Alternatives to Bankruptcy

Many people go to extreme measure to avoid filing for bankruptcy.  There are a number of alternatives that people may consider that can actually be worse in the long run than filing for bankruptcy.  Below are a few examples.

1. Debt Consolidation Options.  There are a number of companies that will offer to consolidate your credit cards and help to improve your credit.  Be very cautious here and ask them to explain the entire process to you.  Many of the places will tell you to stop making your payments to creditors and direct your payment amounts to the company instead.  They will then hold onto this money until it reaches a certain amount and then will negotiate your debt down, sometimes only paying cents on the dollar of what you owe.  This can have a number of negative implications.  First, your credit will continue to worsen as your bills go unpaid for months.  Second, the fees that some of these companies charge are exhorbitant. Third, the difference between what you owe and what they will pay your creditors will be considered taxable income to you.  Finally, this is a service that you do not need to pay for.  You could hold on to your own money and negotiate the debt down yourself.

2. Charge Off of Accounts.  Many times debtors are relieved when companies charge off an account or mark it as uncollectable.  An important thing to note is that this does not mean that the creditor does not have a legal right to collect.  Often times the original creditor will sell the account to another party and that third party may start to harass you about the debt.  Also, as mentioned above, any amount charged off is considered "discharge of indebtedness" and is taxable income.  For example, if you owe 10,000 to your credit card and they settle for 2,000 the 8,000 written off should be reported on your tax returns the following year.  You will be taxed on this money as you are taxed on your income, which may mean that you owe taxes you didn't expect to owe. 

3. Ignoring the problem.  Creditors will not usually disappear and may even start contacting you at work or contacting your friends and family members. Ignoring the problem will not make it any better.

If you have questions, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.