Phoenix Bankruptcy Alternatives


Bankruptcy is not for everyone.  There are alternatives.

Chapter 7 bankruptcy is usually the best choice for people who suspect they need bankruptcy.  You have to qualify for chapter 7 bankruptcy, but 9 out of 10 do.  For everyone else, Chapter 13 bankruptcy is usually the answer.  This is normally for people who are behind on their mortgage or make too much money to file chapter 7 bankruptcy.  In either chapter 7 or chapter 13, your exempt property is protected.  Either chapter will stop a garnishment or a lawsuit.  However, there are some people who still shy away from bankruptcy.  They may worry about the effects of bankruptcy, or rebuilding their credit after bankruptcy.  Regardless of the reason, people want options.  Chapter 7 or Chapter 13 bankruptcy is usually the answer, but there are alternatives.

Bankruptcy Alternatives in Arizona

The Balance Transfer Game

We have all played it.  We use one card to pay off another.  Logically, this works.  Eventually, somebody is going to have to pay the debt.  Moving debt from one card to another is not a solution.  It is an alternative to bankruptcy, but not one with a reasonable degree of success.  Add up all of the debt you have.  If you paid a few hundred dollars a month, how long would it take to pay off?  Even if you pay a couple hundred dollars a month, that is only about $2000 per year.  If you have $12,000 in credit card debt, that is six years.  Now let's assume there is interest being added.  That will double that time.  At some point, you will want to do something besides pay debt.  You might want to go somewhere, or to college, or just out to eat.  You cannot wait six years.  It is unreasonable to expect that your life will be consumed with paying debt.  That money is needed by you a lot more than the credit card company. In bankruptcy, you can get rid of that debt.  You do not have to worry where to find the next introductory offer of zero interest.  You can use your money for you.  It's natural.  Being a slave to debt is not.

Do Nothing

For some people, one of the best alternatives to bankruptcy, is to do nothing.  This might sound surprising.  If you are deep in debt, and have few assets, the best answer might be to do nothing at all.  This just requires a little look into the future.  Nobody can be put in jail for not paying their debt.  So, what can they do.  A creditor cannot collect money that you do not have.  Only the IRS and student loans can take your social security or disability checks.  So, what can happen?

You Could Get Sued by an Unsecured Creditor

In order for a creditor to collect a debt, the creditor must sue you.  This does not apply to certain government entities, the IRS, or student loans.  However, in normal cases, a creditor must sue to collect.  That sounds intimidating.  However, a lawsuit is just a protection for you.  Before someone can take your money, they have to ask the judge to agree that you owe the money.  In order to do this, they must file a lawsuit.  Their lawsuit will simply say that they believe you owe the money, and here is why.  They will file this with the court.  From there, the judge will ask you if you agree.  The judge will consider your side before letting them collect.  Therefore, the complaint filed by the creditor, will be give to you for comment.  It is not a sufficient answer to say you cannot afford it.  This is just to determine if you owe it.  You even probably agree that you owe it.  Therefore, a lawsuit is no big deal.  The creditor will be granted a judgment.  This just means that the court agrees that you owe the money.  What happens after they get a judgment might be of more consequence.

A Secured Creditor Could Repossess Your Assets

A secured creditor can take things from you if you do not pay.  However, this is limited to whatever you put up as collateral.  For example, if you failed to make payments on a car, the creditor can take the car back.  Without going to court, that's it.  A creditor cannot take anything else without asking the court if you really owe more money.  If this happens, they get a judgment, just like above.

What Happens When a Creditor Gets a Judgment

The goal of a judgment is to get property to pay the debt.  One of the easiest and most obvious of these is to garnish wages.  If the creditor knows where you work, and gets a judgment, she can garnish.  Garnishment requires a judgment.  If a creditor tells you they are going to garnish, ask if they have a judgment. Once a creditor has a judgment, they have to know where you work.  This information is not public.  You might have told them where you work to get the loan or card.  However, if you change jobs, they will have no idea.  There are ways for them to find out.  If they can find you, they can make you do a debtor's exam.  This means you will have to go to court and tell them where you work and where you bank.  The creditor will use this information to execute against your wages and bank account.  At least this will delay the garnishment.

If a creditor knows where you bank, they can execute against a bank account.  However, it is not an ongoing order.  The creditor has to get an order from the court to take what is in a bank account on a certain day.  It does not cover everything the bank account sees during a certain time period.  Getting successive orders is expensive.  This is why creditors like to garnish.  However, your bank account coming up short is quite an inconvenience.

