankruptcy.
 In worst-case scenarios, however, a debt
management plan can be an inferior option to filing for bankruptcy
,
as b
ankruptcy is specifically governed by the Federal court system.

All You Need to Know About Debt Restructuring

All You Need to Know About Debt Restructuring

Sometimes, when a corporation is facing a large amount of debt, restructuring the entire operation is in order, whether this is manifested by closing branches of the company, merging departments, or selling the rights to the company outright. On other occasions, meanwhile, and for businesses and personal debtors alike, it is restructuring debt itself that is on the agenda. As tends to be the case with the various alternatives to bankruptcy, debt restructuring is similar to other options.
Of course, debt restructuring would not be worthy of mention were it not of worth to the individual debtor. The benefits to parties unable to make payments on their loans in restructuring debt is clear, for as with debt negotiation/settlement, the changes are numerically based and thereby tangible.
Nonetheless, while negotiation is a solution that would see debts eliminated by virtue of the creditor’s agreement to accept a reduced rate of compensation on their original loan, with debt restructuring, the overall principal of the loan is usually not diminished. Instead, certain parameters within the loan are changed, namely the rate of interest to be paid (which is made lower, in addition to the original sum borrowed), as well as the time over which the loan is expected to be paid (which is longer), making for less money owed per month. 
As settlements with creditors will work more immediately and will more drastically decrease a person’s debt, it may not be immediately understood why anyone would opt for restructuring debt over negotiating with creditors or filing for bankruptcy. After all, some applicants for this remedy may ultimately still not be able to handle the demands of creditors, despite the greater flexibility they are afforded.
That said, debt restructuring is certainly less expensive than bankruptcy proceedings. In addition, restructuring debt is less likely to do serious damage to one’s credit rating than settlements or bankruptcy would. Thus, people who make use of this method may lose in the short term, but win in the end depending on their circumstances.
Imaginably, there are variations on debt restructuring that take into account a mix of debt reduction strategies. Especially for companies with a lot of financial value and shares to be issued as assets, restructuring debt may be supplemented in part or to a large extent by what is known as a “debt-for-equity” swap, where lenders would come to be stakeholders in the business trying to stay afloat. 

Know the Benefits of Debt Consolidation

Know the Benefits of Debt Consolidation

One of the things that can make debt management such a chore and, potentially, backbreaking for the debtor is that lenders may be so many in number it is hard to keep track of them. Ideally, winning the lottery would take care of all of one’s obligations, and perhaps even income for as long as the debtor shall live. More realistically, though, a debtor will need to come up with a different solution.         
Debt consolidation almost uniformly involves the creation of a new loan that is more or less a composite of separate existing financial agreements. One of the possible benefits of consolidation is the idea that it allows its users to consolidate debt from a variety of different sources.
Rather than having, say, three individual loans which to take care of credit card charges, car loan installments, and student loan dues, debt consolidation can condense these fees into one organized obligation, and often for a reduced interest rate. One particular instrument that is commonly used to consolidate debt is what is known as a home equity loan, which is a loan secured against the equity of the house (market value of the home minus remaining mortgage payments).
Of course, some debtors are not homeowners, and therefore, there is no home equity for them to “tap into” in offsetting their debt. Nonetheless, some financial institutions may still afford individual debtors the opportunity to engage in debt consolidation. Within this scenario, a debtor would likely obtain a “personal loan” to consolidate debt.
Certainly, in terms of debt consolidation options, this is an inferior option to a home equity-based solution, as the interest rate is higher and there are more specific eligibility requirements for personal loans (including credit rating). That said, in equally relative terms, using a personal loan to consolidate debt may be much more preferable than outstanding balances on a number of credit card balances, as they themselves often come with steep interest rates attached.
As stated, debt consolidation can be dangerous, especially if one fails to do his or her research and is hooked by an agency’s promises that they will provide what is tantamount to a magic cure to their debt woes. While consolidating debt may reduce monthly payments and lower interest rates, it may also significantly extend the duration of the loan. As such, prior to signing up for a home equity loan or personal loan, debtors should first meet with a credit counselor.

