Alternatives To Bankruptcy

Alternative To Filing For Chapter 7

Debtors should be aware that there are several alternatives to bankruptcy available to them other that Chapter 7 bankruptcy relief.

Alternatives To Chapter 7 Bankruptcy For Businesses

For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation.

Such debtors should consider filing a petition under Chapter 11 of the Bankruptcy Code. Under Chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization.

Sole proprietorships may also be eligible for relief under Chapter 13 of the Bankruptcy Code.

Chapter 13 v. Chapter 7 Bankruptcy

In addition, individual debtors who have regular income may seek an adjustment of debts under Chapter 13 of the Bankruptcy Code.

A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan.

Moreover, the court may dismiss a Chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of Chapter 7.

Debt Negotiation

Debt settlement, also known as debt arbitration, debt negotiation or credit settlement, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.  Creditors often accept reduced balances in a final payment and this is called full and final settlement but with debt settlement the reduced amount can be spread over an agreed term.

If you are interested in debt negotiation contact Rebecca Hurst to discuss whether debt settlement is the best choice for you.

Means Test Requirement

If the debtor’s “current monthly income” (1) is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the Chapter 7 filing is presumptively abusive.

Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor’s non-priority unsecured debt, as long as that amount is at least $7,025.

The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to Chapter 13 (with the debtor’s consent) or will be dismissed.

Counseling Services

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

Now that you are aware of the alternatives to bankruptcy, if you are considering filing for bankruptcy you should contact a bankruptcy attorney to help you explore your options. If you have questions about your different options or alternatives to bankruptcy or are interested in filing for bankruptcy contact Rebecca Hurst of Hurst & Hurst Law at (859) 209-2101.