Filing Bankruptcy Alternatives
Filing bankruptcy can be an effective way to eliminate debt and get a fresh financial start, but bankruptcy isn't right for everyone. Some people struggling with debt could address their problems effectively with an alternative to bankruptcy. Here's a look at some of these alternatives and their pluses and minuses.
- Pay those Bills: This alternative is only viable for those who aren't facing an imminent financial crisis. Consider combining "make more/spend less techniques" like taking on more work (second job, more hours at current job), selling any assets you can bear to part with, reviewing your current spending habits and revising them, living within a budget, etc.
- Pros: You avoid having bankruptcy on your credit report for 10 years and remain in control of your finances, rather than having them dictated by a court. You may even be able to negotiate with creditors for lower bills (see below).
- Cons: If a crisis like an unexpected illness or death has drained your funds, you may need government protection from creditors (in the form of bankruptcy's automatic stay) to get back on track.
- Negotiate with Creditors: This involves contacting all your creditors and asking for a revised payment plan. This can include asking for lower interest rates, forgiveness of part of your debt, a longer period of time to make payments or some combination of these.
- Pros: You don't have to involve any third-party agencies (which may mean saving money on payments to such agencies); you may feel more in-control of your finances and be better motivated to stay that way after fixing them with your own elbow grease, so to speak.
- Cons: Many people aren't comfortable negotiating with creditors, whether because they don't believe they have the necessary skills or because they're simply not sure what would be reasonable or appropriate to request.
- Take out a Debt Consolidation Loan: This consists of getting one loan to replace all your other debts. Usually, the lender offers you a loan for the total amount you owe and secures the loan with your house. Because the loan is secured, you can likely get a lower interest rate than you had on your other debts.
- Pros: Again, you avoid bankruptcy; your monthly payments may be lower than before; and your interest rate will probably be lower. Some people find worrying about only one payment per month easier than juggling several.
- Cons: If you can't make payments on the consolidation loan, your lender has the right to seize your house (or whatever property you used as collateral). Further, you could end up paying more over time than you would have originally because of a high interest rate or long repayment period.
- Work with a Credit Counseling Agency: These agencies negotiate with creditors to devise a new repayment schedule similar to the repayment plan of a Chapter 13 bankruptcy filing.
- Pros: Some agencies will be able to stop creditor calls, help you get out of debt and give you a workable plan for doing so.
- Cons: Not all agencies are honest. Visit this government site for a list of reputable credit counseling agencies near you to make sure you aren't hurting your finances further. Also, unlike with Chapter 13 bankruptcy, you have no protection from creditors if you miss a payment and you'll likely have to pay your full debt amount (which may be avoided by filing bankruptcy).
- Settle Your Debts: Debt settlement firms act as middlemen between you and your creditors, and negotiate to reduce your total debt by as much as 50%.
- Pros: If done properly, debt settlement can save you money, get you out of debt and prevent you from having a bankruptcy filing on your credit report.
- Cons: Again, not all firms are upfront about their practices. Dishonest debt settlers can end up costing you more than you owe, damaging your credit score and causing serious headaches. Check out Total Bankruptcy's tips on how to choose a debt settlement firm.
- Do Nothing: Yes, this is technically an alternative to filing bankruptcy. And, in very specific cases, it may be the best option.
- Pros: If you live simply, have few assets and little income, and plan to continue living this way indefinitely, you probably don't need to file for bankruptcy, since you have nothing that creditors can legally take from you in exchange for debts.
- Cons: If you aren't living an ascetic life, you could end up with liens on your assets (house, car, etc.) and serious damage to your credit score. Doing nothing is NOT a practical solution for most people.
Determining What's Right for You
If you aren't sure whether filing bankruptcy or choosing a bankruptcy alternative would best serve your financial needs, you may want to get advice from a bankruptcy lawyer. Total Bankruptcy can put you in touch with a bankruptcy lawyer practicing in your area today. All you have to do is fill out this case evaluation form or call us at 877-349-1309 and we'll take care of the rest.
The above summary of bankruptcy alternatives is by no means all-inclusive and is not legal advice. For the latest information on bankruptcy alternatives, speak to a bankruptcy attorney in your area.