Affirmative Defense Counterclaim

Affirmative Defense Counterclaim

Unfortunately, not all debtor-creditor
relationships run smoothly. Instead of payments being met on time and debtors’
expectations being met, creditors may find they were not compensated
according
to the terms of
the contract and clients may find that they
were treated unfairly. Consequently, this drama may play itself out in court,
usually at the behest of the lender. It should be noted that while this is a
civil matter, it is not necessarily a matter for the bankruptcy courts
.

         

First of all, as regards the use of
affirmative defense, this option is distinguished from other answers to
creditors’ claims in that defendants do not question the veracity of these
claims. In other words, debtors may willfully acknowledge that they failed to
meet the terms of the contract. Nonetheless, they may still prove that there
are mitigating circumstances to invalidate the charges of the plaintiff, or at
the very least, supersede them and warrant a dismissal of the case.

 

One notable basis for an affirmative
defense is the familiar concept of “statute of limitations.” If
a lender does not adhere to the conventions of administrative procedure and has
missed the deadline by which to legally file suit, the court may well throw the
case out. Similarly, relative oversights like properly serving the debtor with
the lawsuit may lose creditors their trials if not upheld. Then again,
affirmative defense
s might hold more value if the creditor
incorrectly lists monies owed in their court documents
.         

 

As for a counterclaim, this is an assumption
of wrongdoing on the part of the creditor that originally brought these matters
to the courthouse. Although an individual debtor may have outstanding debts and
may have defaulted on his or her loan, the way in which the lender went about
trying to collect was unacceptable in its own right. For instance, a
debtor’s counterclaim may allege that the creditor called repeatedly
at odd hours of the night, verbally harassed him or her, and even threatened/carried
out acts of violence against the borrower. The counterclaim, in its synopsis of
the debtor’s treatment then, may go as far as to seek remuneration for physical
and emotional damages as a result of these tactics.

         

Although it is great if an affirmative
defense or counterclaim works to the defendant’s advantage, both
parties may seek to avoid these strategies before they are explored in court.
On the creditor’s side of things, they may not be prepared to engage in a
protracted legal battle with individual debtors and may try to negotiate with
them accordingly. From the perspective of debtors, meanwhile, they may not want
to risk losing everything through a court ruling despite the idea they might
win in the end. In all, both sides may simply want to avoid the risk of losing
the case and their investment(s).

Beware of Do Nothing Bankruptcy

Beware of Do Nothing Bankruptcy

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. 

All You Need to Know About Wage Garnishment

All You Need to Know About Wage GarnishmentOf course, not all solutions to debt minus bankruptcy are completely voluntary; for that matter, not even bankruptcy is uniformly a voluntarily vehicle of the federal courts. Though not every debtor has an employer or other consistent source of income, for those that do, their earnings may well come into play in helping to balance out what money they owe to their lender(s). Court-imposed orders to subtract a specified amount or percentage from an individual’s paychecks is best known as wage garnishment.

Often, wage garnishments, as they relate to the subject of bankruptcy, are mentioned with respect to being nullified by a formal declaration of bankruptcy. Just the same, for those who wish to avoid the stigma and severe credit consequences of bankruptcy, wage garnishment may be sufficient to meet a creditor’s needs. Some notes about the use of wage garnishments and the laws surrounding it: As an instrument of the courts, and by extension, creditors, wage garnishment may be authorized for a variety of collection purposes.

For instance, American citizens who have not met their tax obligations, have received notice of their delinquency, and have still refused to pay the outstanding tally may find their disposable income (i.e. take-home pay after taxes and charitable deductions) subtracted from at the behest of the Internal Revenue Service. As far as the scope of wage garnishments goes, employers can be served notice of these monies to be deducted for any source of debt, whether it is an unpaid student loan, child support/alimony or any other lingering financial obligation.

Moreover, the employer does not reserve the right to refuse a wage garnishment order handed down by the courts. Wage garnishments of a debtor’s pay may continue until the remainder of the debt is accounted for. However, while there may not be limits to the overall length of a debtor’s “sentence,” there are restrictions as to how much money per paycheck can be subtracted from an employee’s wages.