Do you remember the exemptions? Those count in collection as well as bankruptcy.  If a creditor has a judgment, they can arguably execute against your home or car.  However, the exemptions on equity still apply.  If it goes as far as a sale, you get the exemption amount before they get anything.  You could even object to any sale saying it would interfere with your exemption.  However, there are ways to deal with debt long before it gets to this point.

What Does it Mean to be Judgment Proof - What Happens if you Have Nothing to Give

If you owe a creditor, that results in a judgment, the creditor can execute against your non-exempt assets.  But what if you do not have any.  Once a creditor has a judgment, she can garnish you.  But if you have only social security or disability income, there is nothing to garnish.  After a judgment, a creditor could also try to execute against your home or car.  However, if you have less than the exemption amount in your home or car, there is nothing for the creditor to get there, either.  In fact, most of your property is protected by exemptions.  The creditor is left with nothing, even after all of that work.

If all of the property you own is exempt, you are judgment proof.  Any judgment is worthless. Judgments can last a long time, usually five years, and can be renewed.  However, the creditor would have to remember to collect, and your fortunes would have to change.  If you hit the lottery during that time, you might reconsider bankruptcy anyway.

What Do I Do if I am Judgment Proof

If there is no way your creditors will be able to collect anything, you should tell them.  They are less likely to throw good money after bad.  If they know they cannot collect, they are more likely to just cut their losses.  They probably will not sue you in the first place.  Be prepared to argue your case though.  Understand the exemptions and be able to explain how you are judgment proof.  Eventually, if they do not sue you, the debt will become noncollectable and barred by the statute of limitations.  This does not mean that they cannot sue you.  It just means that if they do, you can simply say the debt is too old. Be careful, though.  If you make a payment on a debt, it can restart the statute of limitations.  The statute of limitations only runs from default.  If you make a payment, you are not in default, and the creditor gets more time.

Even if you are Judgment Proof, You may not be Lien Proof Later

You may be judgment proof partially because you do not own any real estate.  However, if there is an active judgment, it could attach to later property.  If you buy or inherit property after a judgment is taken, that judgment could attach.  This means that you should discharge any judgment in bankruptcy before you buy or inherit real estate.  Once you discharge the debt in bankruptcy, you will still have to file a motion to avoid the lien.  Bankruptcy can do both of these things for you.

Play Defense

Play Defense Before a Debt Collection Lawsuit

Sometimes, doing nothing is not enough.  Especially in issues with big companies trying to collect money.  Doing nothing results in aggressive collection tactics.  This might mean annoying phone calls to you and your relatives.  Even blocking a number is not effective since the collection companies can publish any number to you they like.  There is a way to deal with collection agencies.  It is called the Fair Debt Collection Practices Act or FDCPA.  It only applies to third party debt collectors.  If the debt collector is the actual creditor, FDCPA does not apply.  For example, if you owe money to Wells Fargo, and Wells Fargo is calling you, FDCPA does not apply.  However, if you owe money to Wells Fargo, and Midland Debt is calling you, you can make them stop.  There are also many state laws that apply to the original creditor collecting a debt as well.  Here is how it works.

FDCPA can be used to stop phone calls.  You can demand that a thrid-party debt collector communicate with you only in writing.  You have to notify them of this, preferably in writing.  You can even stop them from writing to you, but a letter is more easily discarded.  Your notice to the creditor should say, "This is notice to you under 15 U.S.C. 1692 to stop all communications with me.  I do not admit I owe this debt."  Make sure to say you do not admit to owing the debt.  You must say you do not admit to owing the debt, or the creditor will say you did.

FDCPA also prevents third party debt collectors from threatening you, lying about what they can do to you, or invading your privacy.  For example, a creditor cannot say they will put you in jail.  You cannot go to jail for not paying your debt.  A creditor does not have any authority to put you in jail.  The debt collector cannot say they will sue you, if they don't sure people.  Usually, the debt collectors are not sophisticated enough to sue.  An unsecured creditor cannot take your home, garnish your social security, or take your car.  If you have questions about what they can do, call us.

Play Defense After you get Sued to Collect a Debt

Just because a creditor files a lawsuit, it does not mean you owe the money.  Part of the process if for them to prove you owe the money.  You do not have to admit anything.  You can simply say you are holding them to their burden of proof.  If you are served with a lawsuit, you can deny the allegations.  This makes the creditor have a trial.  This is a lot more work than any creditor will want to do.  Saying that you cannot pay, or that the amount is unreasonable, are not good defenses.  The judge is not an arbitrator of right and wrong.  The judge is just there to determine if you factually owe the money.  Therefore, pleading pity and mercy are not good defenses.  All the court wants to know is if you owe the money.  If you want the creditor to prove it, deny you owe the money in your Answer.  This will make the creditor come up with something signed by you, or some other evidence, that you really owe the money.  If they cannot do that, you do not have to pay.

