Alternatives to Chapter 7 Consumer Bankruptcy

• Citation: Vol. 20 No. 2
• Publication year: 2014
• Author: By Anne C. Adams

Alternatives to Chapter 7 Consumer Bankruptcy

By Anne C. Adams

Anne C. Adams practices in the areas of bankruptcy, debt collection defense, estate planning, and family law. She is a certified family law specialist, certified by The State Bar of California Board of Legal Specialization. She is the principal of the Law Offices of Anne C. Adams with offices in Los Angeles and Canoga Park. She can be reached at (818) 715-0015 or via e-mail at office@anneadamslaw.com.

Many people are struggling financially today. Consumers frequently consult with a bankruptcy attorney when they experience financial problems, and they do not know how to handle them. Counsel can assist them by discussing both Chapter 7 bankruptcy and alternative options they may want to consider.

Many consumers do not want to file bankruptcy, even if they meet the requirements. They may be concerned about how bankruptcy will affect their credit score -which affects their ability to purchase a car, rent an apartment, or qualify for a home mortgage in the future. They may believe that their debts are manageable with some assistance from their creditors.

What are the alternative options to filing a Chapter 7 bankruptcy for consumers with more debt than they can easily handle every month? Counsel may want to offer choices such as debt settlement, hardship payment plans, and Chapter 13 bankruptcy.

DEBT SETTLEMENT

First, debt settlement is an agreement between the consumer and the creditor that will allow the consumer to pay part of the debt and the creditor cancels the balance. Frequently, a creditor will want the debt settlement payment in one lump sum. The advantage to the consumer is that the consumer pays less money. Consumers frequently like the concept of debt settlement because they may think that they have already paid for the purchases with interest, and the balance is additional interest and late fees.

There are some disadvantages to debt settlement. If a debt can be paid in full on time, it is better for a consumer's credit score than settling a debt for less money than is owed to the creditor. The creditor is usually not willing to settle a debt for less than the full balance unless the payments are at least a few months past due and the creditor is concerned about getting paid.

However, many consumers who are considering debt settlement already have low credit scores and owe past due payments to their creditors. They may prefer debt settlement because past due accounts are usually on a consumer...