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How to Avert Bankruptcy

Filing for bankruptcy, with its consequences, is usually recommended as a last resort. Between the time that a debtor finds himself in difficulty servicing debt and the time of bankruptcy filing, there are steps that both creditors and debtors can take to avoid having to tread the bankruptcy path.

What are these alternatives? Read from our guide.

Bankruptcy as Option for Debtors, and Creditors

Bankruptcy is an option for people deeply in debt to either extinguish most of their debt or arrange a scheme to settle those debts over time. While it would sound an easy way out, experts, however, recommend a bankruptcy only after carefully coming up to a conclusion that it’s indeed the best recourse for an individual or a business. That is because a bankruptcy goes through an individual’s credit history. It could raise interest rates for loan and make obtaining credit difficult.

A creditor could also force a debtor to file for bankruptcy so that he could collect debt owed, although there’s no guarantee it could happen always. Payments of debts to creditors are made according to priority – the secured debts first, then the unsecured. The unsecured priority debts, such as most taxes and outstanding alimony and child support, take precedence over the general unsecured debts. Money being distributed comes from the debtor’s estate, and so, recovery will depend on whether there is enough available, especially under Chapter 7. The farther down the line of priority a creditor is, the lesser chance he has to recover what he was owed.

And so, apparently, both creditors and debtors could well use other remedies to avoid having to go to the process of bankruptcy to settle an account.

Ways a Creditor Could Collect Debt

For a creditor, to collect a debt, he could directly demand payment from the debtor. If he is unable to, he could go to debt collection agencies to facilitate the debt payment. Information from the Federal Trade Commission regarding Fair Debt Collection is available at www.ftc.gov. If the debt is secured, for example by a car, the creditor could pull the collateral to recoup payment for the debt. If this is ineffective, he could initiate court proceedings or file a case. A creditor must prove its case to obtain an enforceable judgment. He could also get a judgment if the debtor does not contest the claim. If there are other creditors involved, the payment, as said, will be based on the order of priority. If all these ways are futile, then a creditor might consider forcing the debtor to bankruptcy.

Ways a Debtor Could Manage Debt

A debtor might as well consider other remedies such as selling some assets to pay debts or tapping equity from major properties like his home to pay credit that accrues high monthly interest rates. As a precaution, he should be sure that he would be able to fulfill the obligations of the loan or risk losing the collateral in case of a default. Alternatively, he could also ask the help of legitimate national consumer debt services to help him manage debt payments. Get debt consolidation help from www.consumerdebtservices.com Or better yet, he could negotiate with creditors on a payment scheme that might free him some late charges, give him extended time to pay a debt, or reduce the minimum periodic payments he should make on the debt.

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