Alternatives To Chapter 7

In my years as a New York bankruptcy attorney, I have seen many clients who have been reluctant to file “straight” bankruptcy – in many cases, my clients prefer to explore alternatives to Chapter 7 bankruptcy. This is because Chapter 7, while it erases most debt completely, has the greatest impact on a client’s credit. It can also be difficult to keep major assets, such as a home or a car, when filing for Chapter 7 Bankruptcy.

Here are some of the most common alternatives to Chapter 7 bankruptcy.

Workout

A workout is the most common alternative to Chapter 7 bankruptcy. It is simply an out-of-court agreement between you and your creditors, which provides a mutually beneficial plan for debt repayment. In many cases, a creditor will agree to discharge a portion of your debt in exchange for a workout agreement.

A workout provides two main advantages: First, it keeps you from having a bankruptcy on your credit report; second, it does not preclude you from filing for Chapter 7 bankruptcy protection in the future.

Compositions and Extensions

A “composition” is a contract between you and two or more of your creditors, which allows you to settle your debts for less than the full amount you owe. An “extension” is a contract that allows you to repay two or more creditors over a longer period of time. Creditors do not have to participate in a composition or extension; but if they choose not to participate, they run the risk of not being able to recover as much of what you owe.

Assignment for the Benefit of Creditors

This option is only for a business owner who wishes to liquidate a business. An assignee liquidates and distributes your business assets among creditors according to how much they are owed.

Chapter 11 or Chapter 13

Unlike a Chapter 7 bankruptcy, which erases most debt, a Chapter 11 or Chapter 13 bankruptcy “reorganizes” the debt, allowing you to pay creditors while still making ends meet. Chapter 11 bankruptcy is designed for businesses with significant assets and income; Chapter 13 is designed for individuals who have a steady income from a job.

When you’re ready to end your bill problems once and for all, contact me using the form on the left side of this page or call 1-212-239-3800 to set up a free, no-obligation meeting to talk about how I can help you.