Alternatives to Bankruptcy
If you are thinking about filing for bankruptcy, look into each of your other choices first. Bankruptcy is an appropriate solution for some individuals, but it should be your last resort. Let's walk through some bankruptcy alternatives so you leave no stone unturned.
Credit/Debt Counseling & Debt Management Plans
There are some legitimate firms that offer free debt counseling to individuals that want to get out of debt. If you have considerable credit card debt, you might be a candidate for a debt management plan. With a debt management plan, you make routine payments to the credit counseling firm, and they make payments on your behalf to the creditors. Along with the convenience that this choice provides, a debt management plan usually reduces credit card interest rates, waives late and over limit fees and also stops collection activity. It can be a great tool for some people to help them save a lot of money and get out of debt faster.
If your debt is significantly delinquent, debt settlement might be an option. Whereas in a debt management plan, you pay off your entire debt over time, debt settlement involves creditors forgiving a portion of your debt. The obvious advantage to this would be the cash savings. The disadvantage would be the fact that your credit report will show that the debt was paid for less than the agreed amount, which would likely lower your credit score. Additionally, you would want to consult a tax expert since you would likely pay taxes on the forgiven amount as revenue. If you are interested in this alternative, you can try your hand at communicating directly with the creditors. Debt settlement companies often charge high fees and give no guarantees.
Do you have a car that you could sell for some fast cash? How about stocks or bonds that have significant value? Selling or liquidating an asset enables you to pay off your debts quickly and easily. The most difficult part of this alternative is breaking the emotional connection that you may have to your belongings. Nevertheless, your sorrow may turn to joy when you realize how great it feels to be debt free!
Debt Consolidation Loan
Some people choose to get rid of the hassle of paying multiple creditors by getting a debt consolidation loan that covers all of their debts. If you have equity in your home, you can take out a home equity loan to pay off unsecured creditors. Just beware that if you do not pay your home equity loan, you can find yourself evicted because a home equity loan is secured by your house.
With any alternative you choose-- including bankruptcy-- you're going to need to make some lifestyle changes. Remember that saying, "If you keep doing what you've always done, you'll keep getting what you always got." Lifestyle adjustments commonly require making small sacrifices now to avoid big problems later. For example, selling your motorcycle might provide you enough cash to pay your mortgage and prevent foreclosure. Maintaining a tighter rein on spending can also help you prevent bankruptcy. Begin by tracking your spendings and developing a budget. You might find that you have more disposable income than you realized.
Some people with minimal assets and no financial means to pay their debts are considered to be "judgment proof." This means that anyone who sues you and acquires a court judgment won't be able to collect from you simply because you have no assets that they can legally take. A person is generally not thrown in jail for failing to pay debts, other than in legal circumstances (e.g., neglecting to pay child support). Nor can a creditor take away essentials, such as basic clothing, regular household furnishings, personal effects, food, Social Security, unemployment, or public assistance benefits. You should certainly seek legal counsel if you are questioning your judgment proof.