Alternatives to Bankruptcy

Generally speaking, the alternative to bankruptcy is some form of negotiation and settlement with one or more of your creditors, or making payments through a non-profit credit counseling service. 

Nearly all large companies have limited or no resources for dealing with individual borrowers.  Thousands of people have come to us and told us of how they have called and written to their creditors to attempt to work out a method of paying their debts due to legitimate set-backs in their lives such as medical problems.  Almost all of these people are surprised to find that no matter how good their reason for wanting to work out their debts, and no matter how hard they try to pay their creditors what they can afford, the creditors simply will not “work” with them.  This is because the creditors are vast bureaucracies that have no method and no personnel to deal with people on an individual basis.

The point is, that the majority of the time firms that claim they can get you out of foreclosure or otherwise help you to avoid bankruptcy simply cannot and do not deliver on these promises and eventually end up referring you to a bankruptcy attorney.  There are some exceptions, however.

Deeds in Lieu of Foreclosure

If you have one mortgage on a home or other piece of real estate and you cannot sell the property and simply wish to relieve yourself of the mortgage obligation, it is possible that you can negotiate what is called a “deed in lieu of foreclosure.”  This saves the mortgage company the cost of foreclosing against you.   You can try to negotiate this on your own, or you can hire an attorney to do it for you.   Generally, the mortgage company will not accept a “deed in lieu” unless there is some equity in the property or the property is at least worth the amount that is owed.  The mortgage holder cannot accept a deed in lieu if there is any debt on the property owed to another mortgage lender. 

Reamortization of Past-Due Mortgage Balance

If there is a good reason why you fell behind in payments (such as temporary job loss, illness, or injury), a mortgage holder will sometimes  consider  re-doing the mortgage so that the past due amount is simply added in to the total and the term of payments is extended.  The mortgagee will generally consider this where there is equity in the property, the borrower’s debt-to-income ratio is basically okay, and there is no other mortgage debt that is in arrears. 

Mortgage “Assitance” firms

Unfortunately, there are a growing number of companies that send advertisements to people with pending foreclosure actions—the companies get your address from the court files.  These “mortgage assitance” firms usually promise that they can stop your foreclosure and help you avoid a bankruptcy.  Sadly, the vast majority of the time, these companies simply prey on people in a desperate situation and take advantage of your desire to keep your home and “avoid bankruptcy.”  The vast majority of the time the mortgage assistance firm will require a payment (typically one month’s mortgage payment) and make many promises.  Then they will tell you, either just before, or even AFTER the foreclosure sale, that they were not able to help you and that you should see a bankruptcy attorney.  Sometimes it is too late.  If you choose to use one of these firms, be sure to ask for references of clients that for whom the company has been successful, and check these references.  Also, do not put all of your hopes on this type of service until it is too late to file a bankruptcy that will stop the foreclosure.

Negotiation of a Single Debt

If there is just one (or two) old debt you are trying to “clean up” on your credit report, it is possible that the creditor or its collection agency will be willing to settle their debts with you for significantly less than the total amount that you owe.  This is usually more true of older debts.  Again, you can negotiate a settlement yourself, or hire an attorney to assist you and represent your interests.

Credit Counseling Services

There are a number of non-profit credit counseling services available in the yellow pages under “credit counseling.”  These services negotiate with your creditors to the extent that they are able.  Generally, they can negotiate more favorable terms only with unsecured creditors (debts for which there is no collateral).  The credit  counseling service attempts to get your unsecured creditors to settle for less than the full amount of the debt that you owe, and also tries to get the creditors to give you zero interest, or at least a lower interest rate. 

Many credit card companies will agree to these types of terms as long as they are getting their payments through the credit counseling service.  However, some creditors are unwilling to work with credit counseling services and the credit counseling services have no way in which to force the creditors to work with them.  To be sure that you are selecting a  reputable firm, be sure to ask whether or not you will be held responsible for late charges or other fees if the service does not make their monthly distributions on time.  You can also ask for references from current or former clients.

Anytime you are dealing with alternatives to bankruptcy, be sure that you do not “put all your eggs in one basket.”  That is to say, do not let the foreclosure sale become final, or allow a judgment to be entered against you without first finding out your options under bankruptcy laws.

The Comparetto Law firm can assist you in evaluating whether bankruptcy is a good alternative for you and can also negotiate the alternatives discussed above.