Bankruptcy can be a great solution for some people, giving them a fresh start free of the anxiety and stress that accompanies serious financial trouble. Bankruptcy can prevent creditors from obtaining a judgment against a debtor, garnishing wages, or seizing property. However, bankruptcy stays on your record for a set period, and may make it difficult to borrow money in the future. For certain debtors, it may be a better bet to go with one of several bankruptcy alternatives. An experienced Los Angeles bankruptcy attorney can help you determine whether you are a good candidate for bankruptcy, or whether you would be better off choosing a different path.
Negotiation with Creditors
If your debts are limited, resulting from a single unlucky event like a medical emergency or a few poor decisions, and you don’t have severe financial difficulties, you may be able to negotiate with a limited number of creditors individually. For example, you may be able to create your own personal payment plan in each of your negotiations.
This alternative is less likely to work if you have numerous creditors and truly debilitating debt. It is also a poor solution for somebody who has trouble sticking to a payment plan. However, with a small number of creditors and a steady income, you can potentially buy yourself enough time to pay off these debts or else arrange to pay less than what you owe. Assuming the creditor agrees not to report a shortfall to credit agencies, this alternative would not necessarily affect your credit score or your ability to borrow in the future.
Debt Consolidation and Restructuring
Debt consolidation and restructuring can be a good option under the right circumstances. It is appropriate, for example, if you have many consumer or credit card debts. Debt consolidation simply means combining several loans into a single new loan. Debt consolidation loans can be obtained from banks, credit unions, and peer-to-peer lenders.
To be a good option, the new loan should have better terms overall than any of the individual loans that you are consolidating. A common mistake that consumers make is to focus solely on the size of the payment, rather than the interest rate that accompanies the loan. The amount of the interest rate is what the loan actually costs you. Less reputable consumer finance companies may extend you a long term during which to pay back the loan, but demand a very high interest rate in return.
Reputable companies are more likely to offer a low payment and low interest rate, and can be paid off in a reasonable amount of time. You should review the terms of a particular loan carefully before accepting one.
Debt restructuring can also take the form of home equity loans. This option is available to homeowners who borrow against the value of their homes in order to pay off credit cards, medical debt, or the like. The interest is less, but there is greater risk because your lender can foreclose on your home if you do not pay back the loan.
A loan modification is a permanent change in the terms of a loan. You can apply for a modification from your lender if you cannot afford your mortgage, for example. Loan modifications typically involve a change in your interest rate or a loan term length extension or both. This can be a good alternative to bankruptcy if your primary financial difficulty is with your mortgage payments and your lender is amenable. It may not be as good a solution as bankruptcy if you also have substantial credit card debt, medical debt, student loans, and car payments, or if your lender will not budge.
Knowledgeable Bankruptcy Representation
Bankruptcy alternatives can be an excellent choice under the right conditions. However, some debtors need the relief of a fresh start. Experienced Los Angeles bankruptcy lawyer Devin Sawdayi can help you decide whether a bankruptcy or a bankruptcy alternative is right for you. We have the knowledge and judgment to help you make an informed decision. Contact us at (310) 475-9399 or via our online form for a free consultation.
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