Alternatives to Bankruptcy by Melissa Gordon

There is no doubt whatsoever that, however the idea may be sold to some people, going bankrupt is something that terrifies most of us. It is the stigma, as much as anything, that really worries individuals. Indeed, in some jurisdictions it is still common practice for the names of people declared bankrupt to be included in daily newspapers. That is not going to turn people away from the idea that bankruptcy is something to be avoided. Indeed, there are ways that you can hold off a bankruptcy, although there has to be some debate over whether they are all preferable alternatives. In some cases, they may even be considered worse. Still, nobody wants to be known as being bankrupt.

It is not uncommon to take absolutely no action in the face of debt collector activity. The idea of bankruptcy is to avoid a judgement being obtained against the debtor demanding that they repay a debt in full. This judgement entitles a creditor to garnish the debtor’s wages. However, if the debtor is unemployed or retired, and has no property that can be seized, they become judgement proof. Creditors do not bother to take action, because there is nothing to collect. This is only a good option if you are in the above situation, however. Otherwise you may find that you are suddenly pursued in a more proactive manner.

Debt management is another option. This can take on different forms – an individual can take the proactive approach of going through their income and expenditure and recognizing where they can cut expenses and increase income, freeing up more money to service their debt and get out of the mire more quickly. Alternatively it is possible to negotiate with your creditors to reduce the monthly payments on your credit accounts for a temporary period. If the interest is frozen on your account, then every cent you pay comes off the balance. This can be achieved either through your own negotiation or via a debt management company. Either way, it can improve your credit worthiness, and demonstrates to your creditors that you are willing to make an effort to pay. It can also tide you over by buying valuable time while you get a more permanent solution in place.

Other potential approaches include debt consolidation. This is a form of refinancing which begins with taking out a one-off loan to pay off all of your credit card and loan debt, reducing your outgoing commitments to one monthly payment – often with a lower interest rate, meaning that your payments make a bigger difference against the principal of the loan. Some of these loans are only offered on a collateral basis – something which is not advisable if you are asked to use as security anything that you rely on such as your house or car.

Following the Canadian model of a Consumer Proposal, an individual may approach their creditors with a formal offer for repayment. Stopping short of paying off the full amount, this proposal meets a certain, high percentage of the debt, giving the creditor more money than would come with a bankruptcy. Remember, these are potential alternatives, and not all are ideal for everyone.

Disclaimer: This article is for informational and entertainment purposes only, and should not be construed as legal advice on any subject matter.

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