Are you ready to get out of debt? Are you confused by the various bankruptcy options and alternatives to bankruptcy? Bankruptcy can be an affordable debt relief option that allows you to get out of debt quickly while protecting your property and income. However, filing bankruptcy is a serious matter. Below are four alternatives to bankruptcy, including some of the reasons why you may still want to discuss a bankruptcy filing with a Georgia bankruptcy attorney before choosing a debt relief option.
- Consolidation Loan
Some individuals choose to consolidate their debts by applying for a new loan. Consolidation loans may be a good alternative to bankruptcy for some individuals, but they have several drawbacks. For example, most lenders require collateral to borrow a large sum of money.
Therefore, many people use their home as collateral for a consolidation loan. By borrowing money against the equity in their home, they are placing their home at risk of foreclosure if they cannot pay the mortgage payments. A consolidation loan using the equity in a home transfers unsecured debts into a secured debt, which a lender can more easily enforce in the case of a default.
- Debt Negotiation or Debt Settlement
In some cases, an individual may be able to get out of debt by negotiating with creditors to settle debt for a lesser amount. For instance, the balance owed to a creditor is $10,000, but the creditor agrees to accept 70 percent of the amount owed to cancel the debt.
Two common problems with this alternative to bankruptcy are the need for a large sum of money to pay lump sum payments to creditors and the fact that the IRS treats written off debts as income. Another problem that might arise is that some creditors may not be willing to negotiate. Therefore, you could still face a bankruptcy situation after paying thousands of dollars to get rid of debt.
Talk with our bankruptcy lawyer to learn more about the very narrow exceptions when settling a debt may be the best way to go.
- Debt Consolidation Companies
Debt consolidation companies promise to lower debt payments by negotiating with creditors. The company may negotiate a lower payment by increasing the term to repay the debt or convincing the creditor to accept a lesser amount to cancel the debt. The same problems may arise with this alternative to bankruptcy as we have discussed above. However, using a debt consolidation company may have other disadvantages.
Creditors are not required to participate in the debt consolidation and may opt to file a lawsuit even after receiving payments on the debt. The debt consolidation company may charge large fees for their services, and many individuals pay much more than they owe on the debts because interest continues to accrue on the balances due on the accounts. Also, keep in mind that these companies pretty much work for the credit card companies and what they offer is very limited. For example, they cannot help you with car loans, tax debt, or stop lawsuits or garnishments. Talk with an attorney first before making any decision on your own.
- Using Retirement Funds to Pay Off Debt
Using retirement funds to pay off debts is another alternative to bankruptcy used by many individuals. While this may sound like a good idea, it is important to understand that most retirement funds are exempt in a bankruptcy proceeding. You can keep your retirement funds while getting rid of your debts through bankruptcy. If you spend your retirement funds to pay off debt, you may not have enough money to pay living expenses during retirement, which could result in a bankruptcy filing in the future.
Contact a Georgia Bankruptcy Attorney for Help
A Georgia bankruptcy lawyer can review your financial situation and provide additional information on bankruptcy and non-bankruptcy options for debt relief. Before deciding on a specific debt relief option, make sure you get all the facts from an attorney who has experience in bankruptcy matters. Schedule a consult with an experienced Georgia bankruptcy attorney to find out what your options are for debt relief.
Posted in: Bankruptcy