What Are My Alternatives to Bankruptcy

What Are My Alternatives to Bankruptcy

Wednesday, 24 June 2020 15:42

Struggling with debt is a difficult position; not only are you worried about paying your bills, keeping your home, and providing for yourself or your family, you feel isolated and, oftentimes, ashamed. Knowing that the average American carries $38,000 in debt (not including mortgages) is not much comfort - but it does tell you that you are not alone. Many people try to hide debt from their friends and family. They try to pretend it isn’t affecting their lives, and, many times, they try to maintain a lifestyle that they cannot afford. 

 

Ignoring the problem doesn’t make it disappear; but what are your options when debt becomes too heavy a burden to carry? Is bankruptcy the answer? This is a last resort. Before you go down this road, investigate alternatives to bankruptcy. 

Alternatives to Financial Security and Freedom

Chapter 7 bankruptcy can help discharge some or even all of your debt (excluding student debt, some federal tax debt, etc.), while Chapter 13 bankruptcy allows you to create a repayment plan. Typically, these are five-year-long commitments, and after that, remaining eligible debts are discharged. 

However, bankruptcy can bring significant consequences. Your credit score will be severely impacted; it will remain on your credit report for seven or more years; it may be exceptionally difficult to obtain credit on good terms, and some employers do look at credit when making hiring decisions. In other words - bankruptcy can stay with you for years to come.

Before filing, take a look at your finances, speak with a nonprofit creditor counselor or attorney, and see if you have other options to explore. Most likely, there are alternatives. These can include:

Debt Settlement

Debt settlement is a process in which you negotiate with creditors to pay a reduced amount in order to clear your debt. Typically, you need to be in default - not a comfortable position, to be sure. If you are making minimum payments, creditors will not be likely to agree to the settlement. They are, after all, making money off you at this point. If it becomes clear you cannot do this, they will often accept a partial payment and settle out. Why? Quite simply: something is better than nothing.

Debt settlement is not without financial consequences. For example, when debt is reduced, your unpaid balance can be considered income, and you must report this on your tax return. Additionally, this amount will also be reported to Equifax, TransUnion, and Experian, the three major credit bureaus. Your credit score will be negatively impacted.

The advantage of debt settlement is that it is relatively fast. You can clear your debt for a fraction of the cost and get ahead in just a few years. You also stop those stressful collections calls and avoid bankruptcy.

If you are considering debt settlement, carefully vet services. Some are not as reputable as they appear, and you may end up paying unnecessary fees. Be aware of the law also: they are not allowed to charge a fee unless they reach a settlement with a creditor. And you may have multiple creditors to work with. Use caution, and if it sounds too good to be true… it is.

Debt Consolidation 

With this method, you need a line of credit or loan with which you can pay off your debts. Some people use personal loans, home equity credit lines, or balance transfers. Please be careful if transferring balances onto a credit card; you need to check the interest rates or you could wind up in an even worse position than before.

The upside is that you may be able to save on interest and make one monthly payment instead of multiple ones. Be sure that you can afford the payments on the new credit card or loan.

Liquidating Assets 

This can also be uncomfortable, but you may need to sell items that can bring in some income. For example, if you have a motorcycle, a coin collection, some vinyl, high-end clothes or electronics, etc., you can sell them for the cash you need to pay down your debt.

Remember, if you have to file for Chapter 7 bankruptcy, you will likely be required to sell these assets anyway. If you do so beforehand, you may be able to stave off this drastic step.

Credit Counseling 

It can be useful to receive nonprofit credit counseling. These professionals can help you develop a plan to handle debt and arrange for a repayment plan. 

Contact Robert P. Laney

If you have exhausted all of your options, bankruptcy may be the last resort. While drastic, it does not need to derail your life - or your future. Before you reach this point, contact Robert P. Laney. Our team can help you navigate the ins and outs of your financial situation, determine if bankruptcy is truly the right choice for you, and help you proceed in the most positive way possible. 

If you need a fresh financial start, get in touch with us today.

More in this category: « How to Begin Estate Planning