Why Consider A Bankruptcy Alternative, or Non-Bankruptcy Financial Solution?

Nobody wants to find himself or herself in the position of facing harsh financial realities. Mounting debts and obligations, a growing sense of stress and anxiety about what to do, and being unable to meet all of the demands you’re facing. If you’re in the position of wanting or needing to file bankruptcy, then before you do so, you should also consider a bankruptcy alternative or non-bankruptcy resolution.

First, what qualifies as a bankruptcy alternative? There are many different such options available, and all of them are merely tools at your disposal to try to clear up your financial circumstances enough so that you are not backed into a corner, and that you do not have to file bankruptcy.

For instance, with somebody fighting on your behalf such as an experience bankruptcy attorney, you may be able to negotiate and compromise with lenders and creditors. This can get interest rates reduced, total debt owed reduced, monthly payments reduced, and more.

You may also be able to get loans modified, or get loan compromises reached. It all depends on the specifics of the situation you’re in, the type of debt you have, what your overall obligations are, and what the rest of your needs and circumstances are.

The reason you may not to consider a bankruptcy alternative is that the consequences of bankruptcy are severe. Filing bankruptcy will impact you for years and years to come. Your ability to buy a home, get a new vehicle, establish credit, use credit cards, receive personal loans or lines of credit for any reason, and much more, are all hindered. It’s a large burden that you’ll have to deal with, and the only way to overcome it is with time.

Further, when you file bankruptcy, by nature you are losing many or most of your possessions and valuables. That’s why bankruptcy alternatives are always worth exploring. You may still get the relief you need,without all of the downsides, and that’s key.

Simply keep in mind that bankruptcy may not be your only option. For many people, a non-bankruptcy alternative which helps them avoid filing bankruptcy produces superior outcomes. You get enough immediate relief to manage your circumstances, without facing the long-term consequences and negatives of bankruptcy. Before taking action, it will be in your interest to think about all of the options you have, and speaking with a bankruptcy attorney will help you determine the best path to take.

The Fair Consumer Reporting in Bankruptcy Act of 2015

Did you know that banks and other creditors may continue to list a debt on your credit report even after that debt has been paid? When your credit report reflects a debt that hasn’t been paid, your credit rating can drop drastically. In some cases, that poor credit rating can even mean that you will have to pay extra interest in some cases or that you may not be able to obtain credit at all from other lenders.

A new bill proposed by Senator Sherrod Brown called the ‘Fair Consumer Reporting in Bankruptcy Act of 2015′ would prevent banks and creditors from listing a debt on a consumer’s credit report once that debt has been wiped clean with a bankruptcy discharge.

Bill Details

The new bill (if passed) would require creditors to contact the consumer reporting agency once a debt has been cleared. If that debt has been discharged in bankruptcy and is at zero, creditors would have to report the debt as such.

How big of an issue is this? Right now, it’s estimated that one in five consumers has an error on their individual credit report. Personally, we think this number is way too low and is actually upward of 50%. This means that there are major mistakes on many credit reports, and even if you think that your debt has been paid and wiped clean, it might not be.

Aside from the fact that you may have a hard time getting approved for a loan, neglecting to report a debt as “zero” may also mean that a consumer will be charged more interest on additional obligations because of their debt to income ratios. Sadly, many consumers do not bother to check their reports after paying off a debt. The new bill would protect consumers that have declared bankruptcy and, therefore, have a right to have that debt wiped from credit records.

In the Meantime

The bill mentioned above has not yet been approved, but there are some things that you can do to make sure any debts you have paid off are reflected on your credit report. First, always check your credit report to make sure that debts that have been paid are accurately reflected on that report.

If you see any discrepancies on your credit report, it is incumbent on you to dispute the debt. Second, keep on top of your credit report by checking it once per year. You never know if the information that is reported is accurate, and it will only benefit you to keep on top of it.

What Constitutes Undue Hardship?

When it comes to declaring bankruptcy in order to avoid paying off government student loans, borrowers must prove that continuing to pay a loan would cause undue hardship. In the 11th Circuit, we have what is commonly known as the Brunner Test.

Outside of the Bankruptcy Courts, an individual may also qualify for a discharge of their student loans. The Department of Education has a set of criteria that constitute what undue hardship actually is, and who is eligible for this type of relief.

If you are considering bankruptcy, it is important to speak with an experienced bankruptcy attorney that also has experience with student loan terms. Prior to meeting with your attorney, here are some of the things that you may want to further discuss.

Undue Hardship Definition

According to the Department of Education, here are the criteria for declaring undue hardship in relation to student loans and bankruptcy.

Veterans that have been considered by the Department of Veterans Affairs to be unable to find employment as a result of a service-related injury.

Whether or not a borrower’s health has changed significantly since the original loan amount was determined.

Whether or not a borrower has tried to pursue other loan terms including Income Sensitive Repayment. If you are attempting to claim undue hardship but have not tried to declare Income Sensitive Repayment or settle on any other loan terms with your lender, a lender may not accept an undue hardship claim.

Whether or not a debtor has filed for bankruptcy due to circumstances out of his control, and whether or not those circumstances will impact the debtor’s ability to repay a loan.

There are many other factors that go into determining whether an undue hardship claim will be accepted as a reason for federal student loan relief. Rather than try and argue this claim on your own, it’s best to speak with a qualified attorney today in order to determine whether or not you can make this claim, and how you can defend this stance.

Defining Undue Hardship

As it stands, Congress has not technically defined what “undue hardship” is. As such, it is often the decision of federal courts to determine whether or not this claim is valid. In order to determine the validity of such a claim, the court system uses two different methods to weigh criteria. These methods are often tricky and do contain a number of different factors. Essentially, it is up to you (the debtor) to prove that you cannot repay a loan without putting yourself into financial ruin – not an easy thing to do.

While it might seem like claiming undue hardship following bankruptcy is the best and fastest way to get out of paying a federal student loan, this is not the case. Most of the time, it’s difficult to make this claim stick, and lenders do challenge every case that is brought forth. So how can you avoid paying a federal student loan if you have no other choice but to declare bankruptcy? Speak with a bankruptcy attorney today to see what your options are, and make sure that you have the right attorney on your side when it comes to fighting your claim in court.