Negotiate with Creditors Yourself

You could consider negotiating with the creditor by yourself.  The creditor will be a lot easier to talk to if you have a lump sum of money.  Sometimes you come into money, or sometimes you are able to sell something to get a lump sum.  Either way, it does not have to be the full amount.  A creditor is more likely to accept a lump sum, rather than another promise to pay.  Just making a promise to pay will not be enough to reduce the amount owed.  However, if you offer a lump sum for a sizable amount of the debt, the creditor might take it.  If you do negotiate a deal, make sure you get a release.  Make sure you get something saying that you are all paid off.  There should be something in writing saying that you are paid in full, and that no more money will ever be paid.  This can be called an accord and satisfaction.  The accord and satisfaction is part of the statute of frauds, and must be in writing.

This is the time for pleading for mercy.  The creditor is in a position to amend the amount owed, not the judge.  Even if you do not have a lump sum of money, you do not need a concession up front.  You could arrange payments until you are able to make an offer to settle the amount in full.  Sometimes, creditors will make you default before they will consider a settlement.  This means that you have to be 90 days late.  There is no magical number or real reason for this.  It is just their policy.  If this is the case, and you think you can pay later, stop paying them until they are willing to talk.

The easiest way to negotiate with a creditor is to tell them you know all about bankruptcy.  Bankruptcy can discharge all of your unsecured debt, including theirs.  Bankruptcy will cost a small fraction of what they want you to pay, and you do not have to pay back anything.  You can tell them to accept your offer, or you will pay them nothing in bankruptcy.  Tell them you have talked to a bankruptcy lawyer and know what you are talking about.  Better yet, call us, and file bankruptcy.

Consider Debt Management

If you do not feel like negotiating with your creditors, there are people who do that for a living.  If you have only one creditor, or a few, you could hire a bankruptcy lawyer to negotiate with them.  They will have a whole different tune when a bankruptcy lawyer calls them.  they know the bankruptcy lawyer knows the way to the courthouse.  They also know that the are getting nothing if they do not negotiate.

If you have a lot of creditors, you might consider debt management or debt negotiation.  Read all about debt consolidation and bankruptcy.  Debt consolidation, management, or negotiation will ruin your credit, and you sill have to repay some of the debt.  Usually, the debt consolidators will want you to pay a monthly fee.  Some of that fee they keep for their time.  The rest of the fee they put aside to make a lump sum offer to the creditor.  I am not sure why you would need someone to do this for you, but that is what they do.  Nothing forces the creditor to work with them.  There is no way you are getting out of the debt.  Your credit will still be ruined.  There is no reason to do this when bankruptcy solves all of those issues.

Die (Your Debt Dies With You)

With a very few exceptions, your debt dies with you.  Except for medical bills to your spouse upon death, and a few others, nobody will be responsible for your debt after you die.  You do not need to worry about your son paying off your credit card after you are gone.  Creditors will tell older people on social security this.  The creditor knows they cannot garnish your social security.  Therefore, the lie.  They say you have to take care of the debt before you die or your family will have to pay it.  It is not true.

Bankruptcy is Probably the Best Solution

Chapter 7 or Chapter 13 bankruptcy might not be the best option for everyone.  Whether they are the best option for your personal situation depends on if you can use any of the Phoenix Bankruptcy Alternatives.  Bankruptcy is the best solution for the overwhelming number of people.  It is a government program.  It is the responsible and mature way to deal with debt.

Bankruptcy is One of the Only Ways to Stop Garnishment

If you have a garnishment, there are not a lot of alternatives.  Unless collecting student loans or taxes, a creditor must have a judgment to garnishment.  Read more about that HERE.  Once a creditor has a judgment and a garnishment order, the creditor gets a lot harder to work with.  The creditor has already done all of the work to collect the debt.  Collecting the garnishment is easy and automatic.  Therefore, trying to work a settlement out with a garnishment creditor will not be that easy.

In order to stop a garnishment, there are few options.  You can finish paying the debt.  That has always been an option.  You can quit your job.  The garnishment order would have to be reissued in the name of your new employer once the creditor figures out where you are working.  You could ask for a hearing on the garnishment, but that will only reduce the amount they are taking.  Arguing that you cannot afford it will not get you out of a garnishment.  You could try to re-open the underlying case to argue whether you actually owe the debt.  Courts are reluctant to reopen a judgment unless you have a credible defense to the suit.  If all you are complaining about is that you were not served, without a real defense, the court will conclude that there will be a judgment eventually anyway.  It would not help the court or further justice to reopen the case.  The only real way to immediately stop a garnishment is bankruptcy.