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Alternatives to Bankruptcy

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by , 10-07-2011 at 07:10 PM (1268 Views)
Consolidating debt allows the debtor to repay all debt to a single creditor. This usually allows an individual to lower interest rates on current debts to a single, lower interest rate. Debts may be consolidated to a low interest credit card, a debt consolidated loan or a home equity line.

When the debtor is threatened with bankruptcy, creditors become more likely to agree with the debtor to recongigure the current repayment agreement. Creditors may agree to lower interest rates, lower monthly payments and/or extend the timeframe for the loan's repayment.

If an individual cannot get creditors to agree on their own, a credit counseling agency can work to create a repayment plan that creditors must agree to. The protections of Chapter 13 bankruptcy (the automatic stay) are not available under this alternative and if a payment is missed, a creditor may begin collection actions. However, this alternative does not have the same adverse effects as bankruptcy can have on a debtor's credit.

A debtor may chose to simply default on debts and require that the creditor collect debt without violating the Fair Debt Collection Practices Act. The debtor can seek monetary damages for a creditor violation. The creditor can seek payment through lawsuits that may give them a legal right to any non-exempt property of the debtor. The creditor may chose not to seek a lawsuit when repayment seems futile but a default can have the same effect as bankruptcy on credit except that it will only remain on a person's credit history for up to seven years.
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