Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.
Looking for Alternatives to Filing Bankruptcy?
If you are laden with debt and looking for a way out, you may be considering filing bankruptcy. There are six types of bankruptcies that can be filed, but Chapter 7—the liquidation of assets—and Chapter 13—the restructuring of debts—are the most commonly filed among individuals.
You May Not Qualify for Bankruptcy
To file for Chapter 7, you can be employed, working full- or part-time, and have an income of any size, but you must first qualify to file by proving that your expenses exceed your ability to pay through a bankruptcy means test. If you fail the means test, you will not be able to absolve your debt through Chapter 7 bankruptcy, and only Chapter 13—the restructuring of debt—will be made available to you. So, in this case, you may want to seek alternatives to filing bankruptcy.
Debt Counseling & Negotiating Your Debts
If you only qualify for Chapter 13, it may prove more advantageous to restructure your debt yourself or through a debt counseling agency like Green Path. The benefit to you will include receiving the help you need to create a debt payoff plan and have it monitored by your credit counselor at no cost. Filing bankruptcy and having the courts restructure your debt is not free. While the administrative cost to file bankruptcy is only $335 for Chapter 7 and $310 for Chapter 13, attorney fees for completion of the filing can range anywhere from $500 to $3,500.
Another benefit to you includes having someone who will negotiate with your creditors on your behalf, which will potentially save you even more money if debts are settled for less than you actually owe. Lastly, no bankruptcy will appear on your credit report for seven years under Chapter 13 or 10 years under Chapter 7.
If you have large assets of any kind—a house, jewelry, a paid off car—and want to make a dent in your debts, you may consider selling some of them. Small assets may not be worth selling and the sentimental value of some larger assets will be hard to part with, but large debts hanging over your head are no fun and need to be tackled.
Bankruptcy doesn’t have to be your only option, neither does negotiating or restructuring. In fact, doing nothing may actually be a possibility for some Americans with high debt and very low income (though it’s not something that I would personally recommend). If your income is extremely low, you have no assets, and you have no interest in having a future relationship with credit, there may be no action your creditors can take against you to collect, even if they decide to sue you. However, this solution could backfire down the road if your financial situation improves and a creditor decides to renew and collect their judgment against you.