According to Title III of the Consumer Credit Protection Act, under most circumstances, wage garnishment may not exceed 25 percent of a debtor’s disposable income or 30 times the national hourly minimum wage. Imaginably, there are exceptions. Wage garnishments may be over 50% or more of a paycheck in child support arrangements, and there are no set restrictions on this course of action in bankruptcy court proceedings involving state and federal taxes.

As was noted earlier, wage garnishment may not be a voluntary debt management solution; in fact, it likely will not be voluntary. Just the same, employees may consensually make agreements with their employers to take a portion out of their paychecks each week to offset the demands of creditors. Within such an agreement lies yet another exception to the “25 percent rule.” 

Quick Guide to Sale of Assets

Quick Guide to Sale of Assets

While a sale of business assets might
imply that a company is filing for Chapter 7 bankruptcy
, it could also be a self-help strategy to avoid resorting to
bankruptcy.
 First
of all, as regards the sale of business assets away from bankruptcy, the
underlying laws surrounding such a maneuver are rather complex, especially in
terms of the policies of the Internal Revenue Service (IRS) enacted to address
these matters. Depending on the circumstances of the sale, the effectual nature
of the transaction will change accordingly.

 

When stakes in partnerships are sold, for
instance, they are treated as capital assets, those not normally involved in
everyday business affairs. Any sale of business assets and the
financial state of affairs of the debtor — i.e. the net gain or loss —
following non-bankruptcy liquidation may be divided amongst capital and
non-capital holdings.

         

As for a non-business sale of assets,
this is significantly more common than its corporate counterpart. While this
term may be confusing to some, getting paid money in exchange for the transfer
of personal property is the very definition of a sale of assets. Accordingly,
something as familiar to members of a suburban neighborhood as a garage sale
may qualify under this category. However, only a select few possessions will
likely be enough to generate the debtor-seller the funds he or she needs to
overcome his or her debt. It is because of this, therefore, that something like
a car or house may be taken in a straight sale instead.

         

While not a sale of assets as some may
traditionally know it, cashing out on investment funds may be another possible
way of trying to overcome debt amid feelings of desperation. That said, this is
a risky way for debtors to proceed. For one, borrowing from Social Security or
some other public benefit fund may leave Americans with little to make use of
once they hit retirement. In idiomatic terms, they may be robbing Peter to pay
Paul. Furthermore, there are often stiff penalties associated with early
withdrawal of deposits, notably for 401(k) plans. Thus, while bankruptcy could
hurt the solicitor for up to 10 years after the fact, an imprudent sale of
assets may result in substantial financial handicaps after one stops
working.

Make Sure You Consider Bankruptcy Alternatives

Make Sure You Consider Bankruptcy Alternatives

 

Though the U.S. Federal Government is quite active in its protection of debtors in bankruptcy proceedings and is understanding of their plight, this is not a tacit endorsement of average people following this route. This is to say that debtors should not want to declare bankruptcy, but should have no other choice. Contact bankruptcy lawyers for legal advice and assistance. Before reaching their proverbial eleventh hour, though, many debtors will already be looking toward alternatives to filing for bankruptcy, if for no other reason than to spare themselves the shame they would feel.

There are a number of alternatives to bankruptcy available to most debtors. Some are relatively simple and reflect good money management skills. Other times, the complexities of tax law and the entanglements of civil court may come into play. Irrespective of their circumstances, people with sizable debts should try to exhaust all other options before skipping ahead to bankruptcy. In terms of their financial health in the years to come, their choice of debt management strategy can make all the difference in the relative ease or difficulty of them taking care of themselves.   

Making a Budget

Some people might be eager to move forward with bankruptcy, thinking that their problems with debt are too difficult to manage otherwise. Realistically, however, they may be able to meet their quotas every month. They may just need a little financial reorganization in their everyday lives to achieve this goal.

The strategy of budgeting one's funds is indeed pretty basic, but some may have not considered it as an alternative to bankruptcy or have been too stubborn to try it. Either way, budgeting can make a dramatic impact on some debtors' situations.

