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Filing Bankruptcy: The Alternatives

Guest Contributor Christopher C. Carr , Esq., MBA explains how other options, like debt settlement and mortgage modification, can be alternatives to filing bankruptcy.

If you are behind on bills or can’t afford your mortgage payments, filing bankruptcy is one option. You can read Filing Bankruptcy: Pros and Cons to learn more about the types of bankruptcies. However, there are alternatives generally not requiring a bankruptcy filing which may be more appropriate for you and your family, including:

  • Debt Settlement (AKA Debt Relief): Debt Settlement or structured debt repayment plan may be able to be worked out with your creditors, whereby you pay only a portion of the original debt. Oftentimes, you pay a budgetable fixed sum every month for from 3-5 years and the servicer uses that fund to disburse to the creditors.
  • Mortgage Modification (including Home Affordable): If you own a home and do not wish or need to file a Chapter 13 Bankruptcy, a mortgage modification may be a better option than bankruptcy as the filing of the HAMP Application will also avoid mortgage foreclosure while in consideration by the Lender. The government is attempting to streamline this process and, as the name implies, make monthly rates far more affordable for those who qualify by requiring banks which took bailout money to offer the Home Affordable Loan (HAMP). Others have joined the program voluntarily seeking to take advantages of the financial incentives being paid by the government. However, the program has been moving very slowly to date because it has been left up to the banks to administer. For those who do not qualify because of income or other reasons or because their bank simply does not offer a HAMP, there are usually conventional programs offered by the lenders, typically with less favorable terms. There are also special programs available for those who have Fannie Mae or Freddy Mac backed loans.
  • Debt Settlement & Mortgage Modification: a potent combination for the in debt home owner may well be to combine a debt settlement to reduce unsecured debt with a mortgage modification to reduce monthly mortgage payments, as it can resolve most pressing debt issues for many homeowners.
  • Other Programs: There may be other alternatives for homeowners, especially for those who cannot take advantage of any of the above programs and are willing to enter into a short sale or deed in lieu of foreclosure and exit gracefully from their homes. In addition, there may be short or long term aid available to eligible homeowners at the state or local level, such as the Act 91 (HEMAP) program in Pennsylvania.
  • Bankruptcy as a Last Resort: It is important to note that the debtor who has tried and failed to utilize one or more of the above programs, may still avail themselves of bankruptcy as a last resort, to save their home and/or seek protection from their creditors. In addition, in certain circumstances a bankruptcy working in combination with one of the other above options, for example a Chapter 7 bankruptcy in concert with a mortgage modification, may be a potent option.

The key point is that each debtor’s situation is unique and deserves special consideration. Further, because the process is hardly ever as smooth as it is supposed to be because of the complexities and pitfalls involved, it is advisable to consult a licensed attorney who has experience in bankruptcies and/or in negotiating modifications to guide you through the process and help you properly complete the paperwork.

About the Author

Christopher C. Carr , Esq., MBA (Finance) is a suburban Philadelphia, Pennsylvania solo consumer bankruptcy attorney.  He has been in practice for over 25 years in Real Estate & Mortgage Modifications; Debtor & Foreclosure Defense; Small Business, including Business Divorces; Elder Law; Technology, including Computer Law & E-Commerce & Entertainment Law. His background also includes significant experience as a financial planning analyst with a Fortune 100 Company.

Mr. Carr blogs regularly on debt and bankruptcy topics at http://christophercarrlaw.wordpress.com/.

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