What Are the Alternatives to Bankruptcy?
If you are thinking about filing for bankruptcy, look into all of your other options first. Bankruptcy is an appropriate solution for some individuals, but it needs to 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 provide free debt counseling to individuals that want to get out of debt. If you have serious credit card debt, you might be a candidate for a debt management plan. With a debt management plan, you make regular payments to the credit counseling company, and they make payments on your behalf to the creditors. Along with the convenience that this choice offers, a debt management plan typically reduces credit card interest rates, waives late and over limit fees and stops collection activity. It can be a great resource for some individuals to help them save a lot of money and get out of debt faster.
If your debt is seriously overdue, debt settlement might be an option. Whereas in a debt management plan, you pay off your total debt over time, debt settlement involves creditors forgiving a portion of your debt. The obvious advantage to this would be the cash savings. The drawback 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 talk to a tax expert because you would likely pay taxes on the forgiven amount as revenue. If you are interested in this option, you could try your hand at communicating directly with the creditors. Debt settlement companies usually charge high fees and offer no guarantees.
Do you have a car that you could sell for some quick cash? How about stocks or bonds that have significant value? Selling or liquidating an asset allows you to repay your debts quickly and easily. The hardest part of this alternative is breaking the emotional tie that you might have to your belongings. However, your sadness might turn to joy when you realize how good it feels to be debt free!
Debt Consolidation Loan
Some people decide to get rid of the hassle of paying several creditors by receiving 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 don't pay your home equity loan, you can find yourself evicted because a home equity loan is secured by your house.
With any option you choose-- including bankruptcy-- you're going to have 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 changes commonly require making small sacrifices now to avoid major problems later on. For example, selling your motorcycle may give you enough money to pay your mortgage and avoid foreclosure. Keeping a tighter rein on spending can also help you prevent bankruptcy. Start by tracking your expenses and creating a budget. You might discover that you have more disposable income than you realized.
Some individuals with minimal assets and no financial means to pay their debts are deemed to be "judgment proof." This means that anybody that sues you and acquires a court judgment will not be able to collect from you simply because you have no assets that they can legally take. An individual is typically not thrown in jail for failing to pay debts, other than in legal circumstances (e.g., failing to pay child support). Nor can a creditor take away essentials, such as basic clothing, ordinary household furnishings, personal effects, food, Social Security, unemployment, or public assistance benefits. You need to definitely pursue legal counsel if you are wondering if you're judgment proof.