Why Bankruptcy May Not Be Your Best Option When You’re Sued for a Debt

a person doing some calculations of debts

Are you struggling financially and can’t make payments on all your debts? Are your creditors taking you to court to collect the money you owe? If so, you might be considering filing for bankruptcy as a means of stopping the collections and court processes and wiping out some or all of your debt.

Before you file, it is a good idea to consider whether bankruptcy is the right solution for your situation. While bankruptcy can provide relief from debt, it also has significant, long-lasting consequences that can lengthen your path to financial stability. In some instances, you may have other alternatives for resolving an unsustainable debt situation.

Do you have questions about your options for dealing with creditors and debt collectors? Do you want to get on a sustainable path toward a debt-free life? Contact the attorneys at Loan Lawyers today for a free case review to learn more about how our debt defense, foreclosure defense, and bankruptcy law firm can help you.

You Can Afford to Pay Your Debts

You could resolve debts that you are having difficulty paying without resorting to bankruptcy. Some people have the financial ability to pay their debts, but they need to organize them better and seek better terms.

It might be possible to negotiate lower interest rates, extended payment periods, principal reduction, or other measures to make the debt payments more manageable.

Filing Bankruptcy Will Hurt Your Credit Score

When you file for bankruptcy, your credit score will take an immediate hit. Although your score may start to slowly recover once your debts are discharged, a bankruptcy will remain on your credit report for seven to 10 years, depending on what type of bankruptcy you file for.

While you have a bankruptcy on your credit report, you may find it difficult to get a credit card, a car loan, a mortgage, or to lease a residence, since lenders might look at a bankruptcy as a sign of your inability to responsibly manage your finances and debts.

You Can Lose Assets in Bankruptcy

The bankruptcy process could also require you to give up a substantial portion of your assets. If you file for Chapter 7 bankruptcy, also known as liquidation bankruptcy, you will usually be required to sell off all assets that you own, except for those that fall within a few limited exemptions. The proceeds of the assets sold will be used to pay your creditors.

In Chapter 13 bankruptcy, you normally keep your assets, since in Chapter 13 bankruptcy, you will make payments towards your debts over the course of a court-approved repayment plan. However, even in Chapter 13 you may still have to give up certain assets, like a car, boat, or home that is still subject to a loan, if you cannot pay off the loan during the Chapter 13 repayment plan or if you cannot work out a restructured loan agreement with the lender.

Consider Other Options and Alternatives to Bankruptcy

If you have trouble paying your bills or are being dragged into court by creditors or debt collectors, you may have alternatives to bankruptcy to resolve your debt issues and to start yourself on a more financially sustainable path:

  • Creating a budget – Depending on the amount of your debts and your income, you might be capable of working your way out of debt by creating a strict budget and sticking to it. Stopping all credit card use and only using cash to pay for expenses can help avoid the temptation of accumulating additional debt. Review your expenses to see what costs you can live without. Consider paying off your debts by making the minimum monthly payments on all accounts except for the one with the smallest balance – make as high a payment as you can safely sustain on that account. Once it is paid off, roll over that payment amount to the next smallest account, and so forth until all your accounts have been paid off.
  • Debt and financial counseling courses – If you are having trouble establishing a personal budget or wrapping your head around your outstanding debts and the best and most efficient way to pay them off, you can also consider taking a reputable debt counseling course, where experts can help you bring your expenses under control and draft a plan for paying your way out of debt.
  • Debt consolidation loans – Having balances on multiple debt accounts, especially credit card accounts, can become very expensive and difficult to keep track of. You might consider a debt consolidation loan, which lumps all your debts into one payment, often at a lower interest rate than found on many credit cards.
  • Loan modification agreements – Certain types of loans (home mortgages, in particular) may be eligible for a loan modification agreement, which can help lower your payments by refinancing to obtain a lower interest rate or by extending the term of the loan to spread out payments.
  • Debt settlements – You might consider approaching lenders to negotiate a debt settlement agreement. In a debt settlement agreement, you and the lender agree that you will pay a sum less than the total amount due on the debt (usually in one or a few lump-sum payments). Lenders are often willing to consider debt settlements when you are considering bankruptcy as a means of resolving your debt, since creditors often receive far less or sometimes nothing at all on a debt in bankruptcy.

Talk to an Experienced Attorney at Loan Lawyers

If you are having trouble solving your debt issues, you may have options other than filing for bankruptcy to get you back to financial stability. Contact the foreclosure defense, debt defense, and bankruptcy law firm of Loan Lawyers today for a free consultation. We’ll be ready to discuss your situation and your rights and options for resolving your debt situation.