Alternatives to Bankruptcy
If you are thinking about declaring bankruptcy, examine each of your other options first. Bankruptcy is a suitable option 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 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 also stops collection activity. It can be a great tool for some individuals to help them save a lot of money and get out of debt quicker.
If your debt is severely delinquent, debt settlement may be an alternative. Whereas in a debt management plan, you pay off your entire debt gradually, debt settlement involves creditors forgiving a part of your debt. The obvious benefit to this would be the money savings. The downside 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. Furthermore, you would want to speak with a tax expert since you would likely pay taxes on the forgiven amount as revenue. If you are interested in this option, you might try your hand at talking directly with the creditors. Debt settlement companies usually charge high fees and offer no guarantees.
Do you have a vehicle that you could sell for some fast cash? How about stocks or bonds that have significant worth? Selling or liquidating an asset allows you to pay off your debts quickly and easily. The most difficult part of this option is breaking the emotional tie that you may have to your belongings. Nevertheless, your sadness 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 repay unsecured creditors. Just beware that if you don't pay your home equity loan, you could find yourself evicted because a home equity loan is secured by your house.
With any alternative you choose-- including bankruptcy-- you're going to have to make some lifestyle changes. Remember that saying, "If you keep doing what youhave always done, you'll keep getting what you always got." Lifestyle changes usually require making small sacrifices now to prevent big problems later. For instance, selling your motorcycle may give you enough money to pay your mortgage and prevent foreclosure. Maintaining a tighter rein on spending can also help you prevent bankruptcy. Start by tracking your expenses and making a budget. You may discover that you have more disposable income than you realized.
Some people with minimal assets and no financial means to pay their debts are deemed to be "judgment proof." This means that anyone 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. A person is usually not thrown in jail for failing to pay debts, other than in legal situations (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 certainly pursue legal guidance if you are questioning if you're judgment proof.