Until recently, a number of very attractive bankruptcy alternatives were available in Georgia. Unfortunately these options aren’t nearly as attractive as they were in 2015. While there are other option besides filing for bankruptcy in Athens and Georgia, you should weigh them carefully. Not filing bankruptcy because you feel embarrassed could lead to more financial woes.

The Supreme Court has issued a string of decisions, capped by 2017’s Midland Funding v. Johnson, which have given unprecedented power to creditors and debt collectors.

No one wants to file for bankruptcy. However, for many people dealing with constant financial stress, filing for a Georgia bankruptcy is a very good alternative to the status quo. Of course, before filing for bankruptcy, you should be sure that it is the best option for you and your family.

Furthermore, there are several different types of bankruptcy. Some have less impact on your credit score than others. Additionally, some are easier to recover from than others. More on that below as well.

The bottom line is that if you are under financial duress, you have a number of bankruptcy and non-bankruptcy options. An experienced Athens bankruptcy lawyer can evaluate your case and lay out your legal options in plain English, carefully explaining the pros and cons of each one. The more information you have, the better decision you will make, and the brighter your family’s future will be.

Pay as Agreed

This option is for people who are gravely concerned about their credit scores. Paying debts as agreed is the only way to get out of debt with your credit score intact. Simply paying your bills on time makes up about a third of your credit rating. If possible, pay a bit more than the minimum each month to build a payment reserve.

Of course, if this option was as easy as it sounds, you probably wouldn’t be reading this post in the first place. So, let’s examine some other, and much more practical, non-bankruptcy alternatives.

Do Nothing

As a general rule, burying your head in the sand, doing nothing, and hoping things will get better is a terrible way to deal with any personal, legal, financial, or other problem. However, there are exceptions, and this non-bankruptcy alternative might be one of them.

At the end of the day, most credit card companies, debt collectors, and other such entities cannot do anything to debtors. They can send letters, file lawsuits, and otherwise make your life miserable. Generally speaking, there is no debtors’ prison in the United States. Furthermore, most people are effectively judgement-proof.

These things are especially true if you have no assets and you live solely on Social Security income, disability payment, or another form of government benefits. Creditors cannot take this money even if they get a judgement against you, at least in most cases. 

The “do nothing” alternative is only effective in a few cases. In fact, this approach usually ends very badly. Few things sink your credit score faster than quitting and making no effort to resolve debt. Moreover, if you have priority unsecured debt, such as past-due child support or student loan payments, the government can garnish up to 50 percent of your wages. And, if you are making payments on property like a house or car, the bank will repossess the property no matter what if you stop making payments.

Debt Renegotiation/Debt Settlement

One fundamental rule of life is that pretty much everything is negotiable. Another fundamental rule of life is that unless you have leverage in these negotiations, you almost always end up with the short end of the stick. 

Given these general rules, non-bankruptcy debt negotiation might be the best non-bankruptcy alternative, especially if an Athens bankruptcy lawyer negotiates for you. However, unless you have e]leverage, there’s not much an attorney can do.

Possible renegotiation subjects include the interest rate, length of the repayment agreement, and the loan’s UPB (Unpaid Principal Balance). 

Let’s start with the interest rate. In April 2021, the Federal Reserve Board of Governors said it planned to keep the prime interest rate near zero until at least 2023. So, if you borrowed money when the prime rate was at 4 or 5 percent, you might be able to refinance the loan and reduce your interest rate significantly. Refinancing could be a formal process, like home loan refinancing. Or, it could be an informal process that’s more like contract negotiations.

Banks are often willing to extend the repayment agreement, especially if the interest rate remains the same. The difference between a sixty-month auto loan and a seventy-two month auto loan is a good example. Many lenders and dealers now try to steer people to seventy-two month loans. The buyer’s monthly payment is lower. And, the bank makes a lot more money. The buyer pays interest for another year.

UPB reduction is basically the Holy Grail of debt renegotiation. Most debtors dream of the day when their loans are forgiven and they receive “paid in full” statements. This remedy is usually only available if there is clear evidence of lender fraud or other wrongdoing. 

As mentioned, leverage is important in the other areas as well. Sometimes, the threat of filing bankruptcy is effective. The lender doesn’t know that you have no plans to follow through with this threat. The lender only knows that if you file bankruptcy, it could end up with nothing, especially if the debt is unsecured.

A major drawback of non-bankruptcy debt negotiation is the lack of court supervision. When you file bankruptcy and you try to work things out with a lender, both sides have a duty to negotiate in good faith. But no such duty exists outside bankruptcy. That’s why debtors can make empty threats, like “if you don’t make a deal I’ll file bankruptcy.” That’s also why creditors often have no incentive to negotiate meaningfully.

Alter Income/Expense Ratio

Fundamentally, people get into debt because their expenses exceed their income. Usually, this imbalance is not their fault. For example, many people get sick and their medical bills pile up. However, you do have the power to correct that imbalance, at least in most cases.

Any meaningful income/expense alteration requires immense sacrifice. Increasing your income usually means moonlighting, and there goes your free time. Decreasing expenses usually means reducing your standard of living. Restaurant night becomes frozen pizza night. Do you really want to make these radical changes so you can pay your credit card bill?

Moreover, there’s no guarantee this approach will reduce debt. In fact, in many cases, it increases debt. When most people have more money to spend, they upgrade their cable packages instead of paying down debt.

Credit Counseling

Debt counseling may be an option for some who are behind on their bills. Debt counseling is similar to filing for a Chapter 13 bankruptcy, in that an agency will help you come up with a repayment plan to pay your debts. However, unlike a Chapter 13 bankruptcy, debt management programs usually require you to pay all your debts back in full, rather than a reduced amount. Additionally, debt repayment programs require the continued consent of all creditors, and a single creditor can pull the plug on the plan after even a single missed payment.

Is Bankruptcy Best?

Whether bankruptcy is the best option for you depends largely on what type of relief you are seeking. For many, the seemingly non-stop harassment of creditors is a motivating factor to file for bankruptcy. However, state and federal laws govern creditors’ attempts to collect a debt, and do not allow for them to engage in abusive or harassing conduct. For example, if you inform a creditor in writing that you do not want to be contacted over the phone, they must stop calling you. If a bill collector crosses the line and repeatedly violates state or federal law, you may have a claim under the fair Debt Collections Practices Act. Of course, this will not do much in terms of reducing the underlying debt.

Another consideration is the amount of assets that individuals own, as well as their income. Creditors may be willing to work with those who have significant assets and a reliable monthly income, putting them on a repayment plan. This position can help you keep your assets and avoid filing for bankruptcy.

Bankruptcy’s Benefits

In a nutshell, consumer bankruptcy combines all the best parts of non-bankruptcy alternatives and adds some extra ingredients as well.

Bankruptcy means unsecured debt elimination (discharge) and asset protection. The discharge order usually applies to unsecured debts like:

• Medical bills, 
• Credit cards,
• Revolving credit accounts,
• Signature loans, and
• Payday loans.

In most cases, bankruptcy debt discharge means UPB elimination, and not just UPB reduction. Furthermore, there’s no leverage necessary. The judge discharges most unsecured debts even if there’s no evidence of wrongdoing or fraud.

As mentioned, most creditors cannot take most of your assets. However, they may threaten to take them. Additionally, if you fall behind on payments, they can seize the collateral. In fact, if you are only one house payment behind, the bank can legally begin foreclosure proceedings. Bankruptcy’s property exemptions prevent creditors from even thinking about touching your property. These exclusions include:

• House,
• Retirement account,
• Car,
• Personal property,
• Current wages, and
• Government benefits.

In most cases, bankruptcy’s property exemptions take effect as soon as you file and last until the judge closes the case.

Now, for the additional benefits of bankruptcy. Let’s start with debt negotiation. As mentioned above, this process is a lot different inside bankruptcy than it is outside bankruptcy.

First, there is active court supervision. The judge usually appoints a mediator, who is typically an unaffiliated Athens bankruptcy lawyer. Since the mediator is an officer of the court, the mediator also has the authority of the court. If the parties make no progress, the mediator will relay that report to the judge, who will probably not be happy.

Second, during bankruptcy mediation, both parties have a duty to negotiate in good faith. So, they must earnestly want to settle the dispute, and they must be willing to make some sacrifices. 

There’s also the Automatic Stay. As soon as you file, Section 362 of the Bankruptcy Code halts adverse creditor actions, such as:

• Repossession,
• Wage garnishment,
• Foreclosure,
• Eviction, and
• Creditor harassment.

Sometimes, lenders agree to suspend these activities for non-filers. For example, most banks suspended foreclosures during the coronavirus pandemic. But the bank’s largesse only goes so far. The Automatic Stay is absolute and court-enforceable.

Your Bankruptcy Options

For those without significant assets, filing for Chapter 7 bankruptcy may be a good alternative. In a Chapter 7 bankruptcy, all nonexempt assets are sold and the proceeds used to pay off the filer’s debt. However, for many individuals with few assets, most of their property is considered exempt. As a result, these individuals are often able to retain most of their property throughout the bankruptcy and will enjoy a fresh start once the bankruptcy is complete.

Most people qualify for Chapter 7. An income ceiling applies in some cases. Additionally, all bankruptcy filers must meet some residency and other requirements.

Individuals who own nonexempt assets and would like to keep them can also consider a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the court consolidates the individual’s assets, restructures some debt, and puts the filer on a manageable repayment plan. Often, loan principal amounts are reduced and the interest rates are lowered. Of course, Chapter 13 bankruptcy is only a good option for those with a reliable income, because most secured debt must be paid back over a period of three to five years.

Most people qualify for Chapter 13. A debt ceiling applies in some cases. The aforementioned residency and other requirements apply as well.

Additionally, in both a Chapter 7 and Chapter 13, an Athens bankruptcy lawyer can unlock some advanced options. The cram-down is a good example. If you are underwater on your car or other secured asset and you pay the current fair market value, the lender might have to tear up the note.

Contact an Experienced Athens Bankruptcy Lawyer in Georgia for Options

You do have other options besides filing bankruptcy in Athens and Georgia. The decision to file for bankruptcy is not an easy one, but it is a decision that benefits millions of Americans each year. At the Georgia bankruptcy law firm of Morgan & Morgan, P.C., we represent clients who want to create a fresh financial start by walking them through the bankruptcy process. To learn more about how we can help you with your situation, call (706) 752-7089 today.

 

This blog was originally published on December 31, 2019 and updated on July 6, 2021.