Bankruptcy Alternatives and
Pre-Bankruptcy Strategies
John McKindles
Written in August
2009 Updated
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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 bankruptcy alternatives that would be more beneficial
to them.
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:
-
Not understanding
alternative strategies that, depending on the specific facts, may be
available.
-
Growing so tired of
creditors, the economy and personal pressures that they simply settle for
what appears to be the easy way out.
-
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 dont 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. ● |
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