One major area for any person making a strict budget to address is is large and extraneous purchases. Certainly, the acquisition of luxury items like new cars and jewelry should be avoided, as well as credit cards previously used in buying them. Depending on the severity of their circumstances, debtors may need to sell their existing possessions of this kind outright. Other expenses, while not exactly flights of fancy, can still be reduced because they are partially motivated by want rather than need.

Entertainment like movies and cable television, and meals ordered outside the home are pretty common elements of a budget that may not seem like they are that costly, but after a few months, these sums tend to add up against the debtor's favor. Even monies donated to charity and those given out to friends and family for special occasions need to be scaled back in times of crisis. It may seem a callous move by some, but until one gets his or her house in order short of breaking the law, such actions may be necessary.

Wage Garnishment

For debtors who are regular earners of income, they may make the willful decision to take out a portion of their take-home pay and contribute it to eliminating the balance on their debts. As is usually the case, though, it will be the actions of the creditor that force this option, formally known as "wage garnishment." Pending a court order to garnish a worker's wages, employers may neither disregard this mandate nor may they terminate the staff member who has to submit to having their disposable income cut down by these collections. 

The most important constraints, though, are the ones that materially affect both debtor and creditor. In instances of involuntary wage garnishment, which are within the legal bounds of lenders to explore after failed attempts to recoup on their investments, those who have their paychecks subtracted from are going to feel the pinch, especially if their delinquent financial obligations are related to State and Federal income tax or outstanding domestic support (i.e. child support and alimony).

Nonetheless, there are limits to how much per paycheck lenders can pursue. Title III of the Consumer Credit Protection Act specifies that, barring the above special conditions, a wage earner may only submit up to 25% of his or her take-home pay, or thirty times the hourly minimum wage, whichever comes first. 

Sale of Assets

An individual or business mired in debt does not necessarily have to formally declare bankruptcy to sell off assets. On the contrary, some may simply sell their assets independently, employing a do-it-yourself Chapter 7 situation.

Really, though, anyone can hope to sell their possessions and use the proceeds to pay off outstanding debt. This may start very simply by debtors holding garage sales to get some compensation for items they have around their house that are of limited value or practical use to them.

Nonetheless, if debt still lingers, debtors may have to get more drastic with forfeiture of their property, which they definitely should consider in full before going ahead with a permanent transaction.

In terms of assets that reflect people's everyday needs, homes and cars are among the items on which one is more apt to get a return, that is, if they can afford to live without either one or with a different, cheaper model. Cashing out on personal benefits like Social Security and retirement plans, meanwhile, may be a quick fix, but can hurt the debtor in terms of early termination fees and the inability to meet expenses when he or she can no longer work.

Negotiation/Settlement

In worst-case scenarios, creditors will call and contact debtors almost to the point of harassment before the former files suit or the latter files for bankruptcy. Under more agreeable circumstances, lenders and borrowers will be able to reach an agreement where monies owed are reduced and then paid in full with the idea that this will bring an end to the debtor-creditor relationship.

With debt negotiation or debt settlement (the names are different but the concept is equivalent), debtors and creditors reach a consensus on a lump sum to be given to the creditor. Not only is this sum a guaranteed amount for the creditor to get after minimum monthly payments (or none at all) that were previously due from the debtors were not paid, but it allows both parties to avoid bankruptcy court.

As far as debtors are concerned, there are definite do's and don'ts when negotiating with lenders. Of course, the overall reduction of debt is the most critical part of the process. However, along with reaching a settlement, debtors should try to sweeten the deal, so to speak. Though debt settlements may be attractive ways of making debt payments easier to fulfill, these agreements may also lead to a concurrent reduction in one's credit rating.

As such, debtors should likewise bargain—forcefully but respectfully—to see if they can get any negative reports on their financial record mitigated. On the other hand, debtors should be exceedingly wary about involving a third party in the negotiation other than a licensed attorney.

