Bankruptcy Alternatives and Pre-Bankruptcy Strategies

By John McKindles

August 2009 - Conventional wisdom to the contrary, not everyone who cannot pay their debts or who is otherwise pressured by creditors should file bankruptcy. The fact is that, for many people in that situation, they can pursue alternatives to bankruptcy that would be more beneficial to them.

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Most alternatives to personal bankruptcy involve negotiating debt restructuring, loan workouts or other type of settlement outside of a court proceeding. Depending on your circumstances, your assets, your income and expenses, the nature of the debt, and the type of creditor, a negotiated settlement may be a good option, provided you have sound legal guidance and representation.

While restructuring your debt may sound appealing (and in some cases is a sound strategy), consider at least two important points:

• Beware of utilizing debt relief agencies, as the results they deliver often fail to justify the fee they charge, and by the time you ultimately file bankruptcy you are worse off than you would have been if you had filed in the first place.

• While a negotiated settlement may ease the immediate pressure on you, it may actually strengthen the creditor's position, such as if the loan workout agreement forces you to reaffirm the debt, which deprives you of the opportunity to contest it later.

What prompts many financially distressed people to prematurely pursue bankruptcy often boils down to:

1. Not understanding alternative strategies that, depending on the specific facts, may be available.

2. Growing so tired of creditors, the economy and personal pressures that they simply settle for what appears to be the easy way out.

3. Not understanding (or not being advised of) potential pitfalls of filing bankruptcy relative to their specific circumstances. For example, not all debts are dischargeable in bankruptcy (e.g., federal taxes, child support, alimony, criminal restitution), or you may wind up paying more to a bankruptcy trustee for the value of a small business, whether a sole proprietorship, corporation or LLC than would otherwise be available to a creditor without filing bankruptcy.

Most bankruptcy attorneys will advise you of possible ways, through pre-bankruptcy planning, to protect some of your assets. Be cautious, however, of high-volume bankruptcy firms and "bankruptcy mills" where you don’t see an attorney until well after you pay your money. In many such cases you may receive no helpful assistance in determining the best course of action, including whether bankruptcy will deliver the relief you seek.

Although the McKindles Law Firm has filed numerous bankruptcies for clients, we no longer offer that legal service. However, we do advise financially distressed couples and individuals as to their options and possible strategies. If together we determine that bankruptcy would be the most beneficial course of action, we can refer you to one or more bankruptcy attorneys who have demonstrated a high level of skill and judgment in that area.

We charge a $200 fee for a consultation in which we explore your bankruptcy alternatives and pre-bankruptcy planning options. We do not charge any additional fee for referring you to a bankruptcy attorney, nor do we have a fee-sharing arrangement or referral fee relationship with any attorneys.

If you are considering bankruptcy and would like to explore your alternatives before moving forward, we invite you to contact us to schedule an appointment.