Going bankrupt is a tough decision. Often you have tried everything possible beforehand, but the debt is still rampant. A last option to avert the bankruptcy and the insolvency proceedings that can last up to six years is the out-of-court settlement. Whether it works depends not least on the level of liabilities and the benevolence of the creditors.
In the case of private or consumer bankruptcy, the attempt to settle using portfolio recovery lawsuit is even mandatory – bankruptcy proceedings can only be initiated if it has failed. It is therefore part of the standard process that the debt counseling center or the lawyer who has been hired as insolvency advisor submits a corresponding offer to the creditors.
What is a comparison?
The settlement should lead to an out-of-court settlement and spare the debtor the restrictions that the bankruptcy procedure brings with it. First, the debtor stops making payments to his creditors and discusses the amount of available assets with his lawyer. Current and expected income as well as other funds from which the debts can at least partially is settled. The offer is made to the creditors to be satisfied with only part of their claims (usually 20 to 30%).
If all creditors agree, the insolvency proceedings have been averted, at least for the time being. As soon as the sum on which both parties have agreed in the settlement has been paid, the debtor is free of debt. The basis for this is the debt settlement plan previously drawn up based on the amount of the total receivables.
What are the chances of a comparison?
Whether the creditors agree to the settlement depends not least on the amount of their claims and the debtor’s situation. The most important question is how high the prospect is that the debtor will generate enough money in the course of the bankruptcy proceedings to be able to pay off a large part of the debt. According to the law, he is obliged to take care of his debt relief. Anyone who is unemployed at the time of filing for bankruptcy is required to look for work quickly. Any money that he generates over and above the seizure allowance goes to the creditors.
However, if the debtor is a pensioner, is ill or is about to retire, or is unable to work, or only to a limited extent, for other reasons, the chances of repayment are very poor. In such cases, comparisons are promising, as the creditors can receive at least part of their outstanding debts in this way, while in the worst case they could end up completely empty-handed in insolvency proceedings. Under certain circumstances, this can even threaten the very existence of the respective creditor.
Settlement during bankruptcy proceedings
A settlement can also be carried out during the ongoing bankruptcy. The prerequisite is the consent of the competent court. If, for example, the debtor sees the possibility of settling a substantial part of his debts after one year, a settlement can lead to an early discharge of the remaining debt and thus the end of the procedure. As a rule, a comparison is the best and fastest solution for all sides. The catch: the settlement amount cannot be paid off, but has to be made in a one-off payment.
Avoid mistakes in personal bankruptcy
A personal bankruptcy can be a strong psychological burden. Many of those affected see their existence threatened. In particular, the time to initiate bankruptcy proceedings is rocky. There are some traps lurking that can make life even more difficult. The bankruptcy advisor should be able to intercept most of this, but there are a few things that need to be observed by those affected so that nothing goes wrong.
Collect all data
In order to be able to do his job correctly, the insolvency advisor needs all relevant data. That means he needs a complete overview of his client’s asset and income situation. In addition, a list of all creditors and outstanding debts as well as current contact details of the creditors in order to inform them about the planned insolvency and to request the current debt status from them.
Here it is particularly important to go into yourself and to check all papers several times. Because only a forgotten creditor (that can be an unpaid bill several months old) can burst the entire bankruptcy procedure, should this creditor assert his claim after the opening of the proceedings.
Before initiating bankruptcy proceedings, all payments to the creditors are stopped. In response, these reminders will be sent. In the worst case, they can obtain a garnishment. So that you are not threatened in your existence, you have to set up a garnishment account with your bank in good time. On this one has a monthly amount of $1084, which may not be attached. There are special cases in which this amount can also be attacked by attachment, but this is not legal. If that happens, the bankruptcy attorney must be contacted immediately – he is able to get the money back up to the full seizure allowance.
Pass on information in a timely manner
Anyone who changes their place of residence, loses job, takes up a new job during the consultation phase or during the conduct of business phase of up to six years must inform the lawyer, or bankruptcy administrator immediately and in advance. Otherwise, the proceedings can be broken and the remaining debts refused. If you are unsure about information, you shouldn’t let it depend, but ask your bankruptcy advisor.
Don’t get into new debt
It should go without saying that a person in debt cannot take out any further credit. Additional protection is provided by the fact that actually no company grants a person who is currently involved in an ongoing bankruptcy a loan or an installment payment – and yet it happens again and again. During the entire period of bankruptcy up to the successful discharge of residual debt, you have to put up with massive financial restrictions and under no circumstances should you incur new debts – even if you think you can afford it.
This often happens: Even in the hot phase before filing for bankruptcy or during the proceedings, the heating or electricity bill flutters into the house with an additional payment. Back payments can amount to several hundred dollars. If the proceedings have not yet been opened, this amount flows into the bankruptcy estate. For this to work, you have to inform the lawyer immediately. If such claims come when the procedure is already running, then they must be paid – depending on the situation in installments. This is a special case that usually does not jeopardize the course of the procedure, in contrast to active borrowing or hire purchase. However, it is advisable to take a close look at your own energy consumption in good time and, if necessary, to limit it in order to prevent unpleasant situations.