Alternatives to Bankruptcy

Parker Lawyers is a federally designated debt relief agency pursuant to Title 11 of the US Code. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the information of a lawyer/client relationship Parker Lawyers is a federally designated debt relief agency pursuant to Title 11 of the US Code. OUR FIRM PROVIDES LEGAL ASSISTANCE AND HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE.

This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

It is sound decision making to explore  other alternatives before making the decision to file for bankruptcy. Non bankruptcy alternatives include several different approaches which are typically called a restructuring of debt, a workout or an out-of-court debt settlement.

Not every individual that has a creditor problem requires bankruptcy for a solution. There are situations, and in a few appropriate cases if the individual or business has a limited number of creditors where rather than filing for bankruptcy under any of the available chapter proceedings that an individual could pay back its debts.  Theses strategies could include a payment deferral or the negotiation of terms that lengthen or put more payments at the end of the loan.

The firm has in the past conducted such negotiations by speaking to your creditors and discussing an individual resolution with them in order to negotiate different payment terms. Terms that are manageable and meet your budget and hopefully an arrangement that a creditor is willing to accept.  Creditors are often realistic, they are normally good business people and recognize the advantages of settlement plans that could allow for a creditor to receive a guaranteed amount of money sooner instead of creating the pressure of a bankruptcy filing and having to wait years and potentially obtaining from the liquidating trustee a distribution that is less. The size of the discount varies, but the discount of 25 to 40 percent, as an example, could be negotiated with current creditors and a payment plan established. The discount is often a factor of what the assets are of the debtor and convincing the creditor of the advantages of such a proposal. Creditors will also seek assurance that the debtor will as part of the discussions  avoid filing for bankruptcy while paying them back. If the debtor has unprotected assets or the business is starting to show profit but just needs more time, the workout can give the debtor the additional flexibility in time and in the budgeting to continue in business.  Often the presence of an experienced attorney gives the debtor badly-needed credibility and clout in the workout negotiations. More specific comments on the possibilities include:

Debt consolidation

Most people have multiple payments that they must make every month.  High interest credit card bills, car loans, house mortgage, doctor/hospital bills, etc. can add up to some very serious payments every month.
If you have equity in some real estate, especially your home, you can often get rid of these debts by taking on a first or second mortgage and use that money to pay off your other debts.  In most cases, you should be able to significantly reduce your monthly payments and perhaps stave off bankruptcy proceedings.

Be sure to run the numbers first.  There isn’t any point in consolidating debts if it isn’t going to make a significant difference in your ability to pay.  Consolidating unsecured debt under a home mortgage will make the entire debt secured and bankruptcy wouldn’t do you a bit of good.

Debt deferment

Debt deferment means to make arrangements to pay certain bills at a later time.  Rather than lose a good customer as well as the debt owed, some merchants may be willing to let your debt sit and collect interest while you pay your other bills.  Few secured loan holders will go along with this because they generally have nothing to gain.  However, other merchants may be more willing to do so.

Renegotiation of unsecured loans

Unsecured loans are far more at risk and there may be more wiggle room here.  Some merchants are willing to reduce or even eliminate any interest or carrying charges in order to let you pay off your entire debt load.  If they think their other option is to lose it all through bankruptcy, you can get some real deals here.

In any such situation, you should however, expect that your credit will be immediately terminated.  Merchants that aren’t being paid now are seldom willing to extend even more credit.

Interest debt reduction

When people get into a credit mess, it’s often due to extensive interest that has accrued on the original balances.  This interest is however, often carried separately by creditors and there may be room to negotiate part or all of this credit away.

Creditors may not be willing to negotiate the principal balance but are generally more amenable to working with you on the accrued interest because it isn’t reflected in the books the same way.

Professional debt negotiation

If you’ve never been through it before, you may be uncertain as to whether you can handle the emotional aspects of dealing with these creditors or fear that they will use the opportunity to harass or intimidate you.
Debt negotiation first requires the development of a plan and then taking your case to the creditors. The discussions remain purely about resolving the business relationship, leaving both parties more amenable to working out a solution.

This office has in the past in many situations advised management to close down the business without bankrupting it and the owners will likely be advised to cease operating.   There are many situations where such an approach makes more sense.  Such situations could include where bank loans, tax liens, equipment leases, are such that the amount of these secured loans and or leases fully encumber all the business assets. The attorney becomes very familiar with your case.  This can come in handy if other actions must be taken and therefore reduce some redundancies.  If there are no viable assets available then there is nothing for a Chapter 7 trustee to liquidate.  To continue  to operate the business which might  increase the likelihood of a missed payroll, nonpayment of payroll or sales taxes, or improper utilization of customer deposits only leads to major problems later on and often even if the debtors continues on with good intentions could create situations of debts that might not be dischargeable. Lenders, lessors and trade creditors seek to hold them personally liable for the business debts. Doing much of the above sounds like it can be a great deal of work.  It is. The organization and detail needs during a work out plan are substantial and the experienced attorney is able to manage the settlements and discussions with creditors while keeping the client informed on the progress and  obtaining  consent to settlement terms. The experienced attorney can communicate the fact of the closing of the business, assert the noncollectability of unsecured debts, and invite negotiation for settlement of claims against the officers, directors, and shareholders where often such individuals have issued personal guarantees to the creditor. The attorney usually has a wide variety of skills and can often do a better job of working with some creditors.  When the attorney calls on your behalf, it is generally received as a strong indicator that the merchant should take such discussions seriously.
The attorney will also take a look at any contracts you may have.  Since most contracts include a lot of legalese, they are often hard to interpret and the attorney will review these contracts to make sure that you are taking full advantage of any provisions within the contract and make sure that the contract provisions are legal.  Illegal contract provisions can be repudiated.