| ALTERNATIVES TO BANKRUPTCY
Q. Right now, I cannot pay my debts. Besides bankruptcy, do I
have any options?
A. Yes, there are alternatives that you may use to take care
of debts that you cannot pay.
Creditors might be willing to settle their claim for a smaller cash payment,
or they might
be willing to stretch out the loan and reduce the size of the payments.
This would allow
you to pay off the debt by making smaller payments over a longer period
of time. The
creditor would eventually receive the full economic benefit of its bargain.
Occasionally, you may "buy time" by consolidating your debts;
that is, by taking
out a big loan to pay off all the smaller amounts of debts that you owe.
The primary
danger of this approach is that it is very easy to go out and use your
credit cards to borrow
even more. In that case, you end up with an even larger total debt and
no more income to
meet the monthly payments. Indeed, if you have taken out a second mortgage
on your
home to obtain the consolidation loan, you might lose your home as well.
Q. Is there anybody in particular I should contact about these
options?
A. Yes. If you are behind on your payments, the collectors for
each of your creditors may
already be calling or writing you. You might be more successful if you
phone each
creditor, ask for the collection department, ask and note the name of
the person you talk
to, and explain your intent to repay the account and your need to stretch
out the number of
monthly payments and reduce their size. You might offer to come to the
collection
department office to discuss your situation. Ask each creditor to agree
to a voluntary plan
for the repayment of your debts.
Q. I owe money to many creditors. What should I do?
A. The problem of dealing with many creditors is that some of
them might not want to
give you more time to pay without knowing what the other creditors are
willing to do.
Unless your debts are very large, it will be difficult for you to arrange
for a meeting of
your creditors and negotiate a reduction in your monthly payments or the
amount of your
debt. You can seek the help of a lawyer to negotiate an arrangement with
your creditors.
Some universities, local courts, military bases, credit unions, and housing
authorities have
credit counseling programs, but may not have the ability or experience
to negotiate with
your creditors to gain their consent to reduce your monthly payments.
Your best bet may
be to seek the help of a profit or nonprofit consumer credit counseling
service (CCCS).
As noted in the chapter on consumer credit, you can find the nearest CCCS
by calling 1-
800-388-2227. These centers charge a small monthly service fee. However,
creditors
provide most of the support for financial counseling services.
The repayment plans arranged through credit counseling centers enable
you to
make monthly payments which are then re-distributed by the program among
creditors
until all your debts are paid in full. Creditors usually prefer this kind
of plan, since they
will eventually get more of their money with this approach than they will
under "straight"
or "Chapter 7" bankruptcy.
Under a repayment plan through a financial counseling service, you still
might
have to pay interest charges on your debts. However, many creditors will
waive interest
charges and delinquency fees.
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