Alternatives to Bankruptcy in Alabama

Bankruptcy can be a great way to get a fresh start if you are buried in consumer debt. However, it’s not the only solution; often, an alternative approach will provide an easier path back to financial independence.

If you are struggling with debt, the experienced attorneys at Grainger, Hawley & Shinbaum, LLC can advise you as to whether bankruptcy or a bankruptcy alternative would be more appropriate for your situation.

Getting “Out of the Hole”

Bankruptcy is a powerful tool, and it has changed many lives for the better. However, before you pick a tool to do a job, you need to know what your goal is.

Our firm’s slogan is “We help you get out of the hole.” When people say they are “in the hole,” they mean that their income is not high enough to cover their living expenses and their debts each month. Almost every client we work with wants to pay their debts, and many of them are nearly able to but are struggling to reach a viable repayment arrangement with their lenders.

If you want to get out of the hole, your income must equal or exceed your living expenses combined with your debts. Other than filing for bankruptcy, there are a number of ways in which you might be able to achieve this.

Increase Your Income

You could:

• Get a second job (or a better first job)
• Apply for child support
• Get a roommate to share rent and other expenses
• Ask friends and relatives for financial assistance
• Sell or refinance your assets.

Decrease Your Living Expenses

People who seek our assistance have often cut back on living expenses to a reasonable degree by the time they contact us anyway. Sometimes, however, people try to preserve a lifestyle they cannot really afford. Despite having suffered a loss of income, they’re unwilling to give up the quality of life they’ve become accustomed to.

It’s important to understand that spending habits can be difficult to break. The first step toward building a better relationship between your income and your expenditures is to figure out how much your expenditures actually are. Most people know exactly how much their monthly income is, but are much less certain when it comes to their spending.

Once you know how much you’re spending, it will be easier to decide on the best course of action in relation to debt relief.

Consider the following example. A couple have take-home pay of $3,200 per month and living expenses (excluding debt repayments) of $4,100 per month. They have no existing funds on hand. The most feasible debt-relief option in this case is a Chapter 7 bankruptcy because it involves liquidating assets, rather than making monthly payments out of income.

If the same couple earning $3,200 per month had monthly living expenses of $2,800, they would have $400 per month available for debt relief. In this scenario, the couple would have more options.

Do Nothing

As the old saying goes, “you can’t get blood out of a turnip.” If you’re judgment-proof, which means that a creditor can get a judgment against you but has no means of collecting on the judgment, this may be an option.

There are four ways of collecting on a judgment. If none of the four would do significant harm in your case, the best option for you might be to simply do nothing.

The four potential collection methods are:

• Garnishment of a paycheck: Social Security cannot be garnished, and self-employed people don’t get a paycheck to garnish. If you are traditionally employed, however, a garnishment can take 25% of your after-tax income, which would likely amount to a huge financial strain.
• Garnishment of a bank account: Collection attorneys can garnish your bank account even if you are self-employed or disabled. Some people try to switch banks to evade garnishment, but this doesn’t always work. Some people even attempt to close their bank accounts and use only cash, but this has become increasingly difficult in recent years due to the prevalence of online payments. Creditors can garnish the entire balance of a bank account.
• Judgment liens: A judgment lien is a legal claim on your property, granted to a creditor by the court, which ensures that the creditor gets paid if the property is sold. So, if you decide to sell your house while there’s a lien on it, your debts would automatically be paid out of the proceeds. In Alabama, the court’s judgment does not create a lien on your property until it is recorded in the real estate records of your Judge of Probate’s office. A judgment lien doesn’t cause immediate financial strain in the way a garnishment does; liens can sometimes be ignored. However, they do have negative consequences in terms of your credit, and must be paid in certain circumstances (if, for example, you wanted to refinance your house).
• Sheriff’s sale: A creditor may have to conduct a sheriff’s sale on some of your assets in order to satisfy a judgment. You can protect a certain amount of property from a sheriff’s sale by declaring given assets to be exempt. Alabama has its own system of exemptions, and it operates quite differently than in other states. To learn more about how the rules are likely to apply in your case, you should schedule a free initial consultation with one of our attorneys.

Debt Consolidation Loans

If you had great credit and an excellent debt-to-income ratio, you probably wouldn’t be looking at this site. However, if you do have both of these, you may qualify for a debt consolidation loan from a bank or credit union. This will allow you to roll some of your debts together and make repayments at a lower overall interest rate.

Credit Counseling Plans

These are payment plans primarily designed for credit card debt; they seek a lower interest rate (usually in the 8-10% range). These plans usually require payment of the debt in full and you usually pay what the minimum payments were anyway so, if you are “in the hole,” this will not help get you out.

Because these plans don’t offer relief from monthly payment obligations, they have a very high failure rate and can result in significant damage to credit scores.

If you’re considering this option, you might be better off looking at Chapter 13 bankruptcy. Chapter 13 gives legal protection, is supervised by the federal government, clears your debt in 3 to 5 years, and results in better credit scores. Chapter 13 payment plans frequently don’t require creditors to be paid in full and so represent a much better deal than can be obtained otherwise.

Negotiation With Creditors

Smaller banks are usually more willing than larger lenders to work with people when they’re having a hard time. When you’re getting sued, it may be possible to negotiate a payment arrangement with the attorney for the creditor; however, you’ll have to provide consent to judgment and a disclosure of information which can later be used for purposes of garnishment or a sheriff’s sale if you’re late on a payment, so be careful. This is a difficult strategy to execute if you have multiple creditors; each creditor will want their money and won’t care about your efforts to pay other creditors.

Do not agree to anything that leaves you unable to pay your living expenses and the other creditors what they want, or the strategy will fall apart.

Debt Settlement

There is no legal protection in a debt settlement strategy, and the creditors are free to sue you while this company is taking money out of your bank every month. It is, however, possible to execute a legitimate debt settlement. The safest way to do it is generally to settle all of your debts simultaneously. This is the main purpose behind bankruptcy.

Contact a Knowledgeable Bankruptcy Lawyer

Charles Grainger, Brad Hawley and Richard Shinbaum are experienced bankruptcy attorneys who can advise you on whether bankruptcy or any bankruptcy alternatives are appropriate for you. At Grainger, Hawley & Shinbaum, LLC, we represent clients from our offices located in Montgomery and Prattville in order to help people in South-Central Alabama “get out of the hole.”

Call us at (334) 260-0500 or (334)361-7750, or contact us online to schedule a free consultation.