Debt Management Plans

Some debtors may be most familiar with credit counseling agencies because of the needs engineered by the BAPCPA. The big incentives here are a lowering of what is still due on the principal of the loan and avoidance of bankruptcy for financial reasons, emotional reasons, or both.

As with debtor-creditor settlements, though, solicitors of this strategy should go about it with care. Licensed counseling agencies serve as go-betweens for debtors, but all the same, with the abundance of services advertised online and offline, it may be difficult to separate the more reputable operations from the scams. Accordingly, debtors should keep contact information for the Department of Justice.

Debt Restructuring

There are other benefits for business and individual debtors. Overall, maintaining the balance of one's monies owed tends to be a better option for debtors maintaining a decent credit rating, for example. For companies in particular, a deduction of the interest rate or increase in the duration of the line of credit may be buoyed by the creditor's request to become a larger equity holder in the company that serves as the debtor in this case. Such an agreement is known as a debt-for-equity swap. 

Debt Consolidation

Certainly, there is no universal solution for debt management, and debt consolidation is far from one, as it is not recommended for many debtors. Still, for those parties who have trouble staying on top of their finances because of the myriad of loans they have active, or for those who have issues with the high interest of unsecured loans, debt consolidation may be a more-than-viable option.

A debt consolidation loan is a consolidation, or combination, of two or more existing loans. Usually, a consolidation loan will manifest itself in lower rates of interest. With debt consolidation, a cost-benefit analysis should definitely precede any concrete move forward.

As stated, consolidation options are not for everyone. For people with damaged credit ratings, questionable "work ethic" when it comes to management of debt, and/or pure impatience when it comes to extension of a loan, debt consolidation may not be advisable. Most of the time, though, a home equity loan or personal loan (for non-homeowners) may be within the means for applicants to secure, especially if there is a lot of equity in their home from which to draw. Plus, compared to other options like debt settlement, consolidation is likely to be more beneficial towards debtors' credit ratings. 

Affirmative Defense/Counterclaim

Though creditors and debtors alike would tend to be resistant to enlisting the services of the courts to settle their disputes, sometimes they may feel as if there are no other options available and a lawsuit will ensue, usually filed by the creditor. Often, debtors will not contest the claims made by lenders, acknowledging their full financial responsibility in these matters or simply believing they are unlikely to win. Just the same, debtors are not completely defenseless when it comes to these proceedings. Of course, they may revert to what essentially is an in-court debt settlement which, if nothing else, may decrease the total balance they owe.

Then again, debtors may also try to win the case or file a separate claim against the creditor through an argument ancillary to the original claim of principals lent/loans defaulted on. One such tactic defendants and their legal representatives may employ is an affirmative defense, which seeks a dismissal based on a more general violation on the part of filers of the suit, including failing to file within the statute of limitations and improper documentation of claims.

Another move debtors may pursue, especially when they feel collectors have acted unethically or illegally, is what it is known as a counterclaim. Potentially, the holder of the counterclaim may earn hundreds if not more in compensation for their suffering. 

Do Nothing

Applications for bankruptcy do not necessarily come with a full or even adequate understanding of how bankruptcy works. Some may believe bankruptcy is tantamount to having no usable assets in bankruptcy cases, but restructuring plans for individuals and businesses, for example, would suggest otherwise. Still, when current assets present little value to creditors and when future income seems insufficient, the best response to debtors might be not to respond, at least not in terms of filing under a specific chapter of the Bankruptcy Code. Of course, this is not going to be a realistic option for all debtors; only those whose unsuitability for a lawsuit yields them "judgment proof" status.

In all, a more passive approach to debt resolution is a definite risk-reward strategy considering the language of the law. On the plus side of things, aside from normal properties possessing little worth to lenders, exempt properties will generally be untouchable in bankruptcy cases. Furthermore, wage garnishment orders, barring obligations to tax collectors and estranged former spouses and biological children, are held to a 25% maximum as far as collection actions go. On the minus side, however, unlike with bankruptcy, this option neither cancels out debts nor guarantees creditors will stop calling, and imaginably, it may do serious damage to one's credit rating in the long run.