What Are the Alternatives to Filing for Bankruptcy?

Interviewer: Now, also on your website, you discuss bankruptcy alternatives. Many people, even me, find this a little confusing. Can you explain the difference between debt settlement, debt consolidation and debt management counseling?

You Can Negotiate a Debt Settlement with Your Creditors or Retain a Company to Negotiate on Your Behalf

Vance: A large number of people don't want to file bankruptcy because they're afraid of the bankruptcy stigma. There are other options. You could go into debt settlement. The debt settlement people are not doing anything that you cannot do yourself, which is to negotiate with the credit card companies.

But if you got to a debt settlement company and they negotiate a deal and you start making payments, that's one way to avoid bankruptcy but you end up paying back more than what you would have in a bankruptcy. With those debt settlement companies, the repayment plans last anywhere from three to five years.

The Debt Settlement Repayment Plans Are Usually a Higher Cost than a Repayment Plan in a Chapter 13 Bankruptcy

I have people that come in that are in debt settlement, working with a debt settlement company. They're paying back their debt. I'll give you an example. A person come in the other day, they're paying back $900 a month on $50,000 worth of credit card debt. They came to the point where they can't afford it anymore. I looked at the numbers and I said, "In a Chapter 13 bankruptcy, you're only going to be paying back $250 a month."

Interviewer: That's a huge difference.

Your Credit Can Opt Not to Participate in a Debt Settlement Plan; They Do NOT Have that Option in a Bankruptcy Filing

Vance: Yes it is a huge difference. Another difference between debt settlement and bankruptcy is the creditors have an option. They can elect not to participate with the debt settlement company. In bankruptcy, they don't have an option. If I'm putting together a repayment plan that's fair, based on their income and assets, that they don't have an option at all. They've got to accept the plan.

When You File for Bankruptcy, There Is a Four to Six Month Window Where Prior Charges and Transactions Are Scrutinized

Interviewer: How long before you file a bankruptcy do you need not to do something unwise such as transferring assets or running up your credit cards?

Vance: As far as running up your credit cards, there's a four to six month window that the creditors really scrutinize your usage. They look for big cash advances and major purchases. Smaller charges on groceries, minor clothing articles are necessities that generally we'll overlook unless they consider it excessive.

The Trustee Will Collect Money from Any Relative You Have Repaid within One Year of Filing

As far as transference of any asset, once again, it depends on the asset but if you repay the loan to a family member or friend and these are called insiders. If you repay the loan of over $1,000 to a family member or friend within a year of the filing of the bankruptcy, the trustee can go after that money from that family member or friend.

Transferring of Any Assets Are Scrutinized from Two to Four Years to Avoid Fraud

If we move away from the outsiders to the insiders and the transfer of any asset, of any car or money, there's a two year window that they look at. Here in the state of Ohio, as far as the transfer of any real estate, there's a four year window.

Scrutiny depends on the assets but it is likely to occur.