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Bankruptcy - How can you avoid
it? |
By
David Day
When someone is sued for a debt that they cannot pay, bankruptcy is frequently
one of the first alternatives considered; however, other options are
available.
It used to be that personal bankruptcy was considered to be the end of the
road for the destitute, but the way U.S. bankruptcy laws are now written
leads many to think of bankruptcy as a new beginning. Chapter 7 is
essentially a liquidation of personal assets to pay off debts, but certain
debts cannot be written off (including student loans, child support, alimony,
income taxes, and any settlements or fines due to drunken driving). Chapters
11 and 13, are "reorganization" bankruptcies in which a plan is
filed with the court to pay off creditors. Chapter 11, used primarily by
businesses, is for debts in excess of $ 1 million. Chapter 13 is for
consumers with a debt load under $1 million . Finally, Chapter 12 is for
farmers.
In 1996, the all-time record for filings of personal bankruptcies (more than
one million) was broken.
Before considering bankruptcy when you are sued, consider other alternatives.
Obviously, if insurance is available to handle a claim, that option should be
exhausted first. Many times, a claimant (other than medical bills) will
settle for only the amount of the insurance. Another often overlooked
situation is the work-out. Even if a judgment is obtained, a creditor will
likely seek a repayment plan where the creditor obtains something instead of
a bankruptcy where the creditor frequently obtains nothing.
State law also provides that under certain circumstances, the judgment debt
can be paid under a "slow pay" order from the court that stops a
garnishment and allows the debtor to pay the judgment debt by installments.
As long as the debtor honors the terms of the order, the creditor can take no
further action to collect the debt by garnishment or otherwise.
There are other options available besides bankruptcy when litigation looms.
Consider these before taking the final "bankruptcy plunge." If
however bankruptcy becomes the only option, consult an attorney with
bankruptcy experience because this is a very specialized and technical area
of the law. |
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