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     A person facing economic hardship may have viable alternatives other than filing bankruptcy. It is not always the panacea touted by some. In fact, such filings historically were made only as a "last resort", when everything else failed. You do not want to file a petition unless you have to. By the same token, the "stigma" of bankruptcy of yore has been pretty much eliminated.

Knowledge of bankruptcy law and other alternatives

     Persons needing relief should not hesitate to invoke the protections of the various chapters (7, 11, 12 and 13). Oftentimes, this is the best option for themselves as well as society as a whole. It allows debtors to shed the burden of unpayable debt and return to becoming productive members of our community.


The Alternatives

     Listed below are eight alternatives to bankruptcy. They include the following:

1). Do Nothing - The debtor in distress can simply decide to take no definite action, and allow things to happen to him. He can allow his wages to be garnished, his automobile to be repossessed, his bank accounts to be levied upon, his house foreclosed upon, he and his family to be pestered by incessant debt collection phone calls, and otherwise allow himself to be hurled into the maelstrom of collection action by aggressive creditors. In effect he can simply allow nature to take its course, and his creditors to exercise all of their legal rights. This usually is not a great idea. It takes a thick skinned-individual to put up with such a steady barrage of phone calls, mail and direct confrontation with creditors. However, it has been done.

2). Absconding or "Going Underground" - The debtor may decide to simply avoid dealing with his debt issues, and move clandestinely to a new city or state, or even country, to try to start anew, free of his financial baggage, in the hope that his creditors will not pursue him. This may work, depending on the circumstances. This probably was quite common hundreds of years ago. Even the legendary woodsman Daniel Boone left his Virginia home for the wilds of Kentucky, just one step ahead of his creditors. In the modern era with advance technology, this tactic is decidedly less effective. The downside, of course, is that a debtor may be leaving behind his friends and family, and ultimately may end up just delaying the inevitable denouement.

3). Direct Negotiation with Creditors - The debtor may negotiate directly with his creditors and try to make manageable arrangements for payment of all or a portion of the debt. This may involve reduced payments, lower interest rates, or possibly discounts on the principal of the debt owed. The advantage to this is that the debtor does it himself, and does not have to pay anyone, like a lawyer or a debt adjuster or debt consolidation expert, to help him. It helps if the debtor is reasonably sophisticated in business and financial matters, and not afraid to negotiate with banks and other professional lenders and creditors. In effect, he can try to "punch his way out of the bag".

4). Employment of Debt Consolidation Agency - The debtor may elect to hire a professional debt consolidation agency or adjuster to deal with his creditors and attempt to make deals with them for reduction in debt or agreeable payback terms. Some of these agencies, including
National Foundation for Credit Counseling (NFCC) are experienced and quite reputable and perform a valuable service to the community. This cannot be said of numerous other debt consolidation agencies, and the debtor must be very careful in his selection of debt adjuster.

5). Increase Income - The debtor can seek to improve his income, by getting a better job or a part-time position to supplement his regular income. He can go back to school for a better education, which may help him land a higher-paying job. Usually, though, this will entail at least a temporary drop in income while he completes his studies. Also, more education does not always translate into a higher-paying position. We have all heard the reports of of a corporate CEO now manning the barista lines at the local Starbucks, working for just above minimum wage, and a hope and a prayer of getting a handsome tip from a satisfied latte' drinker.

6). Incur Less New Debt - A debtor can "tighten his belt", and try to reduce his expenses by eliminating "luxury" items, and carefully watching his expenditures. There are myriad resources, including web sites, books and pamphlets, about consumer budgeting. This may assist the debtor in having a better cash-flow, and avoid the need to file bankruptcy. Compulsive shoppers, gamblers, recreational drug users and others with out-of-control spending issues, can seek assistance from qualified health-care professionals and 12-step recovery programs.

7). Sale of Assets - A debtor can try to avoid bankruptcy by selling extra or unneeded assets to raise cash. This is also called "asset liquidation". This can be done through craigslist, eBay or other online sale and auction sites, or at garage rummage sales and local flea markets. This may help the debtor pay down or pay off some of his debts, and make the payments on the remaining debt more manageable. If the debtor sells stocks or other securities, he should first check with his tax professional so that he is aware of any possible tax consequences of such a sale, including capital gains tax. Often, debtors will cash out IRAs and other retirement plans in order to pay their debts. This should be done only after careful analysis and knowledge of the tax and other consequences of early withdrawal.

8). Borrowing of Money - Sometimes, a debtor can seek to borrow money from family or friends, at either no or low interest, and pay off or pay down high-interest obligations like credit cards. This may provide a non-bankruptcy option. The debtor should make sure that he is able to repay the loan, and that it is not just a short-term "fix" that moves him out of the frying pan and into the fire. Money issues involving relatives, family and friends can be a thorny matter. They are often the root of many spousal and domestic squabbles, the end of many of long friendship. Careful consideration should be given to these concerns prior to entering into such transactions.


Make Prudent Financial Decisions

     Prudent financial decisions are best made when the debtor has a full grasp of the "big picture", including all of the relevant economic and legal matters involved. Filing bankruptcy may end up being the best option. However, before doing so, the debtor should carefully evaluate his non-bankruptcy alternatives and options. It may be that one of them is a better fit for their own personal situation.

Written by Henry Rendler

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