Alternatives to Chapter 7 Bankruptcy
From the Nolo.com Debt & Bankruptcy CenterLearn what you can do instead of filing for Chapter 7.
In some situations, filing for Chapter 7 bankruptcy is the only sensible remedy for debt problems. In many others, however, another course of action makes better sense. This section outlines your main alternatives.
Do Nothing
Surprisingly, the best approach for some people deeply in debt is to take no action at all. If you're living simply, with little income and property, and look forward to a similar life in the future, you may be what's known as "judgment proof." This means that anyone who sues you and obtains a court judgment won't be able to collect simply because you don't have anything they can legally take. (As a famous song of the 1970s said, "freedom's just another word for nothing left to lose.") Remember, except in unusual situations (being a tax protester or willfully failing to pay child support) you can't be thrown in jail for not paying your debts. Nor can a creditor take away such essentials as basic clothing, ordinary household furnishings, personal effects, food, Social Security, unemployment or public assistance.So, if you don't anticipate having a steady income or property a creditor could grab, bankruptcy is probably not necessary. Your creditors probably won't sue you, because it's unlikely they could collect the judgment. Instead, they'll simply write off your debt and treat it as a deductible business loss for income tax purposes. In several years, it will become legally uncollectible under state law (called the statute of limitations). And in seven years, it will come off your credit record.
Stop Harassment from Creditors
If your main concern is that creditors are harassing you, bankruptcy is not necessarily the best way to stop the abuse. You can hang on to your bankruptcy option but still get creditors off your back by taking advantage of federal and state debt collection laws that protect you from abusive and harassing debt collector conduct.
Negotiate With Your Creditors
If you have some income, or you have assets you're willing to sell, you may be a lot better off negotiating with your creditors than filing for bankruptcy. Negotiation may simply buy you some time to get back on your feet, or you and your creditors may agree on a complete settlement of your debts for less than you owe.Get Outside Help to Design a Repayment Plan
Many people can't do a good job negotiating with their creditors. Inside, they feel that their creditors are right to insist on full payment. Or, their creditors are so hard-nosed or just plain irrational that the process is too unpleasant to stomach. In any case, the ability to negotiate is an art, and involves a number of skills.If you don't want to negotiate with your creditors, you can turn to a lawyer, a non-lawyer bankruptcy typing service or a nonprofit credit counselor, such as Consumer Credit Counseling Service (http://www.nfcc.org) or Myvesta.org (formerly Debt Counselors of America) (http://www.myvesta.org).
Pay Over Time With Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, instead of having your nonexempt assets sold to pay creditors (which is what happens in Chapter 7 bankruptcy), you keep your property and use your income to pay all or a portion of the debts over three to five years. Although Chapter 7 is usually best for most people, if you have a steady income and think you can squeeze out a set amount each month to make payments, Chapter 13 may be a good option. In some situations, Chapter 13 is much preferred to Chapter